Corporation Tax Main Rates
The main rate of corporation tax, chargeable when a company’s profits exceed £1.5m, will be reduced from 30% to 28% with effect from 1 April 2008. The main rate applicable to profits from certain oil and gas ring fence activities will be unchanged at 30%.

Corporation Tax Small Companies’ Rates
The small companies’ rate of corporation tax will be increased from 19% to 20% with effect from 1 April 2007. The fraction used in calculating marginal small companies’ relief will become 1/40 but there is to be no change to the lower and upper profit limits of £300,000 and £1.5m. The small companies’ rate will be increased further, to 21% from 1 April 2008 and 22% from 1 April 2009.

The small companies’ rate applicable to ring fence profits from certain oil and gas activities will remain at 19%, and there will be no change to the current marginal small companies’ relief fraction of 11/400 for such profits.

Research and Development Tax Credits
The rate of relief for large companies will be increased from 125% to 130% of qualifying R&D expenditure. For SMEs, the rate of relief will increase from 150% to 175%, and the current payable credit will remain broadly at 24% of qualifying expenditure. The Government intends to legislate these changes in the 2008 Finance Bill.

The R&D scheme for SMEs will also be extended to companies with fewer than 500 employees, annual turnover not exceeding Euro 100m, and/or an annual balance sheet total not exceeding Euro 86m. This extension will be subject to EC state aid approval, and will therefore operate from a date to be appointed by Treasury Order.

A minor correction will also be made to the vaccines research scheme in FA 2002, Sch 13 with effect from 1 April 2007.

Corporate Capital Gain and Loss Buying
Two changes are to be made to the anti-avoidance provisions which apply where a company buys or sells another company in order to secure a tax advantage by gaining access to its capital losses or gains. The first change will ensure that the provisions apply to arrangements involving the losses or gains of subsidiaries of the purchased company. The second change is intended to simplify the transitional relief applicable on the introduction of the provisions. The changes will apply to gains or losses arising on or after 21 March 2007.

Lloyd’s Insurance: Loss Buying
The Finance Bill will introduce legislation, to take effect from 21 March 2007, to prevent companies buying the trading losses of corporate members of Lloyd’s who are leaving the market and with which they have no previous economic connection. This is intended to stop companies gaining access to group relief where there is a change in the group relationship after the losses are known but before they are recognised for tax purposes.

Sale of Lessor Companies: Anti-avoidance
Legislation will counteract various arrangements that are designed to reduce or cancel the effect of the legislation introduced by FA 2006, Sch 10, relating to the sale of lessor companies. The draft legislation which was published with the 2006 Pre-Budget Report will take effect from 22 November 2006. This is intended to ensure that ICTA 1988, s 343(2) will not apply to the transfer of assets as part of the transfer of a business or part of a business of leasing, unless the predecessor and successor companies share the same principal company for the purposes of Sch 10. It is also intended to prevent contrived changes to balance sheet values from affecting the operation of the Schedule.

Additionally, with effect from 21 March 2007, section 343 will not apply where either of the predecessor or successor companies is a consortium company carrying on a leasing business (unless the principal companies and the interests they hold in the companies are exactly matched), or where the predecessor or successor company carries on a leasing business in partnership, unless the transfer is a transfer of the whole of a leasing business carried on by the predecessor company in partnership.

Sale and Repurchase Agreements
A new corporation tax regime for sale and repurchase agreements (‘repos’) will replace and simplify the existing rules in ICTA 1988, ss 730A and 737C. The new rules will introduce a simpler accounts-based regime where profits and losses made by companies from their sale and repurchase transactions will be taken directly from entries in accounts prepared under generally accepted accounting practice (subject to any adjustment under the loan relationship rules in FA 1996). The new rules will not come into force until the current round of consultation with businesses and representative bodies is completed.

Film Tax Regime
Companies will be allowed to opt out of the rules introduced by FA 2006 for the taxation of film production. With effect from Royal Assent, a company will be able to make an election that it is not a film production company in respect of all films that started principal photography in the previous two years, and any future films. It will not be possible to reverse an election after the time limit for amending the return has passed.

Securitisation Companies
The Finance Bill will introduce legislation, to take effect from Royal Assent, to amend FA 2005, ss 83 and 84 (relating to the taxation of securitisation companies). The changes will allow for the section 83 regime (concerning the application of accounting standards) to be extended by regulation, and modify the regulation-making power under section 84 (concerning the introduction of permanent tax rules) to cover a wider range of securitisations.