George Osborne delivered his first Budget on 22 June 2010. We detail below some of the key changes.
Income Tax
From 6 April 2011 the personal allowance for those aged under 65 will be increased by £1000 to £7475.
The basic rate limit will be reduced so that higher rate taxpayers do not benefit from the increase in the personal allowance.
Our view: Although the additional allowance is equivalent to £200 per annum for a basic rate taxpayer, the increase in National Insurance contributions for employees announced in April’s Budget will go ahead so employees will be worse off before we even take into account the increase in VAT. Only those with a low income will benefit.
Capital Gains Tax (CGT)
From 23 June 2010 there will be two main rates of CGT, 18% and 28% which replaces the single rate of 18%. The rate paid by individuals will depend upon the amount of their total taxable income.
Gains qualifying for entrepreneurs' relief will be taxed at a rate of 10%, and the lifetime limit of gains qualifying for entrepreneurs' relief will be raised to £5 million (previously £2 million).
Gains of trustees or personal representatives of deceased persons will be charged at 28%.
Our view: There was speculation that the top rates of tax could be 40% or even 50% for higher earners so the increase is not as bad as many feared.
There was also speculation that the CGT exemption would be reduced but this would cause headaches for HMRC and tax practitioners. This may be something that is introduced at a later stage.
There may be ways that we can help you minimise the CGT burden. This planning should be done prior to sales/gifts being carried out.
Pensions
The government intends to abolish Labour’s proposals to restrict higher rate tax relief for those with incomes over £150,000. It is considering a simpler regime which caps the annual allowance at between £30,000 and £45,000, subject to discussion with interested parties.
The annual allowance limits the pension savings that can be made by or on behalf of an individual, with tax relief at the individual’s highest marginal rate. Pension savings in excess of this amount attract an annual allowance charge, currently of 40%.
Corporation Tax – Rates
The main rate of corporation tax is to be reduced by 1% per year from April 2011. The full rate of corporation tax will be:
2011/12 - 27%
2012/13 - 26%
2013/14 - 25%
2014/15 - 24%
Small companies rate will be reduced to 20% from April 2011.
Our view: The Chancellor outlined a 5 year plan to reform the corporation tax system with lower rates. The stated intention is to ‘help companies invest, attract foreign investment and boost growth.’ The key question now is whether this, together with future changes, all part of a plan to introduce stability, is sufficient to encourage businesses to set themselves up in the UK.
VAT
The standard rate of VAT will increase to 20% on 4 January 2011.
Zero rated supplies, such as basic foodstuffs, children’s clothing and books, exempt supplies, such as education and health; and supplies subject to VAT at the reduced 5%, such as domestic fuel and power, are not affected by this change.
There are no changes to the Cash Accounting or Annual Accounting Scheme.
Anti-forestalling legislation will be included in the Finance Bill 2010 to prevent the 17.5 per cent rate applying to supplies of goods or services that are provided on or after 4 January 2011, subject to certain conditions.
Our view: There was no surprise when the Chancellor announced the increase in the standard rate of VAT from 17.5% to 20%. The only surprise was that the change will not take effect until 4 January 2011 (the first working day of the year) which is sensible allowing businesses time to plan for it.
Tax Credits
The Government will reduce tax credit eligibility for families with household income above £40,000 from April 2011 and make further changes in 2012-13.
The Government has announced the removal of a number of elements from the Tax Credits system including the baby element (6 April 2011) and the age 50+ element (6 April 2012).
Our view: There was speculation that tax credits would be abolished so many families will be relieved with this decision.
Child Trust Fund
The Government announced on 24 May 2010 that it intends to reduce and then stop all government contributions to Child Trust Funds. Subject to legislation, the Government intends to reduce government contributions at birth, and to stop government contributions at age 7, from August 2010.
Health in Pregnancy Grant
The Health in Pregnancy Grant is a £190 one-off payment to all expectant mothers that is made irrespective of income. The Government proposes to abolish the Grant from 1 January 2011. Women who reach the 25th week of pregnancy before 1 January 2011 will still be entitled to the grant providing they satisfy the conditions of the grant.
Our view: Anyone planning an addition to the family will need to do so before the 10 July 2010 to be entitled to the Grant!
