The Budget - 21 March 2007

Gordon Brown delivered his 11th budget on March 21st 2007 and grabbed the headlines with a 2p cut in the basic rate of Income Tax, and a 2p cut in the rate of Corporation Tax.  But is everything as good as first appeared?  Most commentators agree that the 2007 budget took away as much as it gave.  The question is who gained, and who lost?

This report covers the main taxes and their effect on most people.  All figures are approximate.  It is not intended to be a complete definitive guide to the budget.  If that is what you are looking for you should try The Financial Times or one of the 'Big Four' accountancy firms. Alternatively you could try the official budget pages at HM Revenue and Customs.

Income Tax

National Insurance

Savings

Corporation Tax

VAT

Gas Guzzlers

Inheritance Tax

Tax Return Deadline

Income Tax

• The 10p starting rate will be abolished from April 2009.
• The basic rate will reduce by 2p to 20p from April 2008.
• The 40% tax threshold will increase from £38,000 to £43,000 in April 2009.

If your annual income is between £5,225 and £18,125 your income tax bill will be larger because of the loss of the 10p starting rate.  If your annual income is more than £18,125 your income tax bill will reduce because of the reduction in the basic rate.

National Insurance

The ceiling for paying National Insurance (both individually and by employers) will rise in conjunction with the 40% Income Tax Threshold from £38,000 to £43,000.  National Insurance will still be payable above this ceiling at the existing rate of 1%.

Savings

The annual limit on investing in Cash ISAs (Individual Savings Accounts) rises from £3,000 to £3,600 from April 2008.  No tax is payable on interest earned in these accounts as long as the rules associated with the account are followed.

Corporation tax

• Reduced - the rate for larger companies will reduce by 2p to 28p from April 2008.
• Increased - the rate for small companies (those with profits below £300,000) increases from 19p to 20p on 1 April 2007, to 21p in April 2008, and to 22p in April 2009.
• Small firms will be able to claim 100% tax relief on new capital equipment, up to an annual maximum of £50,000 from April 2008, and 50% until then.
• Writing down allowances (the taxman's depreciation) for plant and machinery will reduce from 25% to 20% from April 2008.

VAT

In line with the government's move to tax cars based on environmental considerations, the VAT Fuel Scale Charge is being changed so that it is based on the car's CO2 rating, rather than engine size.  The change is effective for all VAT quarters commencing on or after 1 May 2007.  Details of this change, and a table of rates can be found here.

Gas Guzzlers

Is your car a "Gas Guzzler"?  Cars that emit more than 225g of CO2 per kilometer are considered to be Gas Guzzlers by Gordon Brown, and the cost of their Road Fund Licence (tax disc) will increase from £210 to £300 in April 2007, and to £400 in April 2008.  This definition includes many larger cars as well as 4X4s.  As a rough guide 225g/km is approximately equivalent to 29mpg for a petrol car, and 34mpg for a diesel vehicle.

Inheritance Tax

The size an estate needs to be before Inheritance Tax becomes payable will rise from the current threshold of £285,000 to £300,000 on 6 April 2007, to £312,000 in April 2008, to £325,000 in April 2009 and to £350,000 in April 2010.

Tax Return Deadline

Buried away on page 127 of the 'Red Book', and not mentioned in the budget speech at all, is confirmation that the deadline for filing paper self-assessment tax returns will move from the end of January to the end of October.  This change comes into effect for 2007/08 tax returns which will have to be filed by 31 October 2008.  The 31 January deadline is not affected for returns filed electronically. 

Gordon Brown undoubtedly wants his 11th (and probably last) budget to be remembered for the 2p reduction in the Basic Rate of Income Tax.  But looking at the Income Tax changes overall is it more likely to be remembered as "He taketh from the poor and giveth to the rich"?

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