Kbb News

Posted: 22/06/2010

VAT up in January and changes to capital gains tax

The Government will increase the standard rate of Value Added Tax (VAT) to 20 per cent from 4 January 2011; increase the standard rate of Insurance Premium Tax (IPT) to 6 per cent and the higher rate to 20 per cent from 4 January 2011; and introduce a two year pay freeze for public sector workforces from 2011-12, except for those earning £21,000 or less, who will receive an increase of at least £250 in these years.

According to the Chancellor, this Budget will create the conditions for enterprise and sustainable growth.

The Chancellor says he wants to support business and make the UK more competitive, and this means giving businesses more freedom by reducing regulation and providing targeted tax breaks, while ensuring that the economic opportunities for businesses are shared more evenly throughout the UK's regions.

The measures he announced which he says will support enterprise include:

A major package of reforms to reduce corporation tax rates including a reduction in the main rate of corporation tax from 28 per cent to 24 per cent over the course of four financial years from April 2011 and reductions to the main and special rates of capital allowances from April 2012.

A reduction in the small profits rate from 21 per cent to 20 per cent from April 2011.

A National Insurance Contributions (NICs) holiday for new businesses which start-up in certain areas of the UK over the next three years.

An increase in the Enterprise Finance Guarantee and the creation of a new Enterprise Capital Fund.

A Regional Growth Fund in 2010-11 and 2012-13 to support increases in business employment and growth, and a scheme in which new businesses in areas of the UK outside of the East, London and the South East will get a substantial reduction in their employer National Insurance Contributions (NICs).

Key policy

Ever since it was elected, a key policy of the Government has been that the burden of deficit reduction will have to be shared. According to the Chancellor, the changes announced today set out a vision for a refocusing of the tax and benefit framework, while protecting the most vulnerable in society.

This Budget includes measures designed to encourage people to take personal responsibility for their actions by rewarding those who work hard and save responsibly for the future. These include:

Increasing the personal allowance for under 65s by £1,000 to £7,475 in 2011-12, taking 880,000 people out of income tax altogether.

Capital gains tax will rise from 18 to 28 per cent for those liable to income tax at the higher and additional rates.

The 10 per cent rate for entrepreneurial business activities will be extended from the first £2 million to the first £5 million of qualifying gains made over a lifetime.

The Government will work in partnership with local authorities in England to implement a council tax freeze in 2011-12.

The introduction of a bank levy on banks balance sheets from January 2011.

State pension

The Government will uprate the basic State Pension by a triple guarantee of the highest of earnings, prices or 2.5% from April 2011. The Consumer Price Index will be used as the measure of prices in the triple guarantee.

However, to ensure the value of a basic State Pension is at least as generous as under the previous uprating rules, the Government will increase the basic State Pension in April 2011 by the equivalent of Retail Price Index. It is estimated that an estimated 1m. pensioners in London alone will benefit from this change.

The Government will also uprate the standard minimum income guarantee in Pension Credit in April 2011 by the cash rise in a full basic State Pension to ensure the lowest income pensioners benefit from the triple guarantee.

Business rates

The Government will also introduce legislation to waive certain backdated business rates bills, including for some businesses in ports. An estimated 3,000 businesses across England will benefit.

The Chief Secretary to the Treasury Danny Alexander said: "The previous Government has left us with a legacy of debt and unsustainable spending, we are taking the decisive action needed to pay for the past and plan for the future.

"That is why today we have set out a comprehensive five year plan to put the British economy back on track.

"We have made the tough choices needed to get our borrowing down but we have done it in a way that is fair, protects the vulnerable and supports businesses across Britain."

See also: Make hay while the sums shine.