VAT increases to 20% with effect from the 4th January. The normal tax point rules…
Today’s first coalition budget was a mixed bag of good and bad news. We still need to await the detail on exactly how a few of the initiatives will impact on your business. In the meantime, we’ve highlighted below the changes to the major business taxes and how they will affect your business
Personal Income Tax Allowances
From April 2011, the personal allowance will be increased by £1,000. This means that for an individual aged between 18 and 65 they will be able to earn £7,475 per annum before having to pay any income tax. The Chancellor also stated that it is his longer term aim to raise the threshold to £10,000 per annum before an individual pays tax. This increase will be worth around £200 a year to a basic tax rate payer.
The higher threshold for income tax (the 40% rate) remains unchanged.
Corporation Tax Rates (Tax charged on Limited Company Profits)
The headline rate of corporation tax (For Companies making over £300,000 profits per year), will drop by 1% in 2011 and then by a further 1% per year in each of the next 3 years.
For companies making less than £300,000, the rate (known as the small companies rate) will be reduced to 20% from 21% from April 2011. This is an important change as in the previous Labour budget the rate was set to rise to 22%.
Annual Investment Allowances (AIA)
AIA allowances were introduced two years ago to encourage business to spend on capital. Up to £100,00 of equipment can be bought in the 2010/2011 tax year and be written off in full against the businesses tax liability in the year. From April 2011, this level will be reduced to £25,000 per annum. So, if you are planning a major capital project, such as moving premises or introducing new machinery and it’s likely to cost more than £25,000 then you should consider ensuring that the project is complete before next April.
Any capital expenditure not covered by the AIA rules is written off against tax bills under capital allowances rules. The current rules state that this type of expenditure is written off at a rate of 20% per annum. From April 2011, this rate will change to 18%, meaning that it will take additional years for you to get full tax relief on any capital expenditure that falls under these rules.
Furnished Holiday Lets
The previous budget indicated that the favourable tax rules for owners of furnished holiday lets would be removed. Today’s budget reverses that decision.
VAT rates will increase to 20% from 4th January 2011. There is no change to the items that are exempt from VAT.
This will particularly impact businesses who are not VAT registered or who work directly with consumers.
Capital Gains Tax
The rate of Capital Gains Tax (CGT) will remain at 18% for basic rate tax payers, but will increase to 28% for higher rate tax payers from midnight tonight. The annual exemption allowance of £10,100 will remain in place.
Both the planned employers & employees 1% increases will still be introduced from April 2011. To mitigate the employers increase, the threshold for paying employers NI will be increased by £21 above indexation. Some of the employee increases will be offset
Regional Employer NIC Holidays
The Government are keen to encourage employment outside London. They are looking to implement a new scheme, at the latest by September that will allow new businesses which start up in these areas to get a substantial reduction in their employer National Insurance Contributions (NICs).
Within the qualifying period, these employers will not have to pay the first £5,000 of Class 1 employer NICs due in the first twelve months of employment. This will apply for each of the first 10 employees hired in the first year of business.
Whilst this scheme won’t be in place until September, any new business set up after 22nd June will qualify.
The regions which will benefit will be Scotland, Wales, Northern Ireland, the North East, Yorkshire and the Humber, the North West, the East Midlands, the West Midlands and the South West.
As we get more details of the scheme we will issue an update.
As always with budgets, more details are issued over the next few days. We will issue any relevant updates as we receive them.
If you’d like to discuss how today’s budget will impact on you in more detail, please give us a call