Summer Budget 2010 Introduction Income Tax Tax Credits and Benefits National Insurance Contributions Employees Savings Capital Gains Tax Inheritance Tax Corporation Tax Business Tax Value Added Tax Insurance Premium Tax Other Measures Tax Tables National Insurance

Value Added Tax Standard rate As widely expected, Mr Osborne's major tax-raising measure was an increase in the standard rate of VAT. This will go up from 17.5% to 20% on 4 January 2011. Following the temporary cut in the standard rate to 15% between 1 December 2008 and 31 December 2009, traders have recent experience of the complexities of implementing a VAT rate change. At least the Chancellor appears to have noted that changing the VAT rate at midnight on New Year's Eve, as Mr Darling did, poses a number of practical difficulties. There will be measures to prevent businesses which cannot recover all the VAT on their expenses, such as banks and insurance companies, from artificially bringing forward expenditure in order to pay 17.5% rather than 20%. The effect of this increase dwarfs all the other tax changes in the Budget. The increase in the CGT rate is expected to raise just under £1bn by 2014/15; the VAT increase is supposed to be raising over £13bn a year by then. That shows that this is not a temporary measure, but something that is expected to remain at the same level for the whole of the Parliament. Tax Trap Changing the VAT rate is an administrative headache – be prepared. Flat Rate Scheme (FRS) Small businesses with turnover of up to £150,000 may apply to use the FRS. This simplifies their VAT accounting because they do not claim input tax credit on expenses; instead, they keep some of the output tax they charge to customers rather than paying it all to HMRC. The percentage which must be paid to HMRC varies according to the type of business. The flat rates change when there is a change of standard rate, and the new rates which will apply from 4 January 2011 have been published. Any business which uses the FRS should make sure that it is aware of the new rate and has checked whether the scheme remains beneficial. Scope of the tax Mr Osborne stated that there would be no extension of VAT to those items which are currently not charged to the tax such as children's clothes, food, newspapers and books. These reliefs are intended to reduce the impact of the tax on lower earners, who otherwise suffer the effect of VAT increases disproportionately.