Budget 2007 – Construction Industry

General Business Issues

Tax Rates

In an industry dominated by very low margins, any tax rate changes can have a dramatic effect, so this Budget more than most may have a lasting impact. The labour-only subcontractor will benefit from the reduction in the basic rate of income tax from 22% to 20% but will lose out because of the removal of the lower income tax rate of 10%. Although these changes do not take effect until 6 April 2008 there could be an immediate cash flow impact as the CIS deduction rate increases from 18% to 20% from 6 April 2007.

For small incorporated business there will be a further cash flow squeeze over the next three years as the small companies rate of corporation tax increases from 19% to 20% in 2007/08, 21% in 2008/09 and 22% in 2009/10.

However, in a very welcome and predicted change for the larger corporate, the main rate of corporation tax will be reduced from 1 April 2008 from 30% to 28% in an attempt to improve the competitiveness of UK companies. This is good news for the larger end of the market but most contractors are dependent on the beleaguered small businesses to provide their labour.

Capital Allowances

The 50% first-year capital allowances rate for small businesses spending on most plant and machinery will be extended to 31 March 2008 and should provide an increased cash flow benefit for small businesses to invest in plant and machinery. From 2008/09 onwards, there will be a new annual investment allowance for the first £50,000 of expenditure on plant and machinery in the general pool. This allowance is subject to further consultation. There are also changes to the capital allowance legislation for all businesses with effect from 2008/09:

  • plant and machinery allowances will be reduced from 25% to 20%
  • allowances for plant with an expected life exceeding 25 years increase from 6% to 10%
  • allowances on fixtures integral to a building will be set at 10%
  • allowances currently available on industrial buildings will be phased out up to 2010/11.

£1bn expected yield from clampdown on MSCs. 166% increase in landfill tax by 2011. 0% SDLT for new zero carbon housing.

166% increase in landfill tax by 2011.

0% SDLT for new zero carbon housing.

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