Tax and Allowances

VAT

From 4^th January 2011 the standard rate of VAT will rise 2.5% to 20%.  Before this, it is likely that expenditure on projects involving large investment will rise as companies look to beat the increase.

The effect of the VAT increase on inflation must not be forgotten, however, the Government expects the CPI measure of inflation to fall back to 2.7% by the end of 2010; 0.7% above target.

Income Tax

The amount of money you earn without having to pay income tax (personal allowance), is increasing by £1000 from April 2011 for the under 65s.  This means that for the 2011/12 tax year, the first £7,475 you earn is tax free.  As expected there was no change made to the 50% tax rate for the UK's highest earners

Capital Gains Tax (CGT)

From tomorrow (23^rd June), CGT will increase to 28% for higher rate tax payers, remaining at 18% for basic rate payers, with the 10% entrepreneurs' relief lifetime limit increasing from £2m to £5m.

The increase in CGT is designed to make the system fairer by limiting the scope for higher rate tax payers to use capital gains as a way of paying a lower rate of tax.  The increase in CGT also makes contributing to your tax-free ISA even more appealing.

Council Tax

The Chancellor announced that the Government will work with local authorities to freeze council tax in 2011/2012.

Pensions

From April 2011 increases in the level of the basic state pension will rise in line with either wage inflation, the CPI or 2.5%, whichever is the highest.

The Government is also considering plans to extend the reduction in the annual allowance for tax relief on pension contributions beyond those earning more than £130,000.  Public sector pensions also face scrutiny with a commission set up to review the cost in time for the next budget.

The Government has scrapped ‘'compulsory'' annuitisation at age 75 from 22 June 2010, pushing it back until age 77 until it develops permanent rules, which will come into effect April.2011.

Benefits and Tax Credits

Benefits and tax credits will now be linked to the CPI rather than the RPI measure of inflation.  This means that the rise in benefits payable will be smaller.

Families earning more than £40,000 will not receive Child Tax Credit from April 2011, with Child Benefit rates frozen for three years.

The Economy and Business

The Chancellor is embarking on a five-year plan to shift the emphasis of the economy on to the private sector, rather than what has become a reliance on the public sector.  The priority of this is to reduce our record budget deficit.

By 2014/15 a total of £32bn of additional savings will be made from public sector spending and investment.  There will be a two-year freeze on public sector pay, with the exception of those earning less than £21,000 who will get an increase of (at least) £250 each year.

Corporation Tax

The Chancellor wants to support business and make the UK more competitive. To help promote growth, Corporation Tax will be cut from 28% to 24% over the course of four years from April 2011. There will also be a reduction in small profits rate of Corporation Tax to 20% from April 2011.

National Insurance

New businesses outside of London, the South-East and the Eastern region are to get National Insurance relief for the next three years.   Anyone starting a business will be exempt for up to £5,000 of employer National Insurance payment for each of their first 10 employees.  The Government aims to have the scheme in place by September and that any qualifying new business set up from today will also receive help.

The level at which employers start to pay National Insurance will be raised by £21 per week above indexation in April 2011

Bank Levy

The Chancellor has pushed a large degree of responsibility for paying back our national Debt onto Banks and Building Societies.  A Bank Levy starting at 0.04% in 2011, and rising to 0.07% will be used to promote a more sensible approach to investments.  Although this excludes small banks, it will include UK operations of international banks and is expected to raise £2bn a year.