TAX experts in Huntingdonshire were quick to react to the new Chancellor of the Exchequer’s first (‘emergency’) budget this afternoon.Here, Simon Laskey, principal of Haines Watts in Huntingdon, a sponsor of The Hunts Post Huntingdonshire Business Awards, offers his immediate reactions.

TAX experts in Huntingdonshire were quick to react to the new Chancellor of the Exchequer's first ('emergency') budget this afternoon.

Here, Simon Laskey, principal of Haines Watts in Huntingdon, a sponsor of The Hunts Post Huntingdonshire Business Awards, offers his immediate reactions.

The Chancellor, George Osborne, set out his stall during his Budget speech today by stating early that the Budget would be 'tough but fair'. What followed was a mix of spending cuts and tax reforms (including an increase in VAT to 20 per cent from January 2011, changes to the corporation tax system for businesses and widely-anticipated changes to non-business capital gains tax).

However, it was not all bad news. The Chancellor has set out plans to reduce corporation tax rates over the next four years for both small companies and large, and for entrepreneurs there is an unexpected increase in entrepreneurs relief from £2million to £5million. This means that business owners can expect a capital gains tax rate of only 10 per cent for gains up to £5million, which is a significant incentive to entrepreneurs.

Spending cuts

It was always clear that this Budget was going to involve significant spending cuts and the 80:20 rule in terms of spending cuts and raising taxes was followed, we are told.

The first cut was to abolish the 'Euro preparations unit' [in the Treasury] with a statement that we would not be joining the Euro during this Parliament. This measure was followed by a £30billion reduction in spending across the public sector where staff face a two-year pay freeze where income is more than £21,000, and significant reductions and restrictions to the welfare bill to address an 'explosion in welfare costs'. Specifically targeted were tax credits, with a reduction in the income threshold to £40,000 and other tightening measures; restrictions to grants; child benefit frozen for three years; disability living allowances to require a medical assessment from 2013, and housing benefit has been capped and restricted.

This was one of the key messages of the Budget that there was a real need for welfare reform, and significant steps are now being taken to see that this is done.

Business measures

For local businesses, there was plenty of good and often unexpected news. With effect from April 2011 the employer's national insurance threshold will rise by £21 per week beyond indexation ,making the costs of employing staff less of a financial burden.

In addition, the main rate of corporation tax is to fall from 28 per cent to 27 per cent next year, with a further annual reduction for three more years until the rate reaches 24 per cent. Likewise, the lower rate of corporation tax for smaller businesses will no longer increase next year to 22 per cent, but instead will reduce to 20 per cent. It is expected that 850,000 small businesses will benefit from this measure.

The previous Government had proposed plans to abolish the beneficial 'holiday lettings' rules for capital gains tax purposes, but the Chancellor today has announced that these measures will remain. This is encouraging news for the tourism industry which can now expect to benefit from the more favourable capital gains tax treatment on retirement or sale.

We did see some restrictions to capital allowances for all businesses today, which will mean that, although the overall allowances available for capital expenditure will not change, it will take longer to achieve tax relief. The appropriate rates are a reduction from 20 per cent to 18 per cent for plant and machinery and from 10 per cent to eight per cent for long-life assets.

Furthermore, the annual investment allowance amount has been reduced from £50,000 to £25,000, which means that 100 per cent tax relief will be available only on the first £25,000 of capital expenditure. The measure is designed to focus this generous tax relief on small businesses.

One announcement that was widely expected was the introduction of an exemption for the first £5,000 of national insurance contributions for 'businesses outside of London, the South East and the East of England' where they take on new employees up to the first 10 that they hire. The exact definition of the various territories will be interesting to see in the small print once the budget documents are released and have been digested.

Other taxes

The standard rate of VAT will increase to 20 per cent from January 4, 2011. It will be interesting to see how this is received as, when the cut of 2.5 per cent was announced, general opinion was that it was ineffective. However, now that the change is an increase will individuals and non-VAT registered businesses take a different view?

Another measure that was widely expected was the increase in capital gains tax to 28 per cent for non-business assets from midnight tonight. This will impact on investors and individuals who have entered the buy-to-let market when it exploded in recent years. The annual exempt amount will remain at £10,100 and will then rise with inflation in future years.

An unexpected announcement for business owners was the increase in the 10 per cent CGT rate for entrepreneurs to become available for lifetime gains of up to £5million in place of the previous £2million limit. This is excellent news for entrepreneurs who often consider their business to also be their pension plan.

The final measure of interest was an increase in the Income tax personal allowance of £1,000 to £7,475 from April 2011. The previously-stated longer term objective to increase this to £10,000 was reiterated and remains an objective of the current Government.