First Impressions of the Tax Changes as the Chancellor sits down

As expected George Osborne’s first budget was wide ranging but surprisingly concise in the detail. The machine-gun delivery of areas of spending savings, such as the abolition of the Committee for Conversion to the Euro probably gave that effect.

His application of Pareto’s 80:20 rule will appeal to the number crunchers amongst us, the deficit will be reduced by an 80% reduction in government expenditure and a 20% increase in taxation.

The main increase is the 14% rise in the rate of VAT from 17.5% to 20% with effect from 4 January 2011. This will provide a frenzied consumer boom in the autumn especially in big ticket items such as cars and home improvements.

Corporation Tax for companies with profits over £300,000 will be reduced from 28% down to 24% in annual 1% rate decreases. For companies with lower profits the rate will be reduced from 21 to 20% from April 2011. To help pay for this, the depreciation rate for Capital Allowances will be reduced from 20% to 18% and the annual investment allowance will be reduced from £100,000 to £25,000 with effect from 2012/13.

The threshold at which National insurance will start will rise from £110 to £131 per week from April 2011. Income Tax thresholds will also increase by £1,000 to £7,475 from April 2011, but the 40% band will remain frozen at £37,400. National Insurance holidays worth up to £5,000 will be given to new businesses setting up outside the south east and employing up to 10 staff.

No increase in tobacco, fuel or alcohol duties and if you are a cider drinker the 10% planned rise in duty is abolished. Council tax will be frozen in areas that have low spending councils.

Capital Gains Tax will be based on your marginal tax rate in future. From midnight on 22 June 2010 gains will remain taxed at 18% for basic rate tax payers but will rise to 28% for higher rate taxpayers. The £10,100 exemption will remain. Sellers of businesses will be able to claim Entrepreneurs Relief on the first £5m of gains and pay an effective rate of 10%

Overall it will require close scrutiny over the coming weeks but for those who are not in the public sector or in receipt of benefits and allowances it does seems a fair and economically viable Budget.