The Budget Top 8 Predictions by WOW Accountants (using their crystal ball!)

Capital gains tax (CGT)

One of the most debated topics is the potential increase in CGT, with talk of a rise of up to 40% on the cards. It is hoped that any increase is delayed until April 2011, to give entrepreneurs and other asset holders time to consider what the new rules will mean for them, and to decide what action they need to take. Wow will be keeping a close eye on not only the new rate, but what relief entrepreneurs receive as part of any changes.

Initially the Conservatives had planned to set the IHT threshold at £1m per person, but this is unlikely to be announced next week. Most observers are expecting no change to the current IHT threshold of £325,000.

It’s likely that the personal allowance increase promised by the coalition will not be given at once. It is predicted that the increase in personal allowance to £10,000 (currently £6,475) will happen gradually over the lifetime of this Parliament, with a small increase coming in by April 2011. The top income tax bands are expected to remain unchanged (at £100,000 and £150,000) with the 50p tax rate likely to remain for higher earners.

Probably the most likely of all of these predictions is the increase in VAT by 2.5%, bringing VAT up to 20%. This will bring in much needed money quickly, with a 2.5% increase generating around £12.5billion. However, the Chancellor needs to be careful as, whilst a VAT rate rise would make inroads into the public sector borrowing deficit, it would also be inflationary. So, with the rate of inflation in the UK more than 1% above the last Government’s inflation target, the Chancellor may decide to defer any VAT increase until 2011.

The coalition government's main message is that they want to reduce red tape for businesses. To achieve this pledge, it is expected that the headline rate of corporation tax will be reduced, but not to the extent laid out in the Conservative manifesto (28% to 25%). Either way, this only applies to companies making profits of more than £1.5m, so small businesses are likely to be more interested in what the government has to say about the much-disliked "IR35" rules, as part of a review of small business taxation. These rules impact on small companies which offer a personal service, e.g. interim managers, computer consultants and other contractors.

During the election build-up, Labour and the Conservatives argued over an increase in National Insurance - it was an issue that divided economists and business leaders. Now the dust has settled, it is predicted that the 1% increase in NIC could still happen for employees, but will be scrapped for employers.

Property investors will be watching this Budget closely, with the main area of concern likely to be the expected CGT increases. In addition, The Emergency Budget may also introduce changes to "Private Residence Relief" (which enables people to sell their main residence free of CGT), potential raising of stamp duty on larger properties, and reducing Furnished Housing Lettings Relief. This is on top of the potential VAT increase, which is expected to apply to both renovations and new build properties.

It is expected that The Chancellor will announce a restoration of the link between the basic state pension and earnings, which was initially suggested in the Turner Commission report in 2005. Other potential reforms on the table include increasing the state retirement age for men and women, removal of pension reliefs from high income earners, and removing the rule to buy annuities at the age of 75.

Whatever this new government puts forward next Tuesday, Wow will be the first to report on how it will affect small businesses across England & Wales.