Osborne's not so great escape
Jun 22 2010
Austerity Budget announced
The rate of VAT will go up from 17.5 per cent to 20 per cent in January, George Osborne announced in his emergency Budget.
This comes as the chancellor introduced a raft of tax changes in a bid to plug the country’s £155 billion deficit.
Gary Davies, financial director of electronics recycling company ShP, says: ‘The VAT increase was something everyone expected, although it won’t affect profitability it will impinge on cash flow, something that’s already very tight. An extra 2.5 per cent will make it even tighter.’
Other changes include an increase in capital gains tax from 18 per cent to 28 per cent, which will come into force from midnight.
However, the chancellor committed to reducing corporation tax to small businesses to 20 per cent, a 1 per cent reduction. Start-ups based outside London and the East and South East will also be exempt from paying the first £5,000 in national insurance contributions for the first ten employees.
Victoria Pooley, managing director of The Data Partnership, says: ‘I always thought the idea of offering tax breaks on the NI contributions an employer pays was a great idea. Taxing businesses for employing staff, which thereby boosts the economy and reduces the unemployment rate was always a nonsensical tax in my mind.’
Pooley adds that the rise in GGT is a disappointment. ‘I really feel that this tax will discourage entrepreneurs and business earners from taking the personal risks on board, which bring economic strength to the country, when they will only be remunerated up to half of what they earned.’
Click here to read the full Budget.
Emergency Budget 2010: Key Points for SMEs
VAT: Tax on most goods and services will go up from 17.5 to 20 per cent from 4 January 2011, but zero-rated items will remain exempt for the next five years. Tax rates on insurance premiums will be raised from 5 to 6 per cent and from 17.5 to 20 per cent respectively.
Enterprise finance guarantee (EFG): The EFG scheme that supports small and medium-sized enterprises' access to bank lending is to be prolonged.


Corporation tax: The smaller company rate of corporation tax is to be cut from 21p to 20p in the pound. Larger companies are being treated more generously, with the current 28p rate to be reduced to 24p over the next four years.
National insurance (NI) contributions: Start-ups outside London and the South East will save up to £5,000 in employers' NI contributions for each of their first ten employees. In addition, the threshold at which employers start to pay NI will be raised by £21 per week above indexation in April 2011.
Capital gains tax (CGT: Those who pay income tax at the basic rate will continue to pay CGT at 18 per cent. However, higher-rate taxpayers will pay CGT at 28 per cent.
Entrepreneurs' relief: The 10 per cent rate of CGT that applies to the first £2 million of entrepreneurs' gains over a lifetime will now apply to the first £5 million of those gains.
Capital allowances: The rate at which tax relief is given for capital spending will be reduced from 20 to 18 per cent, meaning that businesses 'will still receive full tax relief, but over a longer time frame', according to George Osborne. The annual investment allowance will be reduced to £25,000, but 'over 95 per cent' of businesses will still be fully covered for their capital investments.
Public spending: Outside of the NHS and international aid, there will be average real terms cuts in the budgets of government departments of around 25 per cent by 2014/5. This equates to reductions in spending of £30 billion a year by 2014/5, in addition to measures announced before the Budget. The cuts will be achieved, in part, by a two-year public sector pay freeze from which workers earning less than £21,000 will be exempt.
Lower earners tax: The personal allowance for under-65s will be increased by £1,000 in April 2011, to £7,475. The aim is to raise it to £10,000 within this parliament.

New bank levy: Osborne expects a new tax on the assets of banks and financial institutions to raise more than £2 billion. He says the French and German governments are committed to introducing similar levies.
Duties frozen: there will be no new increases in duties on alcohol, tobacco and fuel. The government will 'explore' changes to aviation tax including switching to a per-plane rather than a per-passenger duty. The previous government's plan to increase duty on cider will be reversed.
New regional growth fund: This fund will support projects in the regions that deliver returns for the Treasury and create jobs, but we'll have to wait for the full text of the Budget to be released to get more details.
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