Emergency Budget June 2010

On Tuesday 22 June 2010 the new Chancellor of the Exchequer delivered his Emergency Budget Report to the House of Commons. Below are details of the main points raised of which we wish to make you aware.

VAT 

• The standard rate of VAT will be increased from 17.5% to 20% with effect from 4 January 2011
• There is no change to those items which are currently exempt or zero-rated for VAT
• Flat Rate Scheme rates will be recalculated accordingly to reflect the VAT increase from January. These rates can be found here

Income tax 

• The personal tax allowance will increase from £6,475 to £7,475 from 6 April 2011
  • The basic rate tax limit will be reduced so that higher rate taxpayers will not benefit from the increase

Capital gains tax

• From 23 June 2010 an increased rate for Capital Gains Tax will apply to higher rate income tax payers of 28%. The current rate of 18% will remain for basic rate taxpayers
• Gains on the disposal of business assets which qualify for Entrepreneurs Relief will continue to be taxed at 10%, with the added benefit that the relief will be raised to apply to lifetime gains of £5 million
• The Capital Gains Tax annual exemption remains unchanged at £10,100

National Insurance

• The threshold at which employers start to pay NIC on staff is to be increased by an extra £21 per week above inflation, from 6 April 2011
• There will be a new 3 year scheme to exempt new businesses from employers NIC up to £5,000 for their first 10 employees hired in the first year of business. However this will only apply to certain regions. London and the South East for example will not benefit from this.

Corporation Tax

• The main rate of Corporation Tax will be reduced by 1% to 27% from 1 April 2011
  • The rate will continue to be cut at 1 % p.a. in successive years down to 24%
• The Small Companies Rate of Corporation Tax which applies to taxable profits up to £300,000 will be reduced by 1% to 20% from 1 April 2011

Capital Allowances

• Rates for writing down allowances will be reduced from 20% to 18% (main rate pool) and from 10% to 8% (special rate pool)
  • However this measure will be delayed until April 2012
• The Annual Investment Allowance on which 100% tax relief on plant and equipment is enjoyed in year one will be reduced from £100,000 of assets to £25,000
  • Again delayed until April 2012

Tax Credits

• The Government will reduce eligibility to tax credits for families with a household income exceeding £40,000 pa from 6 April 2011
• The Child Tax Credit “baby element” will be removed from 6 April 2011 and the “age 50+ element” from 6 April 2012
• The child element of the Child Tax Credit will be increased by an extra £150 above the consumer price index linked annual increase, for 2011/12

Other News

• Banks will pay a levy based on their balance sheets with effect from 1 January 2011

The above represents general advice and individuals should always seek specific advice concerning their own particular affairs before proceeding.