The 2010 Emergency Budget announced a series of sweeping changes to the tax system, which are likely to have an impact on the majority of UK taxpayers. Some of the key announcements are outlined below.
Value Added Tax (VAT)
As widely anticipated, an increase in the standard rate of VAT was confirmed, and will see the main rate rising from 17.5% to 20% on 4 January 2011. The move is expected to raise more than £13bn a year by the end of this Parliament.
Capital gains tax (CGT)
A new 28% top rate of CGT has come into effect for gains realised after 22 June 2010, where an individual has total taxable income and gains of more than the basic rate limit for income tax (£37,400 for 2010/11). The lifetime limit for Entrepreneurs’ Relief, which reduces the effective CGT on qualifying gains to 10%, has been raised from £2 million to £5 million. Please see page three for more information on the changes.
Personal allowance
With the aim of protecting lower earners from the squeeze, the income tax personal allowance will rise to £7,475 in April 2011, removing around 880,000 people from the requirement to pay any income tax. However, higher rate taxpayers will be prevented
from reaping the benefits of the changes by means of a reduction in the basic rate limit for 2011/12.
National insurance contributions (NICs)
Employers will see an increase in the threshold at which they start to pay national insurance contributions, which will rise by £21 a week above indexation. In addition, qualifying new businesses in targeted areas of the UK will enjoy a national insurance ‘holiday’ of up to £5,000 for each of the first 10 employees hired within the first year of business.
Corporation tax
Corporation tax will be reduced to 27% from April 2011, with a further series of 1% cuts taking place each year until the rate reaches 24% in 2014. The small profits rate will also be cut from 21% to 20% from April 2011.
Small business finance
In a bid to improve access to finance for small businesses, a new Enterprise Capital fund of £37.5 million is being introduced, and the Enterprise Finance Guarantee will also provide £200 million of additional lending until 31 March 2011.
Pensions
The Government has announced plans to review the pension system, with a view to accelerating a rise in the state pension age to 66 for men, and phasing out the default retirement age. The link between the state pension and earnings will be restored, and pensions will rise by the highest of the increase in average earnings, prices or 2.5%. The requirement to buy an annuity (or otherwise secure an income) by the age of 75 is to end from 2011/12. In the interim the age has been increased to 77 for those who had not reached 75 before 22 June 2010.
Changes to the benefits system
Next year will see a cut in Tax Credits for households earning more than £40,000 a year. Child Benefit has been frozen for three years, but for those with lower incomes the child element of the Child Tax Credit will rise by £150 above inflation. In addition to the phasing out of the Child Trust Fund, new maximum limits will be introduced for Housing Benefit.
Meanwhile, state benefits will in future be linked to the lower consumer prices index of inflation (CPI), rather than the retail prices index (RPI).
Other announcements included a series of proposed changes to capital allowances to take effect from April 2012, plans to replace Air Passenger Duty with a per-plane aviation duty, and the creation of a new Office of Tax Simplification.
For more advice on how the Coalition Budget measures could affect you and your business, please contact us.