Budget Day

The financial news this month has been dominated by speculation over the contents of the forthcoming budget and then subsequent to budget day, the usual analysis and attempts to identify the ‘winners and losers’ from the chancellor’s announcements.

The pre budget period was particularly frenzied this year due to the number of leaks and other announcements emanating from the government during the budget consultation process.  Probably a consequence of coalition government, as both parties flexed their muscles on various contentious issues.

The detailed budget announcements are covered in more technical detail in the resources section of the website.  There follows a few observations on matters that may be of particular interest to our clients.

The increase in personal allowances (increasing to £9,250 from 6 April 2013) is good news for those at the lower end of the income scale, however, the rising personal allowances will be of no benefit to higher rate tax payers because the basic rate limit is being reduced.

The reduction in the top rate of tax from 50% to 45% from 6 April 2013, will afford some relief for higher earners.  This matter appears to have caused significant tensions within the government and was widely reported to be too politically sensitive to touch.   However, the Chancellor has bitten the bullet on this issue and appears to have accepted the
argument that the 50% rate did not generate significant tax revenues and was damaging to the economy in terms of discouraging inward investment and disincentivising business activity.

Despite the initial headlines about the budget helping the rich at the expense of the poor, there are still a number of existing and new headwinds facing higher earners.

There is still an effective 60% charge on income between £100,000 and £118,000 due to the withdrawal of personal allowances.  The new tax charge on child benefit for those on income in excess of £50,000 will mean that the benefit will disappear altogether at income levels over £60,000  and higher rates of stamp duty on residential properties
sold above £2 million will impact on the wealthy.

Also the announcement that the government had decided to accept the recommendation of the Aaronson Report about the adoption of a general anti avoidance (GAAR) rule targeted at artificial and abusive tax schemes, will make it more difficult for the wealthy to manipulate their tax affairs at the expenses of HMRC.

It is to be hoped that the new GAAR will not spread uncertainty or impact on non aggressive day to day tax planning.

One of the biggest surprises in the budget was the so called ‘granny tax’.  There are in fact no new taxes on the elderly, rather the age allowances are being frozen until they are caught up by the personal allowances, which is predicted to happen by 2016/17.  In effect the increases in the personal allowances are partly being funded by a claw back
of tax from the elderly.

On the business front, there was good news with the reduction in the main rate of corporation tax from 26% to 24% from 1 April 2012.  However, as most of our corporate clients only pay tax at the small companies rate of 20%, this measure is unlikely to have a great impact on the small company sector.

We also await with some trepidation the measures intended to improve compliance with the IR35 legislation.  The announcement was couched in terms of helping business to comply with the rules , however, it is to be feared that there will simply be more complexity, leading to further disputes and costs in this highly controversial and unpopular
area of the law.

The increase in the VAT limit to £77,000 from 1 April 2012, will be welcomed by many small businesses, particularly in view of the onerous electronic online filing and payment requirements now in place for nearly all registered traders.

As always the devil is in the detail and in particular tax scheme providers will be waiting with baited breath for publication of the finance bill to assess whether existing schemes have been closed down or will require major amendments.

In conclusion, there was some easing of the tax burden on certain sections of the population but still some nasty surprises for some and the uncertainty of the GAAR will continue to trouble the minds of all those engaged in advanced tax planning arrangements.

If you have any questions on the above, please do get in touch with us on 01903 713508 or email simon@bottingandco.co.uk

Switch to our mobile site