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The Chancellor has now presented his first full budget to Parliament. There were a few surprises but much of the detail had been released well in advance of the budget speech. In general the tax burden on small business was slightly reduced but this is likely to be more than offset by the change in national insurance rates already on the cards.
Income tax
The increase of £1,000 in the standard personal allowance is clearly good news for the basic rate taxpayer who will be up to £200 per year better off but higher rate taxpayers are hit by the reduction of £1,400 in the threshold leaving them £80 per year worse off overall. There were no changes to any of the other tax bands or to any of the rates.
Corporation tax
Doubtless many larger companies will be pleased by the 2% reduction in the corporation tax rate from April bringing the mainstream rate down to 26% and to 25% from April 2012. Sadly there was no similar reduction in the small companies rate which remains at 20%. Personally I would be surprised if this rate fell below the basic rate of income tax given the problems previously encountered when these rates diverged.
Capital allowances
No changes were announced to the rates for the coming year but we already know that the annual investment allowance, on which we are entitled to 100%, will be reduced from £100,000 to £25,000 from next April and the rates of writing down allowance will be reduced at that time to 18% and 8& compared to the 20% and 10% rates currently in force. The Chancellor relaxed the rules relating to short-life assets to include assets which will be replaced or scrapped within an 8 year rather than the previous 4 year period.
Cars
Mileage rates for reimbursement of car fuel are updated regularly but the rate for use of a personal car for business purposes ahs remained unchanged for almost 10 years. From April the rate for the first 10,000 miles of business travel has been increased from 40p to 45p per mile but no change has been made to the rate for mileage above 10,00o which remains at 25p per mile.
The starting level of Co2 emissions has again been decreased resulting in a 15% charge for petrol at 125g/km reaching the maximum 35% at 225g/km and above. Diesel cars start at 18% and reach the maximum at only 210g/km. The fuel scale charge is now based on an assumed value of £18,800. Fuel scale charges for VAT have also been realigned.
Other matters
Tax relief on EIS and VCT investments is increased from 20% to 30% to try to encourage investment in new and growing businesses.
The exempt allowance for capital gains tax is increased to £10,600 and the amount of lifetime gains eligible for entrepreneurial relief and taxed at only 10% is increased to £10m.
The VAT registration threshold goes up by £3,000 to £73,000.
Good news/Bad news
The Chancellor has announced that a review of income tax and national insurance will be undertaken in an attempt to simplify the operation of the two, currently divergent, systems. He confirmed that the review will not seek to charge NI on other types of income such as pensions, interest or dividends! However, he did not suggest any easement or replacement for IR35 which will remain in force apparently with some clearer guidance to come from HMRC. Anyone potentially caught by IR35 needs to review their position as a matter of some urgency.
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