The following measures were announced in the ‘Emergency’ Budget on 22 June 2010:
Income Tax
- The basic personal allowance will increase by £1,000 to £7,475 for 2011/12. The basic rate limit will be reduced by £2,500 at the same time to ensure higher rate taxpayers do not benefit from the increase.
- For 2010/11 the personal allowance of £6,475 and basic rate band of £37,400 will remain unchanged.
- The higher rate of 50% will continue to apply to taxable income above £150,000.
VAT
- The standard rate of VAT will be increased from 17.5% to 20% with effect from 4 January 2011. The rates applying to the VAT flat rate scheme have been recalculated in line with the increase in the standard rate and these rates will also have effect from 4 January 2011.
- The current VAT registration limit remains at £70,000 and the deregistration limit remains at £68,000.
Corporation Tax
- The small companies rate will be reduced to 20% from 1 April 2011 (from 1 April 2010 to 31 March 2011 the rate is 21%).
- The main rate will be reduced to 27% from 1 April 2011 with plans to reduce the rate by 1% each year over 4 years so it is reduced to 24% by 1 April 2014. (From 1 April 2010 to 31 March 2011 the rate is 28%).
Capital Gains Tax
- For gains arising on or after 23 June 2010 where an individual’s total taxable income combined with chargeable gains after all allowable deductions exceeds the basic rate income tax band (£37,400 for 2010/11), the gain or part of the gain above that limit will be liable to capital gains tax at 28%. Where the total income and gains falls within the basic rate limit the rate of capital gains tax will remain at 18%.
- Gains arising in 2010/11 before 23 June 2010 will only be liable to capital gains tax at 18% and the gains will not be taken into account in determining the rate applicable to gains arising on or after 23 June 2010.
- The annual exemption remains at £10,100 for 2010/11. The exemption can be utilised against gains arising on or after 23 June 2010 in priority to earlier gains where this is beneficial.
- Entrepreneurs’ relief has been kept in place for business assets and the effective rate of capital gains tax with the relief remains at 10%. New legislation will be put in place to confirm the 10% rate. The Entrepreneurs’ relief lifetime limit will be increased from £2 million to £5 million from 23 June 2010.
Capital Allowances
- The Annual Investment Allowance for expenditure on plant and machinery will be reduced to £25,000 from April 2012. The current limit of £100,000 will remain in place for 2010/11 and 2011/12 so any planned expenditure in the current year will not be affected by the change.
- The Writing Down Allowance on the balance of any expenditure and the capital allowances pool brought forward is to be reduced from 20% to 18% (from 10% to 8% for the special rate pool) from 6 April 2012 for unincorporated businesses and from 1 April 2012 for companies.
Inheritance Tax
- No changes to Inheritance Tax were announced in the Budget and the nil rate band remains at £325,000 for 2010/11.
Child and Working Tax Credits Rates
- The second income threshold at which tax credits are reduced to £545 will be reduced from £50,000 to £40,000 from April 2011.
- The income disregard relating to the amount by which income can increase on the previous year without affecting the level of tax credits will be reduced from £25,000 for 2010/11 to £10,000 for 2011/12.
- The first withdrawal rate determining the amount by which tax credits will be withdrawn where income exceeds the first income threshold of £6,420 will increase to 41% from 2011/12 (the current rate is 39%).
- The baby element of child tax credits currently worth £545 in the first year of the child’s life will be removed from 6 April 2011.
Furnished Holiday Lets
- The furnished holiday letting rules that were in place prior to 6 April 2010 will not be withdrawn as planned by the previous government and will continue to apply for 2010/11. However, there will be a consultation document issued over the summer regarding plans to change the treatment from 6 April 2011. The proposed changes relate to ensuring the rules apply to all properties in the European Economic Area, increasing the number of days that qualifying properties have to be available for and changing the way in which loss relief is given.
New Businesses
- For new businesses in targeted areas, including the South West, a new scheme is to be announced whereby during a three year qualifying period the new business will not have to pay the first £5,000 of Class 1 employer NICs due in the first twelve months of employment in respect of up to 10 new employees. Further details will be announced by the Government in due course.
22 June 2010
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