The most severe Budget for decades, but with a
focus on business growth
Bill Dodwell, tax partner at Deloitte, comments on today's emergency Budget:
Amongst the tax rises of the most severe Budget for decades, there was definitely a focus on business growth. Companies will see a 1% annual reduction in the corporation tax rate from the current 28% level to 24%, starting from April 2011. Companies with profits up to £300,000 will see a rate cut to 20%. Although this will be partly financed by a cut in the rate of capital allowances, the overall effect is to reduce corporate tax by over £1 billion per annum.
There will be a Discussion document in the Autumn, which will look to a better tax system for intellectual property (presumably a lower tax rate, similar to the proposed Patent Box regime announced by the previous Government); an improved CFC regime and a tax exemption for foreign branches, with possible relief for branch losses. The Government "intends to develop its view that in general a broad tax base, a low rate and a more territorial approach will improve competitiveness.
Business will also welcome the Government's announcement that it will not go ahead with the complex, costly and arbitrary restrictions on pension contributions and will instead consult on a simple cap, probably to be set at £30-40,000 pa. This will take effect from April 2011.
It's probably fair to say that the capital gains tax changes were not as bad as had been feared. From 23 June there will be a top rate of 28%, payable where the total of an individual's gains and income exceeds the income tax basic rate threshold (about £44,000). The current 18% rate will continue for gains below this level. At the same time the exempt allowance of £10,100 is being retained and the limit for Entrepreneur's relief is being increased from £2 million to £5 million. This allows entrepreneurs to release gains of £5 million and pay tax at 10% on those gains.
Individuals will need to consider the April 2011 bundle of tax cuts
and tax rises together. Basic rate taxpayers will see a tax cut of up to
£200 pa, due to the increase in personal allowances of £1,000. At the
same time, the national insurance changes will result in cuts for
employers and employees up to an income level of about £21,000 - but
increases above this level. The VAT increase, to 20% from 4 January
2011, will cost the average household up to £200 pa. Overall, it's
probably the case the lower half of the income spectrum will not be
worse off - but the upper half will bear the brunt of tax rises.
What the Budget means for:
