The Chancellor of the Exchequer delivered his Budget for 2007 on Wednesday 21 March. The reduction of the corporation tax rate to 28% (from 30%) and the standard rate of income tax to 20% (from 22%) were the key tax measures introduced. Further tax measures are summarised below.

Business Taxation

• Reduction in the headline corporation tax rate from 30% to 28% from April 2008.
• Simplification of the capital allowance system, including extension of the 50% rate of first year allowances for small enterprises for a further 12 months; the rate of writing-down allowances for plant and machinery in the general pool will be reduced from 25% to 20%; increase in rate from 6% to 10% for long-life assets; phasing out of industrial buildings allowances.
• The R&D tax credit for small companies increased from 150% to 175%; and from 125% to 130% for large companies. Both of these measures are subject to EU approval.
• Increase in the tax rate for small companies from 20% to 22%.

Individual Taxation

• Increase in personal allowance to £5,225.
• Increase in CGT annual exemption amount to £9,200.
• Increase in inheritance tax threshold to £300,000 for 2007-08; £312,000 for 2008-09 and £325,000 for 2009-10

The Environment

• No stamp duty on zero carbon homes worth up to £500,000.
• Extension of the reduced rate on biofuels until 2009-10.

Tackling avoidance and fraud

A number of measures were introduced in the following areas: loss-buying; employee benefit trusts; life assurance companies; sale and repurchase agreements; corporate capital gains and losses; tax avoidance involving financial transactions and partnerships and sideways loss relief.

In addition, steps were announced to deal with missing trader intra-community fraud using joint and several liability.

More details on the taxation measures are available at http://www.hmrc.gov.uk/budget2007/master-notes.pdf.

Finance Bill 2007

The Finance Bill 2007 and explanatory memorandum was been published on Thursday 29 March and is available on the HMRC website at http://www.hmrc.gov.uk/finance_bill2007/index.htm.

Prior to the publication of the Finance Bill, HMRC confirmed that changes would be introduced in the Bill relating to Investment Trust Companies investing in certain offshore funds and anti-avoidance measures on financial instruments.