| Unravelling the emergency Budget |
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 Bromley-based accountancy firm Baker Tilly has identified a number of issues in George Osborne’s emergency Budget affecting business.
As predicted, VAT will rise 2.5 per cent to 20 per cent next year. Although 2.5 per cent is a relatively large increase, it will still mean that the UK 's VAT rate is below the average for the European Union.With effect from midnight on Budget day, the two main rates of CGT came into force. The existing rate of 18 per cent applies to basic rate taxpayers, while higher rate taxpayers will pay 28 per cent. Entrepreneurs' relief charging tax at a reduced rate of 10 per cent, will be available for the first £5 million of lifetime gains which was previously £2 million. The Chancellor announced the hoped-for reduction in corporation tax rates. From next April, the main rate will reduce by 1 per cent to 27 per cent and by a further 1 per cent in each of the three successive years to an all time low of 24 per cent. He also announced that the small company corporation tax rate will be reduced next April by 1 per cent to 20 per cent, instead of the previously announced increase to 22 per cent. The 2011 increases in national insurance contribution rates are to go ahead as planned, but employers and employees on annual earnings up to £20,000 will be protected by an increase in the starting point. The top of the employee 12 per cent band will also be £1,000 lower than expected to match the starting point for 40 per cent income tax. Also in this Budget.... Personal allowances increase by £1,000 The personal allowance for people aged under 65 will increase by £1,000 on 6 April 2011. However, the benefit of the increase will be restricted to basic rate taxpayers and it is not yet clear whether age-related allowances will be increased by as much. Taxation of furnished holiday lettings Qualifying furnished holiday lettings can be treated as a trade for tax purposes in order to obtain beneficial treatment. The previous Government announced that these beneficial rules would be withdrawn from April 2010 but the new Chancellor has decided that these will remain until April 2011 when new rules will be introduced. Consultation on tax relief for pension contributions Revisions to the income tax relief for pension contributions is to be subject to consultation. However, the Chancellor indicated that he is considering a simpler system based on an annual maximum tax deductible pension contribution, likely to be between £30,000 and £45,000. Tax credits and child benefit The tax credit system has long been regarded as overly complicated. Pointing to the 150,000+ families with household incomes of over £50,000 who are eligible for the relief, the Chancellor said that the system was both unaffordable and overdue for re-targeting at those most in need. Reduction in capital allowances rates In order to fund other tax reductions (principally the phased reduction in corporation tax rates), the rates of writing down allowances on qualifying expenditure are to be reduced from 1 April 2012. Expenditure qualifying for the 100 per cent annual investment allowance will also be reduced from £100,000 to £25,000 from that date. |
