Andrew Carter, Barnes Roffe
The Government has announced that an emergency Budget will take place on 22 June. It looks as though it will be one of the toughest for a long time. Taxes have to rise, that much is clear, but which ones and by how much?
It's perhaps worthwhile having a quick look at where we are and what has happened recently. Some tax increases are already in place. We now have a new top rate of income tax of 50% on incomes above £150k and the tax free personal allowance (currently £6,475) is gradually withdrawn once income exceeds £100k. Pension tax relief has also been overhauled and from April 2011 tax relief is restricted on pension contributions once income exceeds £150k. Also on the way are increases in National Insurance, essentially an increase of 1% is proposed on all rates from April 2011.
OK, that's the bad news we know but what else might the Government be thinking of? On 19 May, the Government issued a document setting out their plans and this gives us some clues as to what might be happening....
They've pledged to increase Personal Income Tax Allowances to £10,000 but not immediately, promising a ‘substantial' increase now and then an increase to £10,000 as soon as possible. Good news, then, for the lower paid. The Government say that this will be part funded by increases in Capital gains Tax and by National Insurance changes.
So, bad news for those with Capital Gains as it is definitely on the way up, at least for non business assets. The 19 May document talks of non-business capital gains being taxed at the same (or similar) rates as income. This could mean a rise from the current 18% to as much as 50%! To soften the blow, I think we can expect a more favourable treatment for business assets and (perhaps) some allowance for the effect of inflation. Why not a return to Taper Relief, which did both of those things? And National Insurance looks like it may get more complicated. The threshold at which National Insurance is paid looks as though it will be increased for employers but not for employees.
What about companies? The 19 May document suggests that the Government want to reduce the rates of tax (currently 21% for smaller companies and 28% for larger ones) but to ‘simplify' the system of reliefs and allowances. For ‘simplify', I read ‘reduce', so expect reductions or even withdrawal of some Capital Allowances and some reliefs, such as R&D tax credits. Will the Government reduce the top rate to 25%? Some think so, a measure to make the UK more attractive to outside investment. And of course, there's one tax not mentioned in the 19 May document that surely needs to be mentioned. The ‘Value Added' one. VAT. Difficult to avoid, easy to collect, it is a ‘soft target' for the Government and I wouldn't be surprised to see VAT increase to 20%.
So where would all that leave us? Corporate rates could be falling; personal tax and National Insurance rates are going up and pension contributions becoming less tax efficient. All in all, this is a confusing picture and one where good tax advice will be essential. I'd recommend booking an appointment with your tax advisor....I'd suggest 23 June but England are playing Serbia in the World Cup that afternoon. Make it 24 June!
For breaking news about the emergency budget as it happens, take part in our LIVE twitter event on 22nd June 2010 or let us offer your business a free appraisal and we'll tell you how much more money you can be saving.
For more information please visit www.barnesroffe.com
- Login or register to post comments
- Printer friendly version
Post Date: June 9th, 2010