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Lesley Stalker, head of tax at small business tax specialists RJP outlines what measures she expects to be announced on June 22.

Interest in next week's Emergency Budget is rising as the business community anticipates the most wide-reaching overhaul of tax policy for years. With a deficit of £114 billion to repair, tax increases are inevitable, but they need to be carefully balanced against the need to ensure the economic recovery continues.

Here are my predictions.

National insurance (NI)
There will be no rise to employer’s NI contributions as originally planned by the previous government. There has been a lot of pressure from industry to encourage the coalition to cancel plans to increase employee contributions by 1p in the pound, but nothing has been confirmed. We are expecting this increase to come into force, although its introduction may be postponed.

Capital gains tax (CGT)
Of all the changes, this has attracted the most controversy, since the UK has benefitted from generous CGT rates over the past few years. Under the coalition, CGT is likely to be aligned with income tax, resulting in an effective top rate of 50 per cent, although it has been widely opposed, with national newspapers launching petitions and campaigns to force a climbdown.

Entrepreneurs' reliefs
We’re confident that CGT reliefs for business owners will be generous, with a possible extension to the existing entrepreneurs' relief. There is also likely to be a re-introduction of taper relief or some form of indexation relief, to further improve the gains achievable for entrepreneurs.

Annual exemptions
The Liberal Democrats' original manifesto called for a reduction to the individual CGT allowance of £10,100 and although an announcement is expected in the Budget, this is unlikely to be reduced before April 2011. We would like to see a move to encourage saving, e.g. by further increasing the ISA limits and no negative adjustment to the existing IHT rules.

Personal allowances
The personal income tax allowance will most likely begin to be increased for the lowest income groups, from £6,475 to a maximum level of £10,000. It’s very unlikely this will be introduced in one go, even though it is a key policy to increase the working population and migrate the long-term unemployed away from benefits.  No changes are expected to the new 50 per cent tax rate and tapered personal allowances for those on incomes of £100,000 or more.

Corporation tax
This might be reduced as the first step in the coalition government’s pledge to boost the attractiveness of the UK as a centre for business and entrepreneurship. However given the current budgetary issues, this may be something George Osborne puts on hold. If it does happen now, we think the reduction will occur for larger businesses rather than SMEs on the lower rate. This policy needs to be carefully balanced against the need for the Treasury to reduce its deficit. So reduced corporation tax could be combined with a reduction to capital allowances, which are currently very generous, and a continuation of the last government's attack on anti-avoidance schemes.

VAT
This will, at some point, go up and we are expecting the rate to be set at 20 per cent.  We would like to see sufficient time allowed to retailers to respond to the change, either by reducing production costs, or identifying other ways to maintain their margins. Another benefit of delaying the rise will be to avert the possible impact on economic recovery, as price increases contribute to inflation brought about by consumers bringing forward spending. The other question mark over the Budget is whether currently exempt items such as food and children’s clothing will become VAT-able. There is growing support for certain high fat and high sugar content food items to be taxed as part of the wider healthy eating campaigning and this would certainly help offset NHS costs.

Other measures
The coalition has proposed a very different way of taxing air travel and wants to introduce a plane tax to replace the current individual passenger duties. And the climate change levy is tipped to be replaced with a new carbon tax similar to that introduced in Ireland. These changes are likely to bring in significant revenues for the Treasury.

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