It’s very difficult not to be political at Budget time and simply to try and unpick the tax issues from what the Chancellor has to say – and this year is no different.
Much has been said already about the proposed reduction in the highest rate of tax to 45p and the abolition of age-related allowances and the political implications of these will rumble on for many months to come. I am certainly expecting to have a lot of complaints from the people who I see from TaxHelp for Older People who are already struggling to make ends meet with the increased cost of living caused by their fuel and food bills, which are growing faster than their income.
The much heralded increase in the basic personal allowance (has there ever been a Budget with more leaks than the 2012 one?) will undoubtedly help all, as will the reduction in the main rate of corporation tax. However, this does not really help the small business man who is the mainstay of my client base. Their companies already pay tax at 20% as their profits are less than £300,000 and so they won’t see any savings from this headline-grabbing measure.
The increase in personal allowances from April 2012 by £630 is exactly offset by the reduction in the amount that you can earn before you pay 40% tax (from £35,000 to £34,370). If, for example, you paid yourself £50,000 in 2011/12, you would pay £10,010 in tax. In 2012/13 the same salary would attract tax of £9,884. An apparent saving of £126.
However, one of the famous “stealth taxes” much loved by the previous Government is National Insurance and this has been increased by 1% – but without the fanfare accompanying the cuts. This would add just over £360 to the overall “tax” bill and so they are actually worse off!
You can of course view the full changes in this year’s budget on the Treasury website: http://www.hm-treasury.gov.uk/budget2012.htm but if you have any specific concerns about your own position please get in touch with me for a free initial chat.