The Budget - 22 June 2010 - "Emergency Budget"

If you are looking for information about earlier budgets please use these links:

March 2010 Budget

2009 budget, 2008 budget, 2007 budget

George Osborne delivered his first budget on 22 June 2010, the first budget of the Conservative / Liberal Democrat coalition government.  This was billed as an "emergency budget" and was expected to be a budget full of widespread spending cuts and tax rises intended to tackle the budget deficit, and so it proved.  However some anticipated tax rises were not as large as had been expected by many.

The previous government's policy of announcing changes well in advance continued with many of the announcements set to start in April 2011.  However the change to Capital Gains Tax was from midnight and therefore came into effect on 23 June 2010.

This report covers the main taxes and their effect on most people.  It is not intended to be a complete definitive guide to the budget.  All figures are approximate.  If you are looking for the definitive guide then you should try The Financial Times or one of the 'Big Four' accountancy firms. Alternatively you could try the official budget pages at HM Revenue and Customs or the government's summary on the DirectGov website.

The following tax changes have been announced as starting in April 2010 or later.  Some of these were announced in the June 2010 budget, some in the March 2010 budget, and others in earlier budgets or in pre budget statements.

Income Tax

National Insurance

Savings

Corporation Tax

Capital Allowances

Capital Gains Tax

Inheritance Tax

Stamp Duty

VAT

State Pension

Income Tax

The following income ax changes are effective from April 2011:

• The personal allowance for tax free income will increase by £1,000 to £7,475.
• The higher rate tax threshold will reduce by £2,500 to £34,900 thereby negating the increase in personal allowance for higher rate tax payers..
• The personal allowance will continue to be reduced for taxpayers with income exceeding £100,000.  The allowance will reduce by £1 for every £2 of income over £100,000.  This has the effect of creating a 60% tax band between £100,000 and £114,950.

National Insurance

The national insurance changes announced by the previous government were confirmed and are effective from April 2011:

• 1% increase in the rate paid by individuals to 12% for employees and 9% for the self employed.
• 1% increase in the rate paid by employers.
• 1% increase from 1% to 2% in the rate paid on higher earnings.

To reduce the effect of the increases in national insurance (listed above) the following changes were announced:

• The lower earning limit will increase from £110 to £138 per week.  This amount is national insurance free.
• The upper earnings limit will decrease from £844 to £815 per week.  this is the definition of "higher earnings" and earnings above this amount will be charged national insurance at 2% from April 2011.
• New employers outside London and the South East will be eligible for up to a total £5,000 of national insurance relief for up to 10 new employees.

The intention is that the national insurance changes should be neatral for those earning less than £20,000 per annum,.

Savings

The annual limit on investing in Cash ISAs (Individual Savings Accounts) of £5,100 remains.  No tax is payable on interest earned in these accounts as long as the rules associated with the account are followed.  The amounts for non Cash ISAs are double these figures.

Corporation Tax

The main rate of Corporation tax (paid by companies with profits exceeding £1.5m) which is currently 28% will reduce in April 2011 by 1%, and then by a further 1% each year until it reaches 24% in April 2014.

The Corporation Tax rate for small companies (those with profits below £300,000) which is currently 21% will reduce by 1% in April 2011 to 20%.  This is a reversal of the previous gevernment's promised increase to 22%.

Companies with profits between £300,000 and £1.5m will continue to pay corporatrion tax at a rate between the main rate and the small comapnies rate.

There was no change to the rules allowing losses made in a year ending between 24 November 2008 and 23 November 2010 to be carried back and set against profits of the three preceding years (most recent years first), rather than just one year as is normal.

Capital Allowances

The Annual Investment Allowance for the purchase of certain capital items was doubled from £50,000 to £100,000 in the March 2010 budget..

• The Annual Investment Allowance for the purchase of certain capital items will reduce from £100,000 to £25,000 in April 2012. (These were doubled from £50,000 to £100,000 in the March 2010 budget).
• In April 2010 the Capital Allowances rate will reduce from 20% to 18%.

Small businesses will need to plan their capital expenditure so that major purchases are made before the end of March 2012.

Capital Gains Tax

The Capital Gains Tax rate for gains made on non business assets by higher rate tax payers increased from 18% to 28% from 23 June 2010.

Entrepreneurs' relief was increased so that the first £5 million of certain types of Capital Gain is taxed at a reduced rate of 10%.  (This was increased from £1m to £2m in the March 2010 budget).

Capital Gains on business assets not covered by entrepreneurs' relief, and gains made by individuals not paying higher rate will continue to be taxed at 18%.

Inheritance Tax

There was no change to Inheritance Tax.  The announcement made in the March 2010 budget freezing the nil rate band for four years appears to remain. 

Stamp Duty

There was no change to Stamp duty.  The March 2010 budget announced that Stamp Duty is no longer payable on property costing up to £250,000 (previously £125,000) and that to counter the loss to the exchequer the amount payable on properties costing in excess of £1 million increased from 4% to 5%.

VAT

VAT will increase from 17½% to 20% on 4 January 2011. This was widely expected and discussed by the media during the election campaign, but the politicians refused to engage on the subject.  Those items that are zero rate (most foods, childrens clothes, etc) will remain zero rated so the increase will not affect them.  Expect the VAT increase to play a part in the marketing drive by High Street stores in the run up to Christmas.

State Pension

The way in which increases to the basic state pension are calculated is to be changed.  In future it will increase in line with the higher of:

• Inflation in terms of prices
• Inflation in terms of average earnings
• 2½%

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