George Osborne’s first budget announced a number of changes, including a prediction that the UK economy will grow at a slower rate than suggested by Alastair Darling in March this year. The forecast for 2011 was 3.25%, but has been revised to 2.6%.
This summary concentrates on the main tax issues that may affect you.
The good news points for small businesses are the reduction in the corporation tax rate and the increase in the threshold for employer’s NIC.
Bad news includes a reduction in capital allowances, and an increase in the standard VAT rate.
Business Tax
Capital Gains Tax The much reported change in capital gains tax has been confirmed, but is not as bad as anticipated. The rate of 18% will remain, but there will be a second rate of 28% for higher rate taxpayers. The tax-free limit has remained at £10,100.
The lifetime limit for entrepreneur’s relief will rise from £2m to £5m, and the effective rate will remain at 10%. Corporation Tax
The small profits rate will reduce by 1% to 20% for the financial year that runs from 1 April 2011 to 31 March 2012. The small profits rate applies where a single company has profits of no more than £300,000.
The main rate of corporation tax will also be reduced from 1st April 2011 to 27%. There will be reductions of 1% in the main rate in each of the years 2012/13, 2013/14 and 2014/15.
Capital Allowances
Capital allowances on plant and machinery will be reduced from 20% to 18% for items in the main pool.
The maximum amount of the Annual Investment Allowance is also being reduced to £25,000 per year. This is unlikely to affect very small businesses, that don’t spend more than £25,000 per year on assets.
VAT
The standard VAT rate will increase to 20% on 4th January 2011. There is no change to the lower 5% rate, zero rated or exempt supplies.
HM Revenue and Customs have issued a detailed guide for VAT registered businesses
Income Tax and NIC
Employer’s NIC
From 6th April 2011 the threshold at which employers start to pay Class 1 NICs will be increase by the rate of inflation plus £21 per week. The level of inflation will be confirmed following the publication of the retail price index in September 2010.
New Employer NIC holiday
New businesses set up in certain regions from 22nd June 2010 will benefit from a scheme in which they will not have to pay the first £5,000 of employer’s NIC. The North East of England is one of the regions covered by the scheme.
Income Tax
The government’s intention is to reduce the tax liability of lower paid workers, have no effect on employed and self-employed higher-rate taxpayers, and to help employers.
The personal tax allowance for those under the age of 65 will increase on 6th April 2011 by £1,000, to £7,475. For many people this will mean paying around £170 less tax during the tax year. Others who earn less than the value of the personal tax allowance will not pay tax.
The basic rate limit will be lowered so that higher rate tax payers do not benefit from the increase in the personal tax allowance. The limit will be confirmed once the September retail price index figure is known. This change will see more people becoming higher-rate taxpayers.
The personal allowance provides an amount of tax-free income for individuals earning money through employment or self-employment. Tax is then paid at basic rate on ear
nings above the personal allowance, up to the basic rate limit. Higher rate tax applies to earnings above the basic rate limit.
Pensions
The state pension is to be re-linked with earnings from April 2011. Basic state pension will rise every year by the highest of earnings, inflation or 2.5%.
Tax Credits and Child Benefit
Families with an annual household income of more than £40,000 will have their eligibility to tax credits reduced from April 2011. Some elements of the tax credits system have been removed, and child benefits will be frozen for the next three years.
For help with these matters, or other tax and accountancy matters please contact us at www.collinsaccounts.co.uk/contact