Emergency Budget
The Emergency Budget saw VAT go up to 20 per cent and Capital Gains Tax hiked to 28 per cent.
But with concessions for businesses such as a minimal drop in Corporation Tax and National Insurance relief for small start-up firms, there is a feeling that Chancellor George Osborne achieved an acceptable balance when it came to wielding the fiscal axe.
Jane Parry, tax partner at PM and M, Blackburn, said the Budget was not as harsh as expected.
She added: “With regards to income tax, it was not possible for Nick Clegg’s dream of a £10,000 personal allowance to be realised, but some initial steps towards it were taken by increasing the personal allowance by £1,000 to £7,475, thus taking a further 880,000 people out of income tax.
“Higher earners will not see the benefit of this as the rules introduced in April which see the personal allowance start to disappear for taxable incomes over £100,000 still remain.
“For business there was good news in that the rates of Corporation Tax on profits are set to reduce, starting in April 2011. This was tempered a little by reductions in capital allowances rates from 2012, but overall is good news for companies recovering from the recession and looking to keep hold of as much of their hard earned profits as they can.
“There were also announcements on reducing the cost of employing people by increasing the employers’ National Insurance contributions threshold and also providing some exemptions for new businesses starting to employ people. This could be helpful for anyone leaving the public sector and looking to set up their own business.”
Colin Tice, head of taxation department at Cassons chartered accountants and business, also believes there were some positives to be taken from Osborne’s speech.
He said: “Individuals face a significant tax increase on their capital gains, up to 28 per cent from the previous 18 per cent. Business owners are protected by extending the lifetime Entrepreneur’s Relief cap to £5m with an effective tax rate of 10 per cent.
“Whether that is sufficient not to discourage venture capital investment remains to be seen. This is supposed to be a measure to stop the avoidance of Income Tax by the conversion of income into capital gains which are taxable at a much lower rate.
“The differential between the highest income tax and capital gains tax rates remains significant so it is difficult to see how that is the case.
“On a brighter note, the long running fiasco on the taxation of furnished holiday lettings is brought to an end by the Chancellor reverting to the original rules and so these businesses can continue to be taxed more favourably as businesses rather than as investments. But even here further amendments to the rules are expected over the summer.”
