Main rate

The main rate of corporation tax (profits over £1.5m) remains 30% for the coming year. It will be cut to 28% with effect from 1 April 2008.

Small companies

The small companies rate (profits up to £300,000) is raised from 19% to 20% from 1 April 2007. It will rise again to 21% next year and 22% the year after that. This is supposed to reduce the tax advantage for a small business operating through a company. As a sole trader is liable to Class 4 NIC as well as income tax, there will still be a tax saving through incorporation, but the figures need to be reviewed for individual circumstances. The fears of some commentators that more radical changes might be made (e.g. imposing NIC on small company dividends) have proved unfounded - for the moment.