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Budget Update

April 6th, 2010

There is not very much that is exciting about this budget. Generally it is perceived as a pre-election holding budget, probably to be replaced by something a little more radical after the election.

From a business and tax point of view, most allowances and levels have been frozen at last year’s levels.

The big exception to this is the much-trailed 50% income tax rate for those of us lucky enough to have income in excess of £150,000 during 2010-11. Dividends will be taxed at 42.5% and NI contributions will be increased by 1p next year.  Also, the personal allowance will be withdrawn on a tapered basis for people earning in excess of £100,000 per annum.  Anyone earning in excess of £112,950 in 2010/11 will not receive a personal allowance.

Another exception is the increase in Annual Investment Allowance (the value of fixed assets that you can write off within a tax year) from £50,000 to £100,000. In small business terms this is most likely to be useful for businesses starting up close to the tax year end (they can now write off £8,333.33 of assets for each full month of trading rather than £4,166.66).

Corporation tax remains at 28% and entrepreneur’s relief for capital gains tax is to be raised from £1m to £2m effective from 6 April 2010 so if you are considering a disposal of a business, check if it is worth delaying until after 5 April.

Stamp duty for first-time buyers has been abolished on purchases of houses costing less than £250,000, with immediate effect. This was previously £125,000 and is in place until March 2012.  The relevant date is the date of completion not the date of exchange and only applies to buyers if none of the buyers in any one transaction have ever owned a property before (so people returning to the housing market, divorcees buying under their own name, couples buying jointing where one of the two has bought a property before do not qualify). Buy-to-let residences are also excluded.

Duty on alcohol has been increased by 2% above inflation, while ciders have had an extra 10% slapped on them.  This is bad news for Somerset cider producers.

An important thing to note is the tightening up on late submission of VAT returns. Late submissions will now carry penalties.

The turnover threshold for compulsory VAT registration will rise from £68,000 to £70,000 on 1 April 2010.

The content of this article is for general information only. It should not be relied on and action which could affect your business or personal circumstances should not be taken without appropriate professional advice.