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2009 Budget
changes
As a result of the 2009 Budget, three important changes are
being introduced: -
-
Inland Revenue are introducing a “name
and shame” provision which takes effect from April 2010,
closely modeled on the Irish “fiscal ASBO”. The idea is that tax accountants
who consistently and deliberately hide information about their clients’ tax
affairs will be published on the Inland Revenue website. It is unclear how
this will play out in practice: Irish accountants who are “named and shamed”
now treat this as a source of professional pride. But HMRC’s intention is
quite clear: to increase tax revenues by putting direct pressure on
accounting firms to act as de facto tax collection agents. This is an
entirely unwelcome development.
-
Tax rates
are increasing at an alarming rate effective from April 2010.
This is being achieved covertly, by reducing the levels of personal
allowances. As a result, rates of marginal income tax and national insurance
contributions from April 2010 are as follows:-
|
Band |
Tax rate
For employees |
Tax rate
For self-employed |
|
£0 - £6,475 |
0% |
0% |
|
£6,476 - £43,875 |
31% |
28% |
|
£43,876 - £100,000 |
41% |
41% |
|
£100,001 -
£112,950 |
61% |
61% |
|
£112,951 - £150,000 |
41% |
41% |
|
Over £150,000 |
51% |
51% |
-
Pension contributions
are being restricted with immediate effect (Anti Forestalling Measures).
This measure, combined with the increase in tax rates mentioned previously,
produces damaging results effective from April 2011. Last
week’s Financial Times reported “Glitch Creates 71.5% Tax!” giving
the example of an employee earning £160,000 a
year and making personal pension contributions of £10,000. If a pay rise of
£10,000 is awarded, the extra income attracts tax at 50% (£5,000). Tax
relief on the pension contribution drops from 40% to 30% which means that
the tax bill rises by an extra £1,000. So the total tax bill on the extra
£10,000 is £6,000 or 60%. Add 1.5% for National Insurance. Doing the same
calculation with a £20,000 pension contribution, the extra tax becomes
£7,000. With National Insurance, the overall rate is 71.5%.
The exception: Lloyd’s Namecos and LLPs
For some reason, Lloyd’s Namecos and
LLPs are being given an extremely generous tax break later this year, which has
not been published in any technical publication,
and should shelter between 7% and 12% of their premium income from all tax
(depending on their mix of business written). Following over two and a half
years of lobbying by Lloyd’s, the Government announced that it will align the
tax treatment of Lloyd’s corporate members’ reserves with that of other general
insurers. This means that, starting later this year, Lloyd’s Namecos and LLPs
will be able to pool a significant percentage of their underwriting profits in a
Claims Equalisation Reserve, entirely tax free.
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