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NEWS & INFORMATION

Budget March 2008

The changes announced in 2007 will come into effect from 6 April 2008.

Income tax

From 6th April 2008, the basic rate band of income tax will be reduced from 22% to 20%. At the same time the starting rate of 10% will be abolished for earnings and pension income although it will continue to be available for savings income, unless non-savings income exceeds £2,320. The rates for dividends will remain unchanged.

Corporation tax

The small company tax rate is increasing from 1st April 2008 to 21%. The main rate is reducing to 28% from 1st April 2009.

Individuals

Personal allowances will increase to £5435 from £5225. The higher tax rate will now start at £36,000 and continues at 40%. Combining this with the personal allowance means you can earn up to £41,435 before you pay tax at the higher rate.

Capital gains tax is changing from the 6th April to a flat rate of 18% of chargeable gains after the annual exemption has been taken off (£9,800).

Businesses

From the 6th April 2008 there will be some relief for individuals and trustees who dispose of the whole or part of a trading business, or of shares in a trading company in which they have a qualifying interest. They will qualify for entrepreneurs' relief – this relief gives them a lifetime limit of £1 million on gains after 6th April 2008 which will be taxed at 10% only, and applies to the disposal of the following

• all or part of a trading business the individual carries on alone or in partnership;
• assets of the individual’s or partnership’s trading business following the cessation of the business;
• shares in (and securities of) the individual’s “personal” trading company (or holding company of a trading group);
• assets owned by the individual and used by his / her “personal” trading company (or group) or trading partnership.

The first £1 million of gains that qualify for relief will be charged to CGT at an effective rate of 10%. Gains in excess of £1 million will be charged to CGT at the rate of 18%.

As announced in Budget 2007, Finance Bill 2008 will include legislation to reduce the rate of WDAs (Writing Down Allowances) on the general plant and machinery pool (including cars) from 25% to 20% for companies’ chargeable periods starting on or after 1 April 2008 (6 April 2008 for non-corporates). The rate of WDAs on long life assets will increase from 6% to 10%. There will be transitional provisions for chargeable periods which span the starting date, resulting in a “hybrid rate”, for which HMRC will provide a ready reckoner.

As announced in Budget 2007, Finance Bill 2008 will introduce an Annual Investment Allowance (AIA) for the first £50,000 of a business’s expenditure on general plant and machinery, long-life assets and Integral Features, but not cars. It will apply to expenditure by companies from 1 April 2008 and non-corporates from 6 April 2008. It will be available to an individual carrying on a trade, profession, vocation, or “ordinary property business” and, in some cases, to an employee or director. It will also be available to a partnership only of individuals and to a company.

Inheritance tax

The 2007 Pre-Budget Report (PBR) announced that legislation would be introduced in Finance Bill 2008 to allow any IHT nil-rate band unused on a person’s death to be transferred to the estate of their spouse or civil partner who dies on or after 9 October 2007. This would allow any unused nil rate band from the first death to be applied to the estate of the second death without the use of any trusts.

The nil rate band will increase to £312,000 for 2008/09.

VAT

The vat registration threshold will be increasing to £67000 from 1st April 2008. Don’t forget it is on a rolling 12 month basis and you must register as soon as your taxable supplies goes over the threshold.

The amount in which you can adjust a vat return for a discovered error is increasing from £2,000 net to the greater of £10,000 or 1% of Turnover, up to a maximum of £50,000. This will allow more errors to be adjusted without incurring an interest penalty and will commence from 1st July 2008.

Due to the increase in fuel costs, fuel scales charges have been increased from the 1st May 2008. Please refer to VAT notice 700/64 for the list of rates.