2007 Budget Summary – at 23rd March 2007

Income tax thresholds

2007/08

There are no changes to income tax rates.  The thresholds from which the rates apply are confirmed as

2008/09

The following changes will be made to income tax rates and thresholds:

• the 10% starting rate will be removed
• the 22% basic rate will be reduced to 20%
• the higher rate threshold will increase by £800 above indexation
• the over-65 age related tax allowances will increase by £1,180 above indexation 

Aligning the upper income tax and NICs thresholds

From April 2008, the NICs upper earnings limit will increase by £75 per week rather than by indexation.

By April 2009, the higher rate tax threshold, the NICs upper earnings limit and the self-employed upper profits limit will all be aligned at the same figure.  The basic rate tax threshold is already aligned with the NICs earnings threshold.

From April 2009, the aligned upper tax and NICs threshold will be increased by £800 a year above indexation.

Managed Service Companies

The introduction of PAYE for individuals paid by Managed Service Companies will starts on 6 April 2007 but some changes are being made to the legislation in response to consultation.  However, the introduction of the debt transfer legislation is being delayed until 6 January 2008.

Double Counting of Car and Car Benefit Charges

Extra-Statutory Concession A104 was introduced in July 2004 to remove an anomaly whereby employees earning less than £8,500 could incur a double tax charge where they are provided with car and car fuel benefits via an employer’s credit card or voucher.

From April 2007, the ESC will be brought directly into legislation by amendments to the Income Tax (Earnings and Pensions) Act 2003, with no changes to its effect.

Company Car and Car Fuel Benefits

The following announcements apply to the car benefit and car fuel benefit charges:

• the 135g/km threshold for 2008/09 will apply also for 2009/10
• a new 2% alternative fuel discount will be introduced from April 2008 for cars capable of using high-blend bioethanol E85
• in response to the consultation on employee car ownership schemes, the Government is to consider the case for changing the structure of tax-free mileage allowances (AMAPS) to align the tax and NICs treatment to ensure that the level at which they are set promotes environmentally responsible business travel
• the fixed value on which the car fuel benefit charge is based continues at £14,400 for 2007/08.

HMRC Reviews of Investigation Powers and Penalties

In response to consultation, HMRC’s investigation powers in England, Wales and Northern Ireland will be based on the Police and Criminal Evidence Act (PACE).  Comparable provisions will be introduced for Scotland, where PACE does not apply.

Also following consultation, the Government is to introduce new penalty rules that make a clear distinction between those who make a genuine mistake, who will not incur a penalty, and those who deliberately under-state their tax liability.  The new approach will apply equally to income tax, corporation tax, capital gains tax, PAYE, NICs and VAT.

Electronic Filing on In-Year PAYE Forms

The introduction of the requirement to file in-year forms P45 and P46 electronically is being delayed until April 2009 for large and medium-sized employers and until April 2011 for small employers.

Benefits from Employer Funded Retirement Benefits Schemes

The Government is adding to the list of benefits which, if provided to former employees from a non-registered pension scheme, are excluded benefits and, as a result, not subject to a tax charge.  The benefits are:

• benefits that were chargeable to tax before 6 April 1998
• certain accommodation benefits that were provided prior to retirement and were not taxable under existing tax exemptions
• removal expenses, welfare counseling, annual parties and similar functions, the writing of wills and the provision of equipment for disabled former employees.

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