Summary of relevant changes to the tax system announced in Budget 2007

Rate of corporation tax for small companies

The small companies’ rate of corporation tax, that applies to companies with taxable profits up to £300,000 per year, increased from 19% to 20% from 1 April 2007.
The marginal rate of tax for profits between £300,000 and £1,500,000 was reduced slightly.
Gordon Brown also announced further increases in the small companies’ rate to 21% from 1 April 2008 and 22% from 1 April 2009.

In summary, the corporation tax rates for the next three years will be:

	2007/08	2008/09	2009/10
Main rate	30%	28%	28%
Small companies’ rate	20%	21%	22%
Marginal rate	32.5%	29.75%	29.5%

This is in contrast to lower rates over recent years, with a 0% rate only five years ago.

Income tax

For 2007/08 there is no change to income tax rates. The starting rate remains at 10%, the basic rate at 22% and the higher rate at 40%. As usual the bands were extended, so that for 2007/08 the 10% starting rate applies to the first £2,230 of taxable income and the basic rate applies to taxable income from £2,231 up to the new higher rate threshold of £34,600.

However, Gordon Brown announced in the Budget a reduction in the basic rate of income tax to 20% in 2008/09 and the removal of the 10% starting rate for non-savings income. This means that the 10% starting rate will continue to apply to savings income, such as bank interest and dividends, and capital gains.

Also in 2008/09 the basic rate band will be increased by inflation only. For 2009/10 the basic rate band will be increased by an additional £800 above inflation to align with the upper earnings and profits limits for Class 1 and Class 4 national insurance.

National Insurance Contributions (NICs)

For 2007/08, there were no particular changes announced to the NICs regime. The bands went up by inflation but the main rates remained unchanged:

12.8% employers’ NICs
11% employees’ NICs with an additional 1% on earnings over the upper earnings limit
8% self employed NICs with an additional 1% on earnings over the upper profits limit plus regular weekly contributions.

For 2008/09 the upper earnings limit for employees’ NlCs will be increased by an additional £75 per week (£3,900 per annum) above inflation. The upper profits limit for the self employed will also increase by £3,900 per annum above inflation.