By Richard Mannion
George Osborne’s second Budget had few shocks, although the reduction in the headline rate of corporation tax seemed to have been a well-kept secret.
The Coalition Government has introduced a new way of setting tax policy. This includes a strict timetable for any changes to be announced in a spring Budget, followed by consultation during the summer, leading to the publication of draft legislation in the autumn. The Finance Act will then be signed off by the end of the calendar year, with new rules applying from the following 6 April.
Many of the Chancellor’s Budget announcements will become effective next year or later, and we anticipate a flurry of consultation papers over the coming weeks in line with the new policy structure outlined above. Hopefully the new timetable will help the Government to achieve its objective of creating a more certain and stable tax system.
An essential ingredient in the Government’s tax-making policy was the establishment of the Office of Tax Simplification (OTS). The OTS issued two important reports ahead of the Budget, the first reviewing 155 tax reliefs and the second reviewing the taxation of small businesses.
The Chancellor responded to those reports by proposing the removal of some outdated reliefs. He also promised consultation on merging the operation of income tax and national insurance contributions (NIC), which if successful, could simplify the tax system dramatically and substantially reduce the burdens on smaller businesses. The possibility of merging income tax and NIC is clearly a major issue which will take time to resolve. However, in the meantime there is clear scope to modernise the current system for collecting NIC.
The main theme of the Budget was the reform of the nation’s economy to encourage growth and jobs. Besides the reforms prompted by the OTS’s reports, the Chancellor is anxious that the UK should be a location which appeals to international businesses. However, we wait to see whether the reduction in the headline rate of corporation tax and the other reforms now underway are sufficient to tempt businesses to move here.
Several changes in the income tax and NIC rates for 2011/12 were announced last year which means anyone earning over £42,475 pa will be paying more in income tax and national insurance from 6 April 2011, so they will certainly be feeling the pinch.
The Chancellor has already started taxing higher income taxpayers more heavily in the current tax year. Those on £100,000 pa and upwards have lost the benefits of the personal allowance, while those on taxable incomes over £150,000 pa have also been paying 50% on income above this level. But there are too few top rate taxpayers to fill the Chancellor’s coffers, hence the need to widen the net – and share the pain.
For further information please visit Smith & Williamson’s dedicated 2011 Budget pages where you can download their full Budget report and tax rates card.