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Chas Roy-Chowdhury-14

 

By Chas Roy-Chowdhury, head of taxation, ACCA

Well that’s it for the fourth Budget of the Coalition Government, and what a bore it was.

There wasn’t really any surprises, partly down to the leak from the Evening Standard less than one hour before George Osborne began his Budget speech.

I can’t help but feel that this Budget was very bland and that more could have been done to boost the economy.

The Chancellor of the Exchequer should have considered a temporary cut to the basic rate of income tax to 15 per cent for one year, instead of leaving it at 20 per cent, as people would have more money to spend and it would help revive the economy.

At a time when the economy is stalling, it needs a genuine boost. Cutting the basic rate to 15 per cent until 5 April 2014 would have been a brave move, but would help working families across the UK. Under today’s proposals they, and many others, will not notice any difference. A temporary tax cut seems drastic but these are exceptional circumstances.

The other “highlights” of the Budget was the personal allowance increase. On the face of it, looks good, but it will only benefit the population who are currently 20 per cent taxpayers, of which there are fewer and fewer. By dropping the threshold for the 40 per cent income tax bracket, many hardworking people who will begin paying 40 per cent for the first time will not just lose the benefits of the increased personal allowance they will actually need to pay additional tax on such things as savings and dividends because of the way the UK system taxes the top slice of income.

On the issue of tax avoidance – while it is no surprise the Chancellor went after it, he will always be treading a fine line between collecting tax and denting the UK’s appeal as a business-friendly economy – an essential requirement for our recovery.

A tougher looking tax avoidance regime might look good to the public, but while the Chancellor has been making noises about a global effort to crackdown on tax avoidance, unilateral measures such as GAAR, risk diverting businesses currently in or looking to move to the UK into the arms of other markets. The question will be whether other business-friendly tax initiatives, such as the patent box and the lower corporation tax rate will help the UK remain appealing. Some evidence would suggest the rot is already setting in.

The Chancellor mentioned that those who actively promote tax avoidance will be named and shamed. ACCA has always said that a ‘loose’ name and shame approach to tax avoidance is counterproductive. Tax avoidance is not illegal. Naming and shaming can penalise individuals and business reputations when they have not broken the law. There is also an issue over where you draw the line There isn’t a clear cliff edge between what you could say is acceptable tax planning and what is unacceptable tax avoidance. There is difficulty in terms of when name and shame becomes appropriate. Is it something that is linked to the amount of tax that isn’t paid, or the way tax is avoided?

There is always the risk with any name and shame approach that it becomes disproportionate and that companies promoting perfectly acceptable financial planning initiatives are severely punished when they have operated within the mainstream rules.

We hope that the Government has looked in more detail at the PAC’s proposals and will consider naming and shaming only when there is repeated, heavy use by individuals of tax avoidance initiatives. A quicker and wider review of the tax system needs to be considered, than what the Office of Tax Simplification (OTS) is currently resourced to implement, with a view to radical simplification.

On families and tax credit – the downside of this initiative is that it is a 20 per cent tax credit, when a full payment subsidy of £1,200 would be a much more beneficial vehicle for many young families struggling to meet childcare costs, which are notoriously expensive. The nature of a tax credit means that where a family is forking out thousands of pounds a year, it is the “carer” that will receive the complicated tax credit. If the Government is prepared to pay up to £2,400 for two children there is no reason why they cannot give it to families as a subsidy, irrespective of the amount they actually pay for the care. A one-child family with two working parents would hugely benefit from the extra funds.

Should one parent lose their job or decide for the benefit of their child or children that they wish to stay at home, the loss of this credit will be felt.

And then we turn to fuel duty – ACCA predicted the rise in fuel duty would be scrapped. That will be welcomed by households as well as businesses in the UK. ACCA’s Drivers for Change survey report showed that UK businesses identified fuel costs as a major short term challenge, so this may give them respite.

So is this a Budget for an “aspiration nation”, and for hardworking families? Time will tell…

Don’t forget to have a look at our coverage of the Budget as it happened here

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Chas Roy-Chowdhury-14

By Chas Roy-Chowdhury, head of taxation, ACCA

As the 2013 UK Budget approaches next week, ACCA called for the Chancellor of the Exchequer to use the Budget to increase the personal allowance threshold further than planned, without decreasing the level at which the 40 per cent tax band bites.

From 6 April this year, those turning 65 years old will no longer benefit from the higher personal allowance pensioners receive, which means some pensioners, who fall into the new 40 per cent tax bracket because of income from savings, dividends and part-time work, will be bitten by their tax bill.

This is a classic example of giving with one hand and taking with the other. It looks good for the Government to say that they are extending the personal allowance, but it is only true for the ever-shrinking population of 20 per cent taxpayers. By dropping the threshold for the 40 per cent income tax bracket, many hardworking people who will begin paying 40 per cent for the first time will lose the benefits of the increased personal allowance and they will need to pay additional tax on such things as savings and dividend income.

This is no longer the 1980s where only a small number paid the 40 per cent income tax. Many people who are working but struggling at the lower end of that bracket will not get much respite from an increase in the personal allowance. The Chancellor of the Exchequer should use the Budget on 20 March to give taxpayers a much-needed boost and raise the personal allowance for all income tax rates otherwise it is being less than honest.

Thirty years ago only five per cent of workers paid the 40 per cent tax rate – this has now more than doubled to more than 15 per cent today, which means more people will be affected by this change, even if their salaries do not sit comfortably in that threshold i.e. are on the borderline.

Is it fair to do this to pensioners who have paid their taxes throughout their working lives, only to penalise them for saving some of their pay for later in life?

It will be interesting to see how the Budget pans out and how the general public react to it as I believe it will be challenging times ahead.

Don’t forget to follow our Twitterfeeds for live coverage and comment on the Budget as it is announced on Wednesday 20 March from 12.30pm.

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By Anita Brook FCCA, founder of Accounts Assist

This year, we’ve asked some of our members to share with us their thoughts on the budget: how it affects them and how it affects the businesses with which they work. Their views are their own. Today’s first post comes from Anita Brook, the founder of Accounts Assist – a chartered certified accountancy firm specialising in accountancy and taxation services for all types of small businesses – and a member of the ACCA UK practitioners panel.

The chancellor produced a budget last week that did many of the things that needed to be done, in my opinion. He ended the 50p tax rate on higher earners; Mr Osborne predicts that by reducing the top rate by 5p, he will significantly increase the state’s revenue, and many reputable economists agree with him. He reduced corporation tax by 1p, a much needed boost for businesses that still have to cope with slow trading conditions. Most importantly of all, by raising the personal allowance by £3,580, he has taken about a million people out of income tax altogether.

The following were also announced:

Enterprise Investment Schemes

From 6 April 2012 there are two schemes which you can use to achieve tax relief for investing in small unquoted companies: the seed enterprise investment scheme (SEIS) and the enterprise investment scheme (EIS). The tax relief given under each scheme is shown below for 2012/13:

Rate of income tax relief: SEIS = 50%; EIS = 30%

Annual maximum investment qualifying for income tax relief: SEIS = £100,000; EIS = £1,000,000

Capital gains tax relief on investment: SEIS = 18% or 28%; EIS = deferred relief

Both the company and the investor have to qualify in order to receive tax relief under SEIS or EIS.

Business Tax Simplification

The government wants to simplify the accounts small businesses (partnerships and sole-traders) have to prepare for tax purposes. It is consulting on whether preparing accounts on a cash basis would be easier, and standard allowances could be used for the business use of vehicles and the proprietor's home. Any changes are likely to apply from April 2013 or later.

Personal Allowances

The big news for individuals is that the personal allowance will increase to £9,205 from 6 April 2013, so you have to wait another year for that extra tax-free income. The personal allowance has already been increased by £630 from 6 April 2012 to £8,105.

Child Benefit

We were all expecting the withdrawal of child benefit from families where at least one parent pays tax at 40% or higher.

The chancellor listened to reason and has decided to taper the withdrawal of child benefit where the higher earner's net income (after losses but before allowances) exceeds £50,000. For every £100 of income over £50,000, a tax charge will apply equivalent to 1% of the child benefit received by the family. This will lead to the complete withdrawal of child benefit at £60,000 of net income. This tax charge is to apply from 1 January 2013, and will be collected through PAYE and self-assessment from the higher earning partner in the family.

Child Tax Credit

Family element: £545 (2011/12 – £545)

First income threshold: £15,860 (2011/12 – £15,860)

Second income threshold: withdrawn (2011/12 – £40,000)

 

Working Tax Credit

Basic element: £1,920 (2011/12 – £1,920)

Couple and lone parent: £1,950 (2011/12 – £1,950)

30 hour element: £790 (2011/12 – £790)

 

Childcare element

Maximum costs for one child: £175 per week (2011/12: £175 per week)

Maximum cost for all children: £300 per week (2011/12: £300 per week)

Percentage of costs covered: 70% (2011/12: 70%)

First income threshold: £6,420 (2011/12: £6,420)

Withdrawal rate: 41% (2011/12: 41%)

Income rise disregard: £10,000 (2011/12: £10,000)

Income fall disregard: £2,500 (2011/12: N/A)

 

In summary

In my opinion, a budget that focuses on lowering taxes for working people has to be a good thing, so increasing the personal allowances gives a strong positive message. Also, lower corporation tax for businesses will be welcomed, but I’d have liked the chancellor to have dropped the rate and faster and further than promised.

By Alan Woods FCCA, Woods Squared

This year, we’ve asked some of our members to share with us their thoughts on the budget: how it affects them and how it affects the businesses with which they work. Their views are their own. Today’s first post comes from Alan Woods of Woods Squared, a Wirral-based, award-winning accounting firm that offers a range of business growth accountancy services to SMEs in all sectors across Merseyside and Cheshire.

Is it just me or was there very little in the budget for small businesses to get excited about?  There was a great headline about the reduction in the main Corporation Tax Rate but no changes at all for small businesses with profits of less than £300,000.

Also, I wait to see the actual benefit of the simplified approach suggested for businesses with turnover less than £77,000. The idea of allowing smaller businesses to calculate their tax liabilities based on cash movement rather than on profit seems a good one but in our experience for many smaller businesses these are actually one and the same anyway – the devil will be in the detail as always and I wait to see the actual benefit this proposed simplification will bring.

Finally the National Loan Guarantee Scheme launched yesterday will be a benefit but it is disappointing that not all banks are involved with HSBC in particular not wanting to take part.  It’s also disappointing that the criteria of who will be eligible has not been amended as it looks like it will be the same businesses that are already able to obtain credit that would be the ones that will benefit from this scheme – great for them and any business that can reduce their costs by 1%, but it would have been great to see some funds being made available to more businesses.

By Tony Down, chartered certified accountant

This year, we’ve asked some of our members to share with us their thoughts on the budget: how it affects them and how it affects the businesses with which they work. Their views are their own. Today’s first post comes from Tony Down FCCA based in South Wales. Tony is also the current chair of the UK ACCA practitioners’ panel.

The Chancellor commenced his budget speech by stating that the Governments proposals ‘unashamedly [back] business’ and ‘reaffirmed our unwavering commitment to deal with Britain’s record debts.’ He ended his speech by saying: ‘This country borrowed its way into trouble, now we’re going to earn our way out.’

My hope was that this budget would provide business with the opportunity to increase sales, reduce costs, reduce burden on employers and increase the tax incentives for businesses to invest in capital expenditure.

A temporary reduction in the rate of VAT would have been helpful, making products and services for the end user cheaper to buy which would have had an effect all the way up the supply chain. However, the Government’s view is that lower income tax rates are more equitable and increase the spending power for individuals.

A further announcement that he made was in reference to the self-employed where, if their turnover for the tax year was less than £77,000, they could produce their accounts for self-assessment purposes using the cash basis. It will be interesting to see how this works in practice.

For companies with taxable profits of over £1,500,000, corporation tax from 1 April this year will reduce to 24%. The Small Companies Rate will remain at 20%. This will help reduce overall business costs but probably not by enough to encourage business leaders re-consider increasing recruitment.

Mr Osborne sought to address transport costs which inevitably contribute to high business costs and increased prices for the consumer. Vehicle Excise Duty for road hauliers will be frozen, while no further changes are planned to what has already been announced regarding fuel duty; duty, other than for hauliers, will rise by inflation only. We were all hoping that he would have been more generous especially in light of the significant increase in the cost of fuel.

However there was good news for the creative, aerospace and scientific industries. Proposals to extend the film tax credit to video, animation and high-end TV production industries.

For ten of the UK’s largest cities, the government is funding ultra fast broadband and WiFi. £50m will also be made available to Britain’s smaller cities. The government is also committing £100m of support, alongside the private sector for investment in new university research facilities.

A UK centre for aerodynamics will also be established in the UK. This will encourage innovation in aircraft design and commercialise new ideas.

Other good news for families: only those with an income in excess of £60,000 will lose child benefit altogether, although they will begin seeing a reduction for every £1 of earnings over £50,000.

Overall, I would have liked to have seen the chancellor being more ambitious to create demand within the economy. He could have achieved this with a temporary reduction in VAT and a reduction in fuel duty. I would have liked to have seen him encourage businesses to recruit by reducing the employer’s NIC contributions, and it would have been good to encourage businesses to invest in capital equipment by increasing capital allowances.

However, when dealing with what he termed, ‘Britain’s record debts’, no-one can expect him to give it all away.