The Chancellor has chosen to raise the basic rate of VAT from 17.5 per cent to 20 per cent. The change takes effect from 4 January 2011, the move bringing the UK rate in line with that of the EU average.
Zero rates supplies, such as food, books and children's clothing, exempt supplies and reduced rate items are not affected by the change.
However, flat rate scheme rates have been recalculated to take the increase into account.
Capital Gains Tax
As widely anticipated, the rate of capital gains tax has gone up but not for everyone and not by as much as earlier statements suggested, where a match with higher income tax brackets was expected.
Starting from 23 June, there are two CGT rates on gains made on the sale of assets. The CGT for low and middle income earners stays at 18 per cent, but for top rate taxpayers (those earning over 40,000) it rises to 28 per cent.
The annual exemption holds at 10,100, rising by inflation over the years.
The lifetime limit at which entrepreneurs qualify for a reduced charge of 10 per cent on the sales of assets has been extended to 5 million, up from the previous 2 million.
Corporation Tax and Capital Allowances
Starting from 1 April 2011, the headline rate of corporation tax is to be reduced by 1 per cent each year for four years until it reaches 24 per cent.
The small companies corporation tax rate is also to be reduced next year, down 1 per cent to 20 per cent.
However, the price is going to be a small reduction in the rates for capital allowances.
For most plant and machinery assets, the rate of allowance is to decline from 20 per cent to 18 per cent. For assets with a longer lifespan, the special rate is to drop from 10 per cent to 8 per cent.
by: Jeffreys Henry
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