The increase in personal allowances to £8,105 from April 2012 is very welcome and is big step in taking personal allowances to £10,000 which is what the government is working towards.
As with all Budgets what is given with one hand is taken with the other and this year is no exception, as allowances increase the basic rate tax band has decreased from £37,400 for 2010/11 to just £35,000 for 2011/12. In addition to this there has been a 1% increase in National Insurance. The increase in National Insurance has been mitigated by the increase in of the threshold at which you start to pay National Insurance up from £5720 to £7225 from April 2011 although this only applies to those earning £20,000 a year or less, for those earning over £20,000 the NI increase will pinch.
Personal Allowances will increase to £8,105 from April 2012 giving cash increase in people's pockets of £126.
The merging of tax and National Insurance is to be put for consultation, if this happens it will be a long way down the road and a full merger of the two is seen as unlikely.
Pensioners are not expected to face any increase in taxes.
The 50 pence tax rate is a temporary measure, HMRC will review this to see how effective it has been. However, income tax was also a temporary measure when it was introduced to fund the Napoleonic Wars!
Main Points from Today's Emergency Budget
- VAT to rise from 17.5% to 20%
- Capital Gains Tax increase for higher rate taxpayers from 18% to 28%
- The basic State Pension will be linked to earnings, this will be from April 2011
- Alcohol, tobacco and fuel have all escaped increases in duty
- Increase in personal allowances of £1000
- Tax Relief on Pensions
The first budget of the new Government will take place on the 22nd June 2010.
What can we expect, there has been much uncertainty in the small business environment especially with SME and the burden which is IR35.
It is expected there will be a rise in VAT from 17.5% to 20%, which will yield an estimated £11.5 billion in to the Treasury. Business leaders have called for the Government to allow sufficient time for businesses to prepare for the increase. The administrative burden on business is huge and expensive as we saw with the last VAT change.