It was the UK’s turn for the introduction of an austerity budget the likes of which have been seen around Europe following the breakdown of the financial system and the subsequent recession.

The general reaction to the budget has, I believe, been positive.

Politically, the Conservatives can, once the coalition government has ended, look to blame (if they need to) some of the more un-Tory like announcements on their Liberal partners. It was however that Liberal Democrats who felt the wrath of the Labour opposition for apparently backing down or comprising on many of their pre election pledges – most notably the increase in VAT.

Below I have highlighted what I determine to be the key items that will be of interest to clients – if there are any specific queries or questions then please let me know.

VAT: The standard rate of VAT will increase from 17.5% to 20% from 4^th January 2011. The use of the flat rates scheme for VAT will be continue to be available to companies if their VAT exclusive turnover is no more than £150,000. Companies however must leave the scheme if their VAT inclusive turnover exceeds £225,000 – this exit turnover will rise to £230,000 from 4^th January 2011. Also, the industry rates used within the flat rate scheme will increase from 4^th January next year to reflect the increase in the standard rate of VAT.

The Chancellor has also indicated that there will be new penalties introduced for the late filing of VAT returns.

Income tax: The personal allowance will rise by £1,000 in 2011/12, but higher rate tax payers will not benefit.

National Insurance: Employee contributions will raise by 1% in 2011/12, as announced by the previous government.

The increase in Employer contributions has been discarded with the increase in the threshold for contributions by £21 per week.

Capital Gains Tax: From the 23^rd June 2010 capital gains tax will increase to 28% for higher rate tax payers, the rate of 18% will be retained for basic rate tax payers.

Entrepreneurs Relief: Restriction of capital gains tax to 10% for qualifying disposals will continue and be extended for the first £5million of life time gains.

Corporation tax: Small company rates will be reduced from 21% to 20% from 1^st April 2011. the main rate of corporation tax will fall from 28% to 27% next year and then will fall by 1% per year until it reaches 24%.

Capital expenditure: The value of capital expenditure from which businesses will obtain full tax relief in the year of acquisition will fall from £100,000 to £25,000 per annum.

There has also been a reduction in the level of capital allowances received by companies for the write down of fixed assets for tax purposes. This does not mean there is a loss of relief, but rather the tax saving is spread over a longer period.

Child trust funds: Government contributions to the fund will be scrapped from 1^st January 2011.

Tax credits: From April 2011, the income threshold for the withdrawal of the family element of child tax credit will be reduced from £50,000 to £40,000.

Furnished holiday lettings: The plans to repeal the furnished holiday lettings provision have been scrapped. There will however be changes to the criteria that establish whether a property is a genuine holiday let, for example an increase in the number of days the property is let.

Anti avoidance: There continues to be a clamp down in the use of more aggressive tax planning schemes, the government indicating that two of the most popular current schemes including Employee Benefit Trusts (EBTs) and Employee Funded Retirement Benefit Schemes (EFRBS) will be subject to further anti avoidance legislation.

IR35: The government have indicated that they will consult over the tax treatment of managed service companies – a good sign for the many contractors who currently use companies but fall foul of the IR35 regulations.

The budget on balance appears fair – the public spending cuts of close to 25% that will be faced by the majority of government departments combined with the tax raising measure mentioned, indicates that all areas of the economy must share the burden of the current circumstance.

The inclusion of a bank levy, is perhaps designed more as PR exercise than as a pure revenue generator (after all the banks will benefit from the fall in the corporation tax rate).

The government have extended the enterprise finance guarantee scheme to help support finance for small business - this will hopefully stimulate more investment in the private sector to make up for the forthcoming cuts in the public sector.

George Osborne, Chancellor of the Exchequer is delivering his emergency budget, the first from the new Conservative Liberal Democrat coalition government.

He has suggested a proposal to beat the structural deficit within 4 to 5 years through a mix of public spending cuts and tax rises.

A new version of the 80:20 rule – 80% public spending cuts 20% tax rises.

Items to highlight are:

Income tax - an increase in the personal tax free allowance for the lowest paid

VAT – an increase in VAT from 17.5% to 20% from 4^th January 2011

Capital gains tax – an increase in the rate of tax for higher rate tax payers from 18% to 28% as of midnight tonight. Entrepreneurs Relief will be retained with the lifetime limit increasing to £5m.

Corporation tax – small company rates to fall from 21% to 20%. Large company rates to fall from 28% to 24% over the next four years.

Working tax credits – the threshold for qualification for WTC to fall to £40,000