The Chancellor stood up last week to make his Budget statement in a very different financial climate to when he set out his first Budget 13 months back in March 2008.
Many of us were surprised that we are not facing immediate increases in taxes. Instead Mr Darling has imposed tax rises which, in the main, start in one year’s time, or even in two years.
In effect what he has done is say that the country will just live on its (increasing) overdraft for the next few years and only then start to bring in extra taxes to pay off the debt.
One of the things I have noticed about Budgets since 1997 is that the most interesting things can be left out of the speech made to Parliament. Last week’s Budget was no exception.
If you want to see detailed tax bands and duty figures see my Budget Summary at www.|huston.co.uk
Let’s look at some of the Budget areas which will affect the tax system people face in years to come.
Tax cheats to be named publicly. Currently HM Revenue & Customs (HMRC) only releases the names of people caught fiddling their tax if they are prosecuted.
Only a tiny minority of tax investigations end with a court case. Most are settled quietly with a cheque sent to the tax-man to cover what is owed.
Now the government is bringing in a new law so HMRC can publish the names of the bigger fish.
By that I mean those people who have fiddled more than £25,000 of tax and been caught. These are not especially large figures.
If a business under-declared income of £7,000 per year over ten years that would total £70,000. If taxed at 40% the tax would be £28,000.
The naming will be done quarterly and will include the individual’s name, address and business type. Also the amount of money involved.
Publishing tax offenders’ names is not a new idea — it has been done successfully in the Republic for years. Certainly makes for interesting conversations down the golf club!
There is to be a second offshore disclosure facility to allow people to come clean about money or assets abroad. Regular readers will remember that back on February 3 this year I predicted that the government would go for another of these. See my prediction at http:// tinyurl.com/cpzwdv.
The 2007 facility to declare previously hidden income was called the Offshore Disclosure Facility or ODF. To my mind ODF 2 would have been a good enough name for the next.
However the government has given son-of-ODF a new name — the New Disclosure Opportunity. NDO for short. NDO will be launched in Autumn 2009 and will close in March 2010.
Like the previous case, people will be able to pay up what tax they owe, plus interest and a flat penalty. Details to come out later this year. I expect that taking up the NDO will keep your name out of the press.
Our firm handled a lot of cases where people came to us to declare their offshore income back in 2007. However a lot of people sat on their hands, and many more didn’t even know about the 2007 initiative.
Note the Budget announcement says this is a final opportunity to disclose offshore income and assets. Then the gloves will come off. Watch this space for more articles on NDO.
Income tax is on the rise — but not for another year. Starting April 2010 the 40% tax rate will be joined by a 50% rate. Only people earning over £150,000 will pay it, and only on the income above that level.
I think this is a backward step by the government. When income tax rates were 50% and higher (yes even 98% tax was possible) people made it their business to avoid paying it.
They entered into complicated tax avoidance schemes. Or (like the pop and movie stars of the 1970s) simply left the country to set up somewhere the tax rates were lower.
This will happen again. It’s easier now, given technology, to base yourself anywhere in the world. Go abroad and you can wave goodbye to UK tax. The government may end up getting 50% of nothing rather than 40% of quite a lot.
Investing in pensions is to become less attractive to the well-heeled. Those earning over £150,000 will find their tax relief is cut. This change (from the 2011/12 year) will see the 40% rate of relief for high earners dropping if they earn over £150,000. It will be taken down gradually.
If they earn £180,000 per year then all their pension contributions will get tax relief just at 20%.
I expect this will mean a two-year feeding frenzy for pension advisers whose well-off clients will want to scrape in all the 40% tax relief they can before April 2011.
Having said that those people earning over £150,000 need to be careful. The Chancellor has predicted your actions.
There are special rules from April 22, 2009 (Budget day) to stop such people piling unusual amounts into their pensions. See http://tinyurl.com/cbo8ko if interested. And a further attack on people earning over £100,000. The tax-free personal allowance — previously given to everyone- will be taken away from 2010/11.
The rules at http://tinyurl .com/c7p66b show that from April 2010 for every £2 above £100,000 you earn you will lose £1 of the personal allowance. So a fair number of people will end up getting diddly-squat.
Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co — www.huston.co.uk or 028 9080 6080