ABC North East

The full budget document can be viewed here through direct.gov

Full Emergency Budget Document

Key announcements included in the emergency budget were:

FAMILY
• Reductions in tax credit payments for families earning £40,000 or more, from 2011
• Child benefit will be frozen for the next 3 years but there will be no changes to who is eligible
• Council tax is frozen for one year from April 2011
• Health in pregnancy grant to be abolished from April 2011
• Child Tax Credit for low income families will increase by £150 per child above the rate of inflation next year

PERSONAL
• Annual allowance for income tax to increase by £1,000 to £7,475 from April 2011 although the higher rate threshold will be reduced so that higher rate taxpayers do not benefit from this change. This is worth £170 a year to basic rate taxpayers.
• Basic rate tax payers will continue to pay tax on capital gains at 18% but from midnight tonight, higher rate tax payers will pay tax on capital gains at 28%
• The annual exemption for CGT is to remain at £10,100

EMPLOYERS
• Increase in the threshold at which employers pay National Insurance by £21 per week

COMPANIES
• Reduction in main corporation tax rate by 1% per year for 4 years, to 24% in 2014
• Reduction in small companies corporation tax rate to 20% from 2011
• Reduction in Capital Allowances from 2012. Plant and machinery allowances reduced to 18%, Allowances for longer term assets reduced to 8% and Annual Investment Allowance reduced to £25,000 per annum
• The standard rate of VAT to increase to 20% from 4th January 2011

Is being a sole trader or a limited company the most tax efficient form of business for me? This is a question that many people don’t consider as they see a limited company as having more paperwork, more accountant fees and more legal implications. The truth is however that the paperwork and the accountancy costs involved are often outweighed by the tax savings that you can get as a limited company.

Below is an illustration that highlights the tax savings that a company could achieve based on the 2009/10 UK tax rates (these rates also apply for 2010/11 for income up to £150k). It is assumed that any company profits are first extracted by a salary of £5,720 in order to make the most of personal allowances and avoid national insurance contributions, with the remainder drawn as dividends. It is assumed in this example that there is no other taxable income to be considered.

If you believe that becoming a limited company may be of benefit to you and would like further advice on setting up a company and the legal implications and costs involved please contact me for further information dawn@abcnortheast.co.uk