Income Tax

Personal Allowances


2006/07
2005/06
  ££
Personal allowanceUnder 655,0354,895
 65 to 74*7,280*7,090
 75 & over*7,420*7,220
Allowances which reduce tax;
Married Couples allowance 72 to 74**606.50*590.50
(MCA)75 & over*613.50*597.50
 Minimum235.00228.00

* Higher allowances only available for those aged 65 or more are scaled back when income exceeds £20,100 (2005/06 £19,500).  MCA is only available where at least one partner was born before 1935.

Income Tax Rates

 
2006/07
2005/06
 ££
Starting rate band to£2,150£2,090
Tax rate10%10%
Basic rate band – next£31,150£30,310
 Non-savings rate22%22%
 Savings rate20%20%
 UK Dividend rate10%10%
Higher rate – income over£33,300£32,400
 Tax rate (exc. UK dividends)40%40%
 UK Dividend rate32.5%32.5%

National Insurance contributions (NICs)

 

2006/07
Employer
Employee
Class 1 – Not contracted out  
Lower earnings limit £84
Weekly earnings bands: 
Up to £97NilNil
£97.01 to £64512.8%11%
Over £64512.8%1%
Men > 65 and women > 6012.8%Nil
Class 1AOn relevant benefits12.8%Nil
Class 2
Self employed
£2.10 per week
Limit of net earnings for exemption£4,465
Class 3Voluntary£7.55 per week
Class 4 *Self employed on profits 
 £5,035 to £33,5408%
 Over £33,5401%

* Exemption applies if state retirement age was reached by 6 April 2006

Corporation Tax Rates and Bands 

Financial year to
31 March 2007
31 March 2006

Taxable profits

   
First£10,00019%£10,0000%
Next£40,00019%£40,00023.75%
Next£250,00019%£250,00019%
Next£1,200,00032.75%£1,200,00032.75%
Over£1,500,00030%£1,500,00030%
Non-corporate distribution rate n/a 19%
Small companies marginal relief    
£10,000 to £50,000 n/a 19/400
£300,000 to £1,500,000 11/400 11/400

Value Added Tax 

From
1 April 2006
1 April 2005
Standard rate17.5%17.5%

Vat fraction

 7/477/47
 TurnoverTurnover

Registration

Last 12 months or next 30 days over£61,000£60,000

Deregistration

Next 12 months under£59.000£58,000

Cash accounting scheme

Up to£660,000£660,000

Annual acc. scheme

Up to£1,350,000£660,000

Flat rate scheme

Up to £150,000£150,000

BUDGET 2006 - key points to note

Capital Allowances for small businesses

The rate of first year allowance for capital expenditure by small businesses on plant and machinery is increased from 40% to 50% for the period of one year from 1 April 2006 for companies and from 6 April 2006 for businesses subject to income tax.

Income Tax – Computers and mobile phones

Employees with the private use of a computer provided by their employer have been exempt from the first £500 of annual benefit in kind.  This effect has been withdrawn from 6 April, 2006.

In addition the exemption on the private use of employer-provided mobile phones will be restricted to cover one phone per employee from 6 April, 2006.

Capital Gains Tax

Exemptions and rates of tax

The annual exempt amount has been increased in line with inflation for 2006/07 to £8,800 (2005/06 £8,500) for individuals.

The CGT liability is calculated as if the gains in excess of the annual exemption were the top slice of the individual’s savings income.

Bed and breakfasting

Anti-avoidance measures are being introduced (applicable to acquisitions on or after 22 March 2006) to close a loophole which exploited the ‘bed and breakfast’ identification rules.

Inheritance Tax

Exemptions and rates of tax

The IHT threshold has risen to £285,000 for 2006/07 and will rise to £300,000 for 2007/08, £312,000 for 2008/09 and £325,000 for 2009/10.

The rate of IHT remains unchanged at 40% with a reduced rate of 20% for chargeable lifetime transfers.

Trust reforms

Major changes were announced to IHT charges on Accumulation and Maintenance Trusts and Interest in Possession Trusts.  IHT experts await the release of the full legislation behind these changes.

Stamp Duty

The threshold for paying Stamp Duty Land Tax on residential property is increased from £120,000 to £125,000 from 23 March 2006.