Summer Budget 2010


Introduction

Income Tax

Tax Credits and Benefits

National Insurance Contributions

Employees

Savings

Capital Gains Tax

Inheritance Tax

Corporation Tax

Business Tax

Value Added Tax

Insurance Premium Tax

Other Measures

Tax Tables

National Insurance

Introduction


Ever since the Conservatives and Liberal Democrats found enough common ground to form a coalition, the Treasury team has been preparing the public for austerity: spending cuts and tax increases. We have been told to expect the worst so we should not be unpleasantly surprised. When he stood up for his first Budget speech, the new Chancellor announced that he would be "tough but fair": everyone will have to pay to restore the country's finances, but the rich will bear a higher proportion than the poor.

We will have to wait to see if that turns out to be true. The largest revenue-raising measure is an increase in the rate of VAT to 20%, to take effect on 4 January 2011; the poor tend to suffer disproportionately from VAT increases, because a tax on spending takes up a larger slice of their disposable income. On the other hand, there were several measures to reduce the tax burden on the lowest earners, as well as an increase in the rate of tax on capital gains. Traditional Conservative priorities such as reductions in Inheritance Tax were noticeably absent.

Mr Osborne said that 77% of his deficit reduction will be achieved through spending cuts, while only 23% will come from tax increases. There are major reforms in benefits and tax credits to reduce costs, but the largest numbers are cuts in public spending. These include a two-year pay freeze for all civil servants earning over £21,000, and 25% reductions in the budgets for some departments that will hit those affected as hard as any of the tax proposals. Labour claim that cutting this much this quickly runs the risk of sending the country back into recession: we can only hope that they are wrong.

As usual, the speech itself does not tell the full story. Many important details are hidden in press releases issued by HM Revenue & Customs and the Treasury after the Chancellor sits down. This booklet summarises the main changes and outlines their likely effect on the average taxpayer.

Significant points
  • Increase in standard rate of VAT from 17.5% to 20% with effect from 4 January 2011

  • Above-inflation increase in personal allowances for 2011/12

  • Reduction in tax credits for middle-income families from 2011/12

  • Employer's NIC holiday for new businesses in some parts of UK from September 2010

  • Rethinking of the restriction of higher rate pensions tax relief in 2011/12

  • Reform of requirement to use pension funds to buy an annuity at age 75

  • Immediate increase in rate of CGT to 28% for higher rate taxpayers

  • Increase in lifetime limit for Entrepreneurs' Relief to £5m

  • Cuts in corporation tax rates from April 2011 main rate down to 24% over four years