22-06-2010
BPE's Budget Overview
Business and entrepreneurs have not been hit as hard as they could have been in George Osborne's "tough but fair" budget, according to commercial experts at BPE Solicitors LLP.
The cut in corporation tax rates by one per cent each year for the next four years, reducing the rate to 24 per cent, has created the lowest rate ever seen in the UK.
The small companies tax rate has also been reduced to 20 per cent and there will also be a small reduction in capital allowances.
“This change is rather more generous than expected and will be welcomed by many businesses, who may decide to use the additional funds to invest for growth going forward,” said Partner Iain Garfield.
“The VAT rise, from 17.5% to 20% from January 4 2011 could counteract this generosity however, particularly for businesses who rely on buying in goods and services. Although the Chancellor prefaced this change by saying that "the years of debt and spending make this unavoidable", it will still be a bitter pill to swallow for some,” he added.
Businesses employing staff will be heartened by the Government’s plans to make it cheaper for companies to employ people.
The Chancellor has announced that the threshold at which employers will pay national insurance will rise by £21/wk above indexation, raising 650,000 employees out of national insurance altogether.
“News that from midnight on June 22, higher-rate tax payers will pay 28 per cent on gains has created a flurry of transactional activity at BPE with many of our teams working flat out to complete on deals before the clock strikes,” said Iain.
Basic-rate tax payers will continue to pay Capital Gains Tax at 18 per cent The threshold will remain at £10,100 this year, and rising in line with inflation in future years.
“The entrepreneur rate of 10 per cent on the first £2m of lifetime gains will be extended to the first £5m, which will be welcomed by new entrepreneurs looking to sell a venture they have nurtured over the years. There will, however, be no re-introduction of taper reliefs or indexation allowances for the time being,” said Iain.
“No-one likes the idea of paying more tax but with rumours of even more draconian measures the Chancellor’s emergency Budget has less fire and brimstone than expected,” he added.
A round-up of other key measures:
•Public sector employees will be subject to a two-year pay freeze, excluding those public sector workers earning less than £21,000 (who will receive a £250 pay rise this year and next).
The proposed increase in the state pension age to 66 will be accelerated, and the Government will also consider removing the default retirement age. However, pensions will be linked to average earnings (rather than inflation), and subject to a minimum 2.5% annual rise.
•A "tough decision" means that child benefit will be frozen for the next 3 years.
•Banks will be required to make a "more appropriate contribution" to reflect the risks they generate, and hence a new bank levy will be introduced from January 2011 to raise £2bn a year.
•The personal allowance for income tax will increase from £6,400 to £7,400 from April, although higher rate taxpayers will not benefit from this as the higher rate threshold will remain frozen until 2013/14.
•No increase in duties on alcohol, tobacco or fuel. The Government will reverse Labour's plan to increase tax on cider at the rate of 10% above inflation, with effect from the end of June 2010.
The cut in corporation tax rates by one per cent each year for the next four years, reducing the rate to 24 per cent, has created the lowest rate ever seen in the UK.
The small companies tax rate has also been reduced to 20 per cent and there will also be a small reduction in capital allowances.
“This change is rather more generous than expected and will be welcomed by many businesses, who may decide to use the additional funds to invest for growth going forward,” said Partner Iain Garfield.
“The VAT rise, from 17.5% to 20% from January 4 2011 could counteract this generosity however, particularly for businesses who rely on buying in goods and services. Although the Chancellor prefaced this change by saying that "the years of debt and spending make this unavoidable", it will still be a bitter pill to swallow for some,” he added.
Businesses employing staff will be heartened by the Government’s plans to make it cheaper for companies to employ people.
The Chancellor has announced that the threshold at which employers will pay national insurance will rise by £21/wk above indexation, raising 650,000 employees out of national insurance altogether.
“News that from midnight on June 22, higher-rate tax payers will pay 28 per cent on gains has created a flurry of transactional activity at BPE with many of our teams working flat out to complete on deals before the clock strikes,” said Iain.
Basic-rate tax payers will continue to pay Capital Gains Tax at 18 per cent The threshold will remain at £10,100 this year, and rising in line with inflation in future years.
“The entrepreneur rate of 10 per cent on the first £2m of lifetime gains will be extended to the first £5m, which will be welcomed by new entrepreneurs looking to sell a venture they have nurtured over the years. There will, however, be no re-introduction of taper reliefs or indexation allowances for the time being,” said Iain.
“No-one likes the idea of paying more tax but with rumours of even more draconian measures the Chancellor’s emergency Budget has less fire and brimstone than expected,” he added.
A round-up of other key measures:
•Public sector employees will be subject to a two-year pay freeze, excluding those public sector workers earning less than £21,000 (who will receive a £250 pay rise this year and next).
The proposed increase in the state pension age to 66 will be accelerated, and the Government will also consider removing the default retirement age. However, pensions will be linked to average earnings (rather than inflation), and subject to a minimum 2.5% annual rise.
•A "tough decision" means that child benefit will be frozen for the next 3 years.
•Banks will be required to make a "more appropriate contribution" to reflect the risks they generate, and hence a new bank levy will be introduced from January 2011 to raise £2bn a year.
•The personal allowance for income tax will increase from £6,400 to £7,400 from April, although higher rate taxpayers will not benefit from this as the higher rate threshold will remain frozen until 2013/14.
•No increase in duties on alcohol, tobacco or fuel. The Government will reverse Labour's plan to increase tax on cider at the rate of 10% above inflation, with effect from the end of June 2010.
