The Chancellor of the Exchequer presented his Budget to Parliament on the 22nd of June 2010 – a budget which brought spending cuts and tax rises, which according to the Chancellor are necessary in order to deal with the “economic inheritance” the new government faces and help to speed up economic recovery for the UK.For businesses and their owners, the budget brought with it some good news and some bad news, as summarised below:
Small businesses (companies with profits of less than £300,000 per annum) will benefit from a reduction in the Small Profits Rate of corporation tax, decreasing from 21% to 20% as of April 2011.
The standard rate of corporation tax will also decrease to 27% from April 2011. This decrease will be followed by a 1% annual reduction every year over the next 3 years, to reach 24% by April 2014.
The standard rate of VAT is to increase to 20% from the 4th of January 2011, while sectoral rates for the Flat Rate scheme will increase at the same time. There will be no change to zero-rated and exempt items.
Capital gains tax
The annual exemption of £10,100 will remain unchanged for the foreseeable future. The tax rate for basic rate payers remains at 18%, while the rate for higher rate taxpayers increases from 18% to 28% from midnight 22 June 2010. A further change is that entrepreneurs’ relief at 10% will be extended from the first £2 million of gains to the first £5 million.
There will be a £1,000 increase in Personal Allowance for tax to £7,475 with effect from April 2011, while the higher tax/NI rates will kick in sooner to offset the Personal Allowance increase for higher earners.
The increase in employers’ NI contributions will not go ahead as planned. Instead, the threshold for employers’ NI contributions will rise by £21 per week above inflation.
Small businesses in certain areas, set up over the next 3 years, will be exempt from the first £5k of employer’s NI on up to 10 employees’ wages.
For advice related to your small business’ tax issues, speak to a 1st Contact finance consultant by calling 080 8141 1657 or email firstname.lastname@example.org.