What Can You Expect From The Emergency Budget on The 22nd June?
by It’s official. The government plan to launch an emergency budget on the 22nd June to reveal their plans for the UK; however, what can the average tax payer expect to come out of this announcement? More importantly, how will their predicted tax increases affect your business?
The simplest way to start would be to assess the tax increases the government have already put in place, to gain a glimpse of their current train of thought…
• Since the General Election the government have already successfully implemented a new top rate of 50% for income tax on individuals who earn more than £150,000 a year.
• Similarly, the government have also proposed withdrawing tax free personal allowances (which are currently set at £6,475) once your income exceeds £100,000 a year.
• Others to pay attention to are pension tax reliefs and National Insurance. As of April 2011, tax relief on pension contributions will become restricted once your income exceeds £150,000, whilst National Insurance will be increased by 1% on all rates.
What about the future?
It is undeniable that there has been a lot of speculation amongst accountants about the possible outcome of the emergency budget in the coming weeks…
Fortunately a document issued by the government on the 19th May has thankfully shed some light on this topic so we are not completely in the dark.
Personal Income Tax Allowance: in this document, the government have pledged to increase Personal Income Tax Allowances to £10,000. Now whilst this won’t be immediate, they are promising to provide a substantial increase now before implementing the full £10,000 in the next few months.
And this is great news for those on a lower income, as it will enable you to earn more money before you are taxed; however it is not good news for everyone…
Capital Gains: unfortunately this boost in personal income allowances has meant that there has had to be a shortfall somewhere else, and sadly for those who pay capital gains tax, this niche is the one taking the brunt of it with drastic tax rises.
Non business assets in particular will face the worst of this tax increase as they will now be taxed on the same rates, if not similar, to those used on income tax. Unluckily, this means some of you could be witnessing increases of up to 32%, with taxes rising from 18% to as much as 50%!
Hopefully, this will not be the complete tax on the day, and the government will try to make attempts to soften the blow by being more favourable with business assets or offering allowances to compensate for the effect on inflation…
National Insurance: whilst this document has given no clear indication of how much National Insurance will be increased by, it is looking increasingly likely that employers will face the full force of this tax increase alone and not their employees.
Companies: currently set at 21% for smaller companies and 28% for larger ones, the government have indicated that they want to reduce the rates of tax as well as ‘simplify’ the system for reliefs and allowances. This will more than likely entail reductions or withdrawals of some Capital Allowances/reliefs such as R&D tax credits.
VAT: the government failed to highlight Value Added Tax in this document; however many top accountancy firms believe that this will rise to 20% after the budget.
How will this affect you?
Even if you do not own a business, the government is proposing many changes that could influence your annual tax contributions. To give you a quick reminder, they plan to cut corporate rates, increase personal tax and National Insurance rates and essentially make pension contributions less tax efficient.
In light of these coming tax changes, we thoroughly recommend that you seek out tax advice from a top accountancy firm who can help you to minimise your annual tax liabilities as well as ensure that you don’t the full force of the government’s plans. With their industry knowledge you can feel confident that your finances are safe.
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