Emergency budget June 2010

George Osborne announced his anxiously awaited Emergency Budget on 22 June 2010. As widely predicted the VAT rate will increase to 20% from 4 January 2011. The increase was an obvious choice as it will increase taxation revenues with no additional cost to the government. Other measures summarised may present financial challenges to individuals and businesses over the next few years

Personal allowances

Personal allowance will be increased to £7,475 from April 2011, worth £170 to basic rate taxpayers (lower than the £10,000 predicted)

Benefits and tax credits

Child benefits will be frozen for the next three years Tax credits for families with income over £40,000 will be reduced from April 2011, with further changes planned for 2012-13

Capital Gains Tax (CGT)

The recent trend established by the Labour government of taxing income and capital gains at the same rate is being reversed by the Coalition government, and this is a particular worry to small business owners, buy-to-let landlords and shareholders. Higher rate tax payers will pay 28% from midnight on 22 June 2010 Low and mid-income savers will continue to pay 18% CGT for entrepreneurs will be extended to the first £5m of lifetime gains

Small business summary

The government has announced that it will undertake a review of small business tax, but in the meantime the corporation tax rate for small companies will be cut from 21% to 20% from April 2011. For capital allowances (the tax relief on larger one-off items such as plant and machinery) , the written down allowance rate is being reduced from 20% to 18%. The Annual Investment Allowance is also being reduced to £25,000 from 2012.

National Insurance

The planned National Insurance rate rise of 1% both employees and employers will be introduced despite general election promises. On the positive side there will be a significantly above inflation rise in the employer threshold for NIC from April 2011with the effect that employers with staff earning at a relatively modest salary may see their employee NIC fall as a result but most will be expected to suffer increased employment costs
Employees will bear the brunt of a 1% increase across the board, with a rise in the main rate from 11% to 12%, but sheltered a little by the above inflation planned increase in the tax threshold – although of course this does mean that the tax reductions some have been promised will be soaked up in additional national insurance contributions. New businesses outside London and the South East will be exempt from national insurance for their first 10 employees.
As with all Budgets the devil is in the detail, so careful planning of your personal and business finances is more important than ever. If you feel that you need professional advice on any issues raised or on accountancy or taxation matters in general please contact us for a free initial consultation on 01449 798444 or via email info@targetaccounts.co.uk.