Tax rates coming down, tax rates going up!
April 2007
In his Budget last month Mr Brown announced a two point drop in mainstream corporation tax rates, from 30% to 28%, and a 2% drop in the basic rate of income tax from 22% to 20%.
In the same breath he also announced an increase in the corporation tax rates for small companies and the abolition of the 10% income tax band for individuals.
The notes that follow explain when and how these changes will affect your tax payments for the next two or more tax years.
Company Taxation
Corporation Tax reduction: For larger companies, those with profits in excess of £1.5m, corporation tax rates are being reduced from 30% to 28%. However this will not affect your tax payments this year. The reduction will apply from 1 April 2008. The rates for the next two years will therefore be:
- Year ending 31 March 2008 - 30% (no change)
- Year ending 31 March 2009 - 28%
Corporation Tax increases: Most small companies, those with taxable profits below £300,000, have been paying corporation tax at 19%. From the 1 April 2007 this will increase to 20%. The rate is then set to increase by 1% per year until the small companies rate is 22%. The rates will therefore be:
- Year ending 31 March 2007 - 19%
- Year ending 31 March 2008 - 20%
- Year ending 31 March 2009 - 21%
- Year ending 31 March 2010 - 22%
Personal Taxation
Income Tax decrease - From the 6 April 2008 the basic rate of income tax is being reduced by 2% to 20%.
Income Tax increase - On the same date, 6 April 2008, the starting rate of income tax (presently the first £2,230 is taxed at 10%) is being abolished.
For the tax year 2007-2008 there is no change. The basic rate will be 22%, the starting rate 10%.
These changes in income tax rates will tend to have a negative effect on the take home pay of lower income earners, as the first £2,230 of their taxable income will be taxed at 20% (2008-2009) instead of the present 10%.
