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Wednesday, 3 October 2012

Budget June 2010 - tax changes

  • Published: Thursday, 24 June 2010

The Chancellor announced increases in VAT, Capital Gains Tax and Insurance Premium Tax. The point at which most people start paying income tax will rise by £1,000 next year. You can find information about the different types of tax in the money, tax and benefits section.

VAT

The standard rate of VAT (Value Added Tax) will rise to 20 per cent from 4 January 2011. The current rate is 17.5 per cent.

There is no change to the items on which you don’t pay any VAT, such as food, children’s clothes and books. There is also no change to the 5 per cent reduced rate for items such as domestic fuel and power.

Income Tax and National Insurance

The personal allowance for people aged under 65 will increase by £1,000 in April 2011. This means the amount of income you can receive without having to pay tax on it will rise from £6,475 to £7,475 for the 2011-12 tax year.

This increase will benefit 23 million taxpayers, and remove hundreds of thousands of people from income tax altogether.

Current rates

The Income Tax and National Insurance rates and allowances for the current 2010-11 tax year were announced in the Pre-Budget Report in December 2009.

Higher rate taxpayers

There will be some adjustments to ensure that the majority of higher rate taxpayers will pay the same total level of Income Tax and National Insurance as previously planned. The basic rate limit for tax will be reduced by £2,500, and the upper earnings and profits limits for National Insurance by £1,650, based on current estimates of the Retail Prices Index (RPI). Exact figures for the basic rate limit and higher rate threshold will be confirmed in the autumn.

National Insurance - employers

The threshold at which employers start to pay National Insurance will be raised in April 2011, making it cheaper for companies to employ people.

The government will also announce a tax scheme for new businesses, to help create jobs in targeted parts of Britain outside the South East.

Capital Gains Tax

From 23 June 2010, Capital Gains Tax will increase from 18 per cent to 28 per cent for higher rate and additional rate taxpayers. There is no change to the annual exempt amount of £10,100.

The 10 per cent rate for entrepreneurial business activities will be extended from the first £2 million to the first £5 million of qualifying gains made over a lifetime.

Insurance Premium Tax

The standard rate of Insurance Premium Tax will increase from 5 per cent to 6 per cent from 4 January 2011. The standard rate applies to most general insurance premiums, such as home insurance.

The higher rate will increase from 17.5 per cent to 20 per cent. The higher rate applies to travel insurance and some insurance for vehicles and domestic appliances.

Council Tax

The government will work with local authorities in England to freeze council tax in 2011-12.

Pensions tax relief

The government intends to restrict the generosity of tax relief on pension contributions by reducing the annual allowance from April 2011.

The government wishes to engage employers, pension schemes, experts and other interested parties to help design the best pensions tax relief regime.

Corporation Tax

Corporation Tax rates

Legislation will be introduced to cut the main rate of Corporation Tax to 27 per cent for the financial year starting 1 April 2011. There will be further cuts in the main rate in future years: 26 per cent in 2012-13, 25 per cent in 2013-14, 24 per cent in 2014-15.

The small profits rate of Corporation Tax for the financial year 2011-12 will be 20 per cent.

Corporation Tax reform

 The Government will set out a more detailed programme for reform in the autumn.

Other taxes

Landline duty

Landline duty will not be implemented. A 50p-a-month tax on fixed telephone lines would have been introduced on 1 October 2010, to help fund ‘next generation’ broadband.

Cider duty

Cider duty rates will be reduced from 30 June 2010.

Inheritance Tax

No further changes were announced to Inheritance Tax. The Inheritance Tax allowance will be frozen at its 2010-11 level of £325,000 until 2014-15. This was announced in the March 2010 Budget.

Tackling tax avoidance

As set out in the Coalition Agreement, the government is committed to making every effort to tackle tax avoidance. The government will take a strategic approach to the risk of avoidance, to prevent increasing complexity and reduce the need for frequent legislative change.

The government is tackling long-standing avoidance risks in a way that makes it clear what result the legislation intends to achieve. The government will continue to shut down avoidance schemes as they emerge.

Additional links

Red Tape Challenge

Tell us which motoring rules should stay and which should go

Budget June 2010

Full coverage of the new government's first Budget

Online benefits advice

If you need advice on benefits, pensions and credits, see what you might get by using the online calculator

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