September 5th, 2010
With two budgets being held this year, it can be difficult to keep track of all the changes that are either proposed or being implemented and the date they take effect. In order to allow you to maximise your planning potential we thought it would be useful to summarise the changes that are due to come into effect from 2011 and beyond.
VAT is currently 17.5%, but is being increased to 20% from 4th January 2011. There will be no change to items that are currently VAT exempt and the 5% reduced rate (which applies to some items such as child car seats and domestic power) stays the same.
If you are looking to purchase an expensive item, on which VAT will be charged you may wish to consider doing so before the end of the year to avoid the increase.
Insurance Premium Tax
Insurance Premium Tax is a tax on general insurance premiums. Contracts to which this will apply include car, home, private medical and travel insurance. There is currently a standard rate of 5% and a higher rate of 17.5% for travel insurance and some insurance for vehicles and domestic/electrical appliances. The new levels of Insurance Premium Tax that will apply from 4th January 2011 are 6% for the standard rate and 20% for the higher rate.
Income Tax Personal Allowance
From 6th April 2011, the income tax personal allowance for people under 65 will be increased by £1,000 taking it from £6,475 in 2010-11 to £7,475 in 2011-12. This is good news for those on lower incomes as they will potentially save £200 in income tax for the year, or be removed from paying income tax altogether.
Higher rate taxpayers will not benefit however, as the maximum income level to which basic rate income tax applies (currently £37,400) will be reduced to ensure that they will pay the same total level of income tax. The exact figures are not currently known, as these will be confirmed at some point in the autumn.
National Insurance Contributions
The government has announced that the employee, employer and self-employed rates of National Insurance contributions (NICs) will increase by 0.5% from April 2011 in addition to the 0.5% increase announced in 2008. The starting point at which employers pay National Insurance will increase by £21 per week above indexation.
The main rate of corporation tax will be reduced from 28% to 27% from 1st April 2011, with further reductions to 26% in 2012-13, 25% in tax years 2013-14 and 24% in tax year 2014-15. The Budget also announced a reduction in the small profits rate of corporation tax from 21% to 20% from 1st April 2011.
The Government will uprate the basic State Pension by a triple guarantee of the highest of earnings, prices or 2.5% from 6th April 2011. The Consumer Price Index (CPI) will be used as the measure of prices, although the basic State Pension will increase by at least the equivalent of the Retail Prices Index (RPI) in April 2011 to ensure its value is at least as generous as under previous uprating rules. The standard minimum income guarantee in Pension Credit will increase in April 2011 by the cash rise in the full basic State Pension.
Tax Credits and Child Benefit
The child element of the Child Tax Credit will increase by £150 above CPI in April 2011. The baby element of the Child Tax Credit will be removed from 6th April 2011. From 2011-12, both rates of Child Benefit will be frozen for three years. The weekly payments for the eldest/only child of £20 and £13.40 for other children will therefore not be increasing in the near future.
The Government will reduce the tax credit eligibility for families with household income above £40,000 from 6th April 2011. Further changes will be introduced in 2012-13 although these are not yet known.
Health in Pregnancy Grant
The Health in Pregnancy Grant is a £190 one-off payment to all expectant mothers irrespective of income. The Government considers the universal Grant to be a poor use of limited public funds and has announced that it is to be abolished from 1st January 2011 to help reduce the deficit in a fair way. Women who reach the 25th week of pregnancy before 1st January 2011 will still be entitled to the grant providing they satisfy the relevant conditions.
Child Trust Fund – Restriction of government contributions
The Government has announced that it intends to reduce and then stop all government contributions to Child Trust Funds. Subject to legislation, the Government intends to reduce government contributions at birth, and to stop government contributions at age seven from August 2010. The Government also intends to stop issuing new Child Trust Fund vouchers from 1st January 2011.
As the above demonstrates, there are a number of changes due to be implemented. Some such as the VAT and Insurance Premium Tax rise will potentially increase costs for everyone, others, for example, the increase in the income tax personal allowance for those under 65 and the increase in the National Insurance thresholds will potentially benefit those on low incomes.
Some of the changes, for example the removal of the health in pregnancy grant and the restriction of the Government’s contributions to Child Trust Funds, are practical examples of the Government reigning in their spending to reduce the huge deficit that is currently faced.