The chancellor has increased capital gains tax (CGT) for higher rate tax payers, but more than doubled existing concessions for business owners in what he called a "tough but fair" Budget.
As of midnight tonight, CGT for higher rate tax payers will rise by 10% to 28%. However, 'Entrepreneurs' Relief' will increase from £2m to £5m, giving business owners a reduced tax rate of 10% on their first £5m of lifetime gains.
In his first Budget as chancellor, George Osborne said he had taken into consideration measures such as a return to taper relief, but concluded the complexity and administration involved in applying them would be counter-productive.
Osborne said the Emergency Budget was "unavoidable", and that it "pays for the past and plans for the future". He said he wanted to put a sign up stating that the UK was “open for business” and the recovery had to be “enterprise-led”. The current deficit of £149bn would fall to £20bn in 2015/16, he stated.
The chancellor also announced that VAT will increase to 20% from January next year, generating state revenues of £13bn a year, and detailed reductions for both the main rate and small companies’ rate of corporation tax.
The main rate will be cut by 1% each year until it reaches 24% while the small companies’ tax rate will be cut to 20% from April 2011. The previous government had planned to increase the small companies’ rate by 1%.
Measures such as the corporation tax reduction and the extension of entrepreneurs’ relief have been broadly welcomed by the business community.
Phil Orford, of the Forum of Private Business (FPB), said the chancellor had made “all the right noises about supporting enterprise and smaller businesses, [and] backed it up with a number of crucial tax changes.”
However, Orford described the announcements on National Insurance Contributions (NICs) as “watered-down from the Conservatives’ original pre-election promises”.
Osborne stated the threshold for employer NICs would rise by £21 a week from next April. He also announced a three year scheme to exempt new businesses in “target areas” from NICs for their first 10 employees during their first year of business.
Other measures announced in the Budget include a £200m extension to the Enterprise Finance Guarantee Scheme; the introduction of a new £37.5m Enterprise Capital Fund to provide additional equity finance for small businesses; and a commitment to review IR35 and small business tax.
In addition, the full Budget report confirmed that Regional Development Agencies would be abolished as part of the Public Bodies Bill.
As part of its measures to improve tax compliance, the government also announced that HMRC will use debt collection agencies to chase unpaid tax debts this year.
John Walker, national chairman of the Federation of Small Businesses, said 93% of the lobby group’s members would be pleased with the Budget.
However he expressed concern over the VAT announcement saying it would “hurt small firms who will have to pass the increase on to their customers, unlike big business which can absorb the cost.”
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