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Tax rate changes

The Chancellor announced plans to reduce the basic rate of income tax from 22% to 20% with effect from 6 April 2008. In addition, the starting rate of 10% will be abolished for earnings and pensions but will be retained for savings and gains. A phased alignment of the upper and lower earnings thresholds for national insurance with the basic rate and higher rate tax bands is also proposed.

The rate of UK mainstream corporation tax will fall in April 2008 from 30% to 28% coupled with the changes in capital allowance rates. The main rate of corporation tax for companies with profits from oil extraction and oil rights (ring fence profits) will be 30% from 1 April 2008.

The small companies' rate will increase from 19% to 20% from 1 April 2007 and the fraction used in smoothing the difference between this and the main corporate rate (marginal small companies' relief) will be 1/40. The upper and lower profit limits remain the same. The small companies’ rate for ring fence profits will remain at 19%. There will be further increases in the small companies’ rate of corporation tax to 21% on 1 April 2008 and 22% on 1 April 2009.