Business Taxation
Corporation tax rates
The Chancellor announced two changes to the rates of corporation tax. The small companies' rate which applies to profits of up to £300,000 will be increased from 19% to 20% with effect from 1 April 2007. This rate will subsequently increase to 21% from 1 April 2008, and 22% from 1 April 2009. He referred to the increases as being aimed at bringing corporation tax rates more into line with rates paid by the self employed.
| Richard Lambert, director-general of the CBI, welcomed the cut, but said: "The business sector as a whole will not be popping champagne corks tonight." |
The other change is for larger companies with profits in excess of £1,500,000 where the rate will be reduced from the current 30% to 28% but this change is deferred until 1 April 2008.
Companies with profits between £300,000 and £1,500,000 which pay at intermediate rates will also be affected by these changes. There will be special rules to 'ring fence' certain profits for oil extraction companies at existing rates.
| Corporation tax rates and bands |
| Financial Year to |
31 March 2008 |
31 March 2007 |
| Taxable Profits |
% |
% |
| First £300,000 |
20 |
19 |
| Next £1,200,000 |
32.5 |
32.75 |
| Over £1,500,000 |
30 |
30 |
| Small companies marginal relief fraction |
| £300,000 - £1,500,000 |
1/40 |
11/400 |
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"For many smaller businesses the unwelcome increase in the small companies rate of corporation tax will be offset by the increase in the R&D tax credit and the changes in capital allowances. There will, however, be some significant losers"
CBI Director General Richard Lambert |
Anti avoidance
This Budget in common with the Chancellor's previous announcements has seen a whole raft of further anti avoidance measures. These include:
- As announced in the Pre Budget Report the Chancellor is closing a loophole in the IR35 regulations which left the door open for the use of Managed Service Companies to circumvent IR35. The Finance Act 2007 will contain measures to negate the use of such companies and to bring all the underlying income attributable to the members of the company within PAYE
- A further clamp down on the sale of corporate capital gains and losses where these involve the sale of a company and its subsidiaries in order to access the subsidiaries' gains or losses with effect from 21 March 2007
- Blocking schemes which involve the sale of trading losses of corporate Lloyds insurance market members with effect from the date of enactment of the Finance Act 2007
- A further bolstering of the anti avoidance brought in by the Finance Act 2006 concerning the sale of leasing companies. Schemes which exploited different definitions of 'control' and contrived changes to balance sheet values of leased assets will be blocked from 21 March 2007
- Disallowing deductions for tax purposes of contributions to Employee Benefit Trusts unless they are paid within nine months of the end of the accounting period. This measure comes into effect on 21 March 2007.
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Landfill tax
The rates for Landfill tax will change as follows:
- The standard rate will increase from £21 per tonne to £24 per tonne with effect from 1 April 2007
- The standard rate will increase further to £32 per tonne and the lower rate for inactive waste will increase from £2 per tonne to £2.50 per tonne from 1 April 2008.
Aggregate levy
This will increase from £1.60 per tonne to £1.95 per tonne with effect from 1 April 2008.
Climate change levy
The rates for the years beginning 1 April 2007 and 1 April 2008 have now been set. The increases are broadly in line with inflation.
Venture capital schemes and enterprise management incentives
Changes have been made to these schemes in respect of the number of employees allowed in a qualifying company and the amount of capital that can be raised. There are also changes to the meaning of a qualifying 90% subsidiary and the time limits for investing 90% of the funds raised in respect of an Enterprise Investment Scheme as well as other rule changes.
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