There's some cheer in alcohol duty rates being held, but little elsewhere in the Coalition Government's first budget, with a 2.5% VAT rise. A compromise between the aspiration of the Liberal Democrats to ease the tax burden on the lower-paid and the desire of the Conservatives to cut the deficit was evident in the first budget delivered by Chancellor George Osborne. The Chancellor recognised the Lib Dem's aspiration to raise the personal income tax allowance to £10,000 by increasing the personal allowance by £1,000 to £7,475, giving a basic rate tax payer a tax saving of £170 per year. Other tax cuts demonstrated the Conservatives' desire to encourage business. The threshold at which employers pay National Insurance contributions on employee's salaries was raised by £21 per week and Corporation Tax is to be cut to 27% next year and by 1% each year for the following three years. To pay for these tax cuts, VAT is to be increased to 20%. This represents an increase in the cost of goods and services of more than 2% and will obviously affect the whole nation. The increase would have been a shock had it not been expected. As also predicted, the rate of Capital Gains Tax (CGT) is to be increased, but for higher rate tax payers only and to 28%, rather than 40%. The 18 per cent rate will continue for low and middle-income savers. The increase was possibly less than expected because some experts predicted that an increase to 40% would actually result in a short term loss of revenue for the Government, as people would be discouraged from selling investments. And the 10 per cent CGT rate for entrepreneurs will be extended to the first £5m of qualifying gains, up from the current threshold of £2m. The Budget also saw the introduction of a levy on banks, raising £2bn per year when fully implemented. There are also some spending cuts. Public sector employees earning more than £21,000 will have no pay increase for the next two years; those earning less will have a flat pay rise of £250 in each of those years. There will be an accelerated step towards an increase in the state retirement age to 66, and various benefits including child benefit, tax credits and housing benefit will be frozen, capped or reduced, but the child element of child tax credit will rise by £1560 above inflation next year. Said Danny Carter, tax expert with Chelmsford-based Solicitors Gepp & Sons: "Many people reading the budget proposals will just feel relieved that it was no worse. The two proposals that will affect us all are the increase in VAT and bringing forward the rise in the age of retirement. "Of these, it's the VAT increase that is going to affect us all immediately. By the time the retirement age change takes effect we will be used to the idea. Benefits are to be cut, but it's a case of a little bit here, a little bit there, so none of the cuts are likely to cause a huge public outcry. "Business needs to make sure it takes advantage of the breaks that are on offer from this Budget. There's an increase in the capital gains tax threshold for those entrepreneurs making money on the sale of their business; there are some opportunities for new business to have a National Insurance holiday on the first 10 employees they recruit and there are cuts in corporation tax, with the small company rate cut to 20% next year." • For additional information or comment please contact: Danny Carter of Gepp & Sons. This is not legal advice; it is intended to provide information of general interest about current legal issues.
Not a budget to cheer about but some bonus for business