wellinghall (![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png)
wellinghall) wrote2010-06-22 01:35 pm
wellinghall) wrote2010-06-22 01:35 pm
Budget news
Tax
From 4 Jan 2011, the main rate of VAT will rise from 17.5% to 20%. Current zero-rated items like children's clothes and magazines will remain exempt.
Corporation Tax will be cut next year to 27%, and by 1% annually for the next three years, until it reaches 24%. The small companies' tax rate will be cut to 20%.
The government will help low-spending councils in England to freeze council tax for one year from April 2011.
CGT remains at 18% for low and middle-income savers but from midnight, higher rate taxpayers will pay 28%.
UK economy
The economy is predicted to grow by 1.2 % this year, 2.3% next year, 2.8% in 2012, 2.9% in 2013 and 2.7% in both 2014 and in 2015.
The UK is set to miss the previous government's "golden rule" - of borrowing only to invest over the economic cycle - in the current cycle by £485bn.
Consumer price inflation is expected to reach 2.7% by the end of 2010 before "returning to target in the medium term". The inflation target remains at 2%, as measured by the Consumer Prices Index.
Unemployment is forecast to peak this year at 8.1% and then fall for each of the next four years, to reach 6.1% in 2015.
Borrowing
The structural current deficit "should be in balance" by 2015-16.
The balance of spending cuts vs tax rises would be 77% to 23%.
The measures are forecast to result in public sector net borrowing of £149bn this year, £116bn next year, £89bn in 2012-13 and £60bn in 2013-14. Mr Osborne said by 2014-15 borrowing would reach £37bn, falling to £20bn in 2015-16.
Spending
Mr Osborne said the state now accounted for "almost half" of all national income which was "completely unsustainable".
He said current expenditure would rise from £637bn in 2010-11 to £711bn in 2015-16, blaming a "rapidly rising bill for debt interest".
He said his Budget implied further £17bn cuts in departmental spending by 2014/15, unprotected departments face an average real cut of around 25% over four years.
He said compared with the plans set out by Labour, the government would cut additional current expenditure by £30bn a year by 2014-15.
There would be no further reductions in capital spending totals in this Budget but "careful choices" would be made about how it was spent. Projects with "a significant economic return to the country" would be prioritised - assessed in the autumn spending review.
Public sector pay
Public sector workers face a two-year pay freeze, although 1.7 million of those earning less than £21,000 will get a flat pay-rise worth £250 in both years.
Pensions
The government will accelerate the increase in state pension age to 66.
Benefits
From 2011, except for the state pension and pension credit, benefits, tax credits and public service pensions will rise in line with consumer prices rather than retail prices, saving over £6 billion a year by the end of the Parliament.
Tax credits will be reduced for families earning over £40,000 next year, the baby element will be removed for new children from April 2011 as will the one-off payment to new workers over 50 from April 2012.
Child benefit will be frozen for the next three years.
Reform of Housing Benefit which will have a maximum limit of £400 a week, to save £1.8bn a year by the end of the Parliament.
The government will introduce a medical assessment for Disability Living Allowance from 2013 for new and existing claimants.
Business
From April 2011, the threshold at which employers start to pay National Insurance will rise by £21 per week, above indexation.
Tax relief for the video games industry will be scrapped.
Cigarettes, alcohol and fuel
No change this time round
Banks
A bank levy is being introduced.
From 4 Jan 2011, the main rate of VAT will rise from 17.5% to 20%. Current zero-rated items like children's clothes and magazines will remain exempt.
Corporation Tax will be cut next year to 27%, and by 1% annually for the next three years, until it reaches 24%. The small companies' tax rate will be cut to 20%.
The government will help low-spending councils in England to freeze council tax for one year from April 2011.
CGT remains at 18% for low and middle-income savers but from midnight, higher rate taxpayers will pay 28%.
UK economy
The economy is predicted to grow by 1.2 % this year, 2.3% next year, 2.8% in 2012, 2.9% in 2013 and 2.7% in both 2014 and in 2015.
The UK is set to miss the previous government's "golden rule" - of borrowing only to invest over the economic cycle - in the current cycle by £485bn.
Consumer price inflation is expected to reach 2.7% by the end of 2010 before "returning to target in the medium term". The inflation target remains at 2%, as measured by the Consumer Prices Index.
Unemployment is forecast to peak this year at 8.1% and then fall for each of the next four years, to reach 6.1% in 2015.
Borrowing
The structural current deficit "should be in balance" by 2015-16.
The balance of spending cuts vs tax rises would be 77% to 23%.
The measures are forecast to result in public sector net borrowing of £149bn this year, £116bn next year, £89bn in 2012-13 and £60bn in 2013-14. Mr Osborne said by 2014-15 borrowing would reach £37bn, falling to £20bn in 2015-16.
Spending
Mr Osborne said the state now accounted for "almost half" of all national income which was "completely unsustainable".
He said current expenditure would rise from £637bn in 2010-11 to £711bn in 2015-16, blaming a "rapidly rising bill for debt interest".
He said his Budget implied further £17bn cuts in departmental spending by 2014/15, unprotected departments face an average real cut of around 25% over four years.
He said compared with the plans set out by Labour, the government would cut additional current expenditure by £30bn a year by 2014-15.
There would be no further reductions in capital spending totals in this Budget but "careful choices" would be made about how it was spent. Projects with "a significant economic return to the country" would be prioritised - assessed in the autumn spending review.
Public sector pay
Public sector workers face a two-year pay freeze, although 1.7 million of those earning less than £21,000 will get a flat pay-rise worth £250 in both years.
Pensions
The government will accelerate the increase in state pension age to 66.
Benefits
From 2011, except for the state pension and pension credit, benefits, tax credits and public service pensions will rise in line with consumer prices rather than retail prices, saving over £6 billion a year by the end of the Parliament.
Tax credits will be reduced for families earning over £40,000 next year, the baby element will be removed for new children from April 2011 as will the one-off payment to new workers over 50 from April 2012.
Child benefit will be frozen for the next three years.
Reform of Housing Benefit which will have a maximum limit of £400 a week, to save £1.8bn a year by the end of the Parliament.
The government will introduce a medical assessment for Disability Living Allowance from 2013 for new and existing claimants.
Business
From April 2011, the threshold at which employers start to pay National Insurance will rise by £21 per week, above indexation.
Tax relief for the video games industry will be scrapped.
Cigarettes, alcohol and fuel
No change this time round
Banks
A bank levy is being introduced.
Budget news
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You did ask....
Very simply, when the trader's sale is vatable at the zero rate (books, most chemist's sales, etc), the vat they've already paid on their related costs can usually be reclaimed from the tax man, including vat paid on overheads like office running costs. Where the sale is exempt, they can't be.
Time for a basic example: Imagine a business that sells widgets:
If the trader buys in standard rated widgets for resale, he charges VAT on the full amount of the sale. Against this, he deducts the VAT he paid when he bought the widgets, and also the VAT on all his office stationery, and the like. He pays the net amount to the VAT man.
But if the widgets are zero-rated, he charges VAT on the sale at zero - ie, the price stays the same - but he can still reclaim VAT on those purchases. Ok, so he probably didn't pay VAT on the widgets, but he still will have paid it on his stationery and the rest of his overheads. And yes, this may mean that he gets a refund from the VAT man every single quarter. Nice!
If that same business were selling exempt widgets, he couldn't recover any vat on any of his purchases.
That sounds simple enough in theory, because for the most part the zero and exempt catagories are clearly defined. But do appreciate that, because overheads can include big costs like standard-rated property rent, the difference between exempt and zero-rated status can make a huge difference to a company's profitability.
Where it really gets fun, though, is where a business has vatable sales (at either the standard or zero vat rate, or both) *and* also has exempt sales. Then the business becomes partially exempt, and working out the recovery can become extremely complicated. Huge battles get fought in court between companies and Revenue and Customs because the stakes can be so high for big businesses that they justify the court costs. And there are many very grey areas in the legislation that can only be settled by case law.
Partial exempt status is more common than you might think, even for very tiny businesses. It commonly arises where they primarily make "normal" vatable sales of widgets, but also have a couple of exempt properties they rent out. (And no, I'm not going to go into why property can have different vat status!)
In direct answer to your question, it's not exactly to do with company tax, because it affects all vat-registered trading entities equally not just those liable for corporation tax (even though I've been sloppy in talking about companies, businesses and trading entities equally - that's because I've just woken up, and keeping this explanation simple is a huge task for my precaffeinated brain!). Also, corporation tax is basically a tax on profits, whereas VAT isn't a tax on profits, it's a tax on sales instead. (Sole traders and partnerships pay tax on their profits through the income tax system instead.)
It's not exactly to do with audit either - it's an accounting matter, but it gets covered by audit (where companies get audited, not all do) because it's a huge area involving much complexity, a lot of money, a vast number of transactions, etc, etc, etc.
VAT is an incredibly complex tax - many people specialise in it for the whole of their working lives - so this is a really broad-brush explanation. I hope that it gives you some idea of why we're nitpicking on the phrasing of Wellinghall's post :).
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"Zero-rated items – including food and children's clothes – will remain exempt from VAT over the course of this parliament."
http://www.guardian.co.uk/uk/2010/jun/22/budget-2010-vat-rise-osborne
Methinks someone else has been cribbing :)
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