Increase in VAT headlines emergency budget

The chancellor, George Osborne, unveiled a combination of spending cuts and tax hikes in his Emergency Budget, designed to eliminate Britain’s deficit by 2016.

Among the most significant measures in the budget for florists and other small businesses is the rise in VAT. The tax will be increased by 2.5% to 20%, with the hike coming into effect from 4 January 2011. The National Insurance threshold rate will rise by £21 a week from April 2011, and corporation tax for small companies will be decreased to 20% as of next year. Labour’s proposed tax on landline phones will be scrapped.

New businesses outside London, the south-east and east of England will be exempt from £5,000 of National Insurance contributions for each of the first 10 employees they recruit.

As for how the budget will affect consumers, the VAT rise is the most obvious factor which will result in people having less money for non-essentials such as flowers.

On the other hand, the personal income tax allowance will be increased by £1,000 in April to £7,475 – putting an extra £170 a year into the pockets of 23 million people – and the higher-rate income tax threshold will remain frozen until 2013 or 2014, with a long-term plan to increase the personal allowance to £10,000. There will also be no rises in duty on fuel, alcohol or tobacco.

As for Capital Gains Tax, low and middle-income savers will pay 18%, but, from 23rd June, taxpayers on higher rates will pay 28%.

John Walker, national chairman of the Federation of Small Businesses, said: “The increase in VAT will hurt small firms who have to pass the increase on to their customers. We welcome moves to give a National Insurance holiday to startup firms, but are concerned that, with 70% of firms operating below capacity, those businesses already trading will not be helped.”

Accountants for the British Florist Association, Wilkes Tranter, have produced a budget summary which can be downloaded by clicking the link below:

http://www.wilkestranter.co.uk/ard/documents.asp?AID=479&SID=11&FID=8159