The Emergency Budget 2010: what the changes mean for you
Sweeping changes to taxation and the welfare system announced by Chancellor George Osborne in the Emergency Budget mean that the majority of taxpayers will be affected.
Taxation: some key changes
An increase in VAT on goods and services comes into effect on 4 January 2011, and will see the main rate rising from 17.5% to 20%. The move is expected to raise more than £13bn a year by the end of this Parliament. Zero-rated items, such as food and young children's clothing and footwear, will continue to remain exempt from VAT.
Meanwhile, higher rate taxpayers will be hit by a rise in capital gains tax (CGT), which increases from 18% to 28% with effect from midnight. The Treasury is expected to gain an additional £1bn as a result of the changes.
There are some concessions for those with lower incomes, with CGT remaining static at 18% for low and middle-income earners. The 10% rate for entrepreneurs will be extended to the first £5m of qualifying gains. The income tax personal allowance will also rise by £1,000 to reach £7,745 in April. This will remove 880,000 people from the need to pay income tax at all, while an estimated 23 million taxpayers will benefit by up to £170 a year.
However, higher rate taxpayers will be excluded from reaping the benefits of the changes by means of a reduction in the higher rate income tax threshold.
Employers will see an increase in the threshold at which they start to pay national insurance contributions, which will rise by £21 a week above indexation. Corporation tax will also be reduced to 27% from next year, followed by a further series of 1% cuts taking place each year until it reaches 24%. The small companies rate will also be cut from 21% to 20%.
The Government did not announce any additional increases in duties on alcohol, tobacco or fuel, while the previous Labour Government's plans to increase cider duty by 10% will be scrapped from the end of this month.
Changes to the welfare system
Meanwhile, many recipients of state benefits are set to feel the pinch. Benefits, tax credits and public service pensions will in future be uprated in line with the consumer prices index of inflation (CPI), rather than the retail prices index.
Next year will also see a cut in Child Tax Credits for households earning more than £40,000 a year. However, for people earning lower incomes the child element of the Child Tax Credit will rise by £150 above inflation.
Child benefit will be frozen at its current level for the next three years, and new maximum limits will be introduced for housing benefit. In addition, the Health in Pregnancy grant will be abolished from April 2011, and the Sure Start maternity grant will be restricted to the first child.
For more information on the Budget announcements, visit our summary here. To discuss how the changes may affect you, please contact us.
