Personal tax summary: Reforms due in 2012

IR35 to stay.

2.203 IR35 – Following the publication of the OTS review of small business tax, the Government commits to making clear improvements in the way IR35 is administered. These improvements will include setting up a dedicated helpline staffed by specialists, publishing guidance on those types of cases HMRC view as outside the scope of IR35, targeting compliance activity by restricting reviews to high risk cases and setting up an IR35 Forum which will monitor HMRC’s new approach. The Government has decided to retain IR35, as abolition would put substantial revenue at risk.

Enough is enough. Vote UKIP.

... when tax and NIC are merged IR35 will be redundant and can then be kicked into touch.  Despite that we have several years to go before that can be a reality, tinkering with the rules in the meantime for something with a definitely limited lifespan seemed like a waste of resources.

With kind regards

Clint Westwood

In the Budget the reference is to integrating the operation of tax and NIC. I believe that rules out merger ! 

In a submission statement to the Office of Tax Simplification in December last year, ICAS was one of the first bodies to call for the merger of national insurance and income tax. The Institute welcomes the move by the Chancellor but adds it is a long overdue passenger in the journey towards tax simplification.
 
Elspeth Orcharton, assistant director of Tax at ICAS, said:  “Politically, the merger of income tax and NICs required bravery as it will make people aware of their real rates of tax.  However, the overriding positive and driving force is that it will simplify the tax regime, which is desperately needed to help businesses and UK competitiveness.
 
“For small businesses in particular, the administrative hassle of operating PAYE is a key factor in discouraging the creation of new jobs.  Many businesses choose to remain very small rather than take the huge step involved in taking on their first employee.  The merger will go a long way towards simplifying the calculation of PAYE and making payroll administration less of a deterrent to business growth.
 
“Through the merger we would like to see a level playing field, with a single set of rules for taxing all earned income of those of working age regardless of their employment status, and entitlement to state benefits also uniform across that population.”
 

Tim Gregory, a partner in the private wealth group at Saffery Champness, said: “Increasing the tax burden on non-domciliaries could have become known as the Madness of [King] George, since the people it would hit were recently reported as paying an average of £1 million each, chasing them away from the UK would have been a short-sighted step.  However, the increase in the remittance basis charge to £50,000 for those who have been UK resident for more than 12 years is likely to be seen as a reasonable quid pro quo for a tax exemption on remittance for UK investment, together with the various other investment encouragements.”

“There are also anti-avoidance measures including in relation to Stamp Duty Land Tax and disguised remuneration, expected to raise £1 billion each year.”

On Inheritance Tax, Gregory added: “Whilst the recently-announced Inheritance Tax review seems likely to lead to a number of changes in the future, what was announced today was a 10% cut in the IHT rate on Estates where 10% of the total goes to charity.  However, all of the tax saving will go to the charity itself so, whilst this is welcome news for the charity sector, it does not represent a tax cut for taxpayers.”
 

Andrew Tailby-Faulkes, private client tax partner at Ernst & Young, said: "A collective sigh of relief may have been breathed by the UK's resident but not domiciled population this afternoon; the outcome of the latest review on how RNDs are taxed was less severe than many had expected (with the £30,000 special annual tax charge rising to £50,000 per annum after 12 years of living in the UK as a RND). While a bonus measure, announced by the Chancellor, was that the complex rules that tax remittances of foreign income and gains to the UK will be suspended – where such remittances are used to fund investment in British businesses.  

"Another welcome confirmation was that the UK will bring in a statutory test of personal fiscal residence, thus ending centuries of testing residence on case law and practice principles. In recent years this had led to a high level of taxpayer uncertainty. However, it remains to be seen how easy statutory test will be to implement.

"These measures are consistent with the overall Budget theme of making the UK a competitive place for enterprise."

Julie Morrison, tax partner in Ernst & Young’s advising fast growth businesses, added to the discussion on entrepreneurs: "In a Budget aimed to kick start entrepreneurial activity the Chancellor has announced a range of measures to encourage and stimulate start ups and emerging businesses in the UK.

"Access to funding is a key factor in the growth cycle of entrepreneurial businesses – allowing non-domiciled individuals to remit income for the purposes of investing in UK business is a welcome stimulus for private overseas investment into UK businesses. The increase in the rate of tax relief for investors under Enterprise Investment Schemes (“EIS”) to 30%, raising the total level of investment which can be raised by EIS and extending the size of company which will qualify for EIS is designed to further encourage private investors to fund private enterprise.

"For successful entrepreneurs the rewards of their labours will be significantly less eroded by taxation with the doubling of Entrepreneurs’ Relief to a lifetime limit of £10 million.

"The creation of 21 new Enterprise Zones generates opportunities for businesses in those locations or with flexibility to locate within the new zones.  Location is a key decision in starting any business and the success of the Chancellor’s plans for regenerating local economies will be spurred on by private sector interest in the zones. Discounted business rates, access to super fast broadband and enhanced capital allowances will all attract start up and growing businesses keen to reduce costs."
 

As we are told there will be different rate of tax for different types of income!

During his speech, the Chancellor said

"And one more thing.

Last year, we restricted the allowance increase to basic rate taxpayers. This year we have not.

The result is that there will be no more people pulled into the higher rate tax band as a result of this Budget."

How does that square with the fall in the basic rate limit to £34,370?

Because the increase in the PAs would give tax relief at 40% to HR taxpayers, by reducing the band by a similar amount then they also get the same benefit as basic rate taxpayers...

7475 + 35000 = 8105 + 34370