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Macfarlanes Emergency Budget update 2010

This summary will provide you with a snapshot of the issues that will affect you and your business.

To download our complete budget update, click here.

Budget headlines:

As well as announcing a number of specific measures (some of which had been expected), the Chancellor has signalled that the Government is planning to review and reform the UK tax regime to ensure that it is conducive to economic recovery.

Personal taxation

• Capital gains will be taxed at 28 per cent to the extent the individual's total income and gains exceed the income tax basic rate band of £37,400 with effect from 23 June.  Gains below that threshold will continue to be taxed at 18 per cent.  The entrepreneurs' relief lifetime limit below which gains are taxed at 10 per cent will be increased to £5m. 
• The income tax personal allowance will increase by £1,000 to £7,475 for those under 65 from 6 April 2011 with the long term objective of being increased to £10,000.  Higher earners will not benefit, as the threshold for higher rate income tax will remain fixed.
• The Government will be revisiting the tax treatment of pension contributions made by higher earners, and is considering allowing tax relief at higher rates but significantly reducing the annual cap on contributions attracting relief.
• Settlors of trusts will be required to pay to their trust any tax reclaimed where they do not pay tax at the 50 per cent rate.
• There will be a consultation on extending the disclosure of tax avoidance schemes (DOTAS) regime to inheritance tax on trusts, and to SDLT on high value residential property.

Business taxation

• The main rate of corporation tax will be reduced from 28 per cent to 27 per cent from 1 April 2011, and then by one per cent each year until the rate reaches 24 per cent by 2014.
• Capital allowances will be reduced from 20 per cent to 18 per cent per annum for expenditure on plant and machinery allocated to the main pool, and from 10 per cent to 8 per cent for plant and machinery in the "special rate pool" (which includes long-life assets and integral features) with effect from April 2012.  The annual investment allowance, which gives 100 per cent relief, will be reduced from £100,000 to £25,000 with effect from April 2012.
• The standard rate of VAT will increase from 17.5 per cent to 20 per cent for supplies made on or after 4 January 2011.  The higher rate of insurance premium tax will also rise to 20 per cent from that date.  No changes will be made to the VAT rules on zero rated and lower rated supplies.  Anti-forestalling rules will be introduced to prevent artificial acceleration of supplies aimed at securing the lower rate of VAT.
• Retrospective legislation will be introduced to ensure that the corporation tax dividend exemption introduced in 2009 does not inadvertently result in many more distributions being taxed as capital gains.  
• In a statement released jointly with the Governments of France and Germany, the UK Government has announced plans to introduce a levy of 0.07 per cent on the relevant aggregate liabilities of banking groups above a minimum size, with an initial rate of 0.04 per cent with effect from 1 January 2011.
• New rules will be introduced to counter avoidance schemes which involve the "derecognition" of income from certain loan relationships and derivatives for accounting purposes by overriding the accounting "derecognition" for tax purposes in certain circumstances.
• A series of consultations has been announced for later this year, including a general review of the structure of corporation tax; further reform of the taxation of foreign profits, including the UK's controlled foreign company rules; consideration of a general anti-avoidance rule; and proposals to reform the process of tax policy making.