ISN’T IT STRANGE HOW MUCH THE LITTLE THINGS REALLY MATTER?
By James Francis - Director, Ensors Chartered Accountants If you buy a brand new car and discover after one day that it has a 2” scratch in the gleaming new paintwork, it is a disaster. No matter that the majority of the bodywork is coated in a perfect layer of paint and lacquer, the only thing you will see is the 2” of exposed metal. And so to the Chancellor’s 2012 Budget. A reduction in the main corporation tax rate to 24% with the aim of taking this to 22% and then, possibly to 20% in the future. Great news for profitable companies and certainly increases UK competitiveness. An increase in the personal allowance from £8,105 for 2012/13 to £9,205 for 2013/14 taking many low income individuals out of the tax system. A reduction in the top level of income tax from 50% to 45%. There is no overriding “fairness” argument for a 50% rate and we now discover that it has had only a negligible beneficial impact on HMRC’S coffers. But for me the glaring scratch in the paintwork is the lack of joined up thinking. Take simplification. The age related personal allowance is being withdrawn because the concept of losing £1 of it for every £2 of income over a certain threshold is just too complicated. But the Chancellor then announces that Child Benefit will not be withdrawn at £50,000, but instead will reduce by 1% for every £100 earned over £50,000. Is that not “too complicated” a concept again? Moreover, the Child Benefit will be withdrawn via the income tax system - requiring, presumably, a self assessment return where possibly one is not currently required. The Chancellor then made great play of the fact that the Labour administration had caused a huge £16bn distortion by signalling an increase in the top rate of tax to 50%. Some taxpayers had (somewhat predictably) taken their money early (at the 40% rate) creating a big tax receipt in the earlier year but leaving a yawning chasm in the next year’s tax receipts. Should we hazard a guess as to what is about to happen as a result of deferring the decrease from 50% to 45% until April 2013?