PBR 08: Simplification demands loom after host of personal tax changes
24 Nov 2008, Gavin Hinks, AccountancyAge
Demands for simplification may already be on the way after the government announced a host of highly complex changes to personal taxation, NICs and allowances that experts predict payroll systems will have enormous difficulty handling.
Changes in these areas form the central plank of the government’s effort to claw back tax revenue after creating an injection worth up to £25bn over the next two years in this week's pre-Budget report.
Increases of 0.5% in employers and employees contributions were announced along with changes to tax allowances for those earning above £100,000 and £140,000.
The measures together should raise more than £7bn by 2011-12.
Sarah Pickering, managing director at Alvarez & Marsal Taxand, said: ‘The proposed income tax rates, personal allowance reductions and national insurance contributions are a complex collection of changes set to challenge the most sophisticated of payroll operators.
‘The potential to create artificial pay barriers around the £140,000 level could interfere with the commercial setting of remuneration levels.’
She said she expected there would have to be some simplification for all the changes to be manageable.
Pickering anticipated huge IT bills to deal with the changes in addition to the added cost of the increased NICs contributions.
There are also fears that the increased national insurance contributions along with the complexity could be a deterrent for foreign companies to settle in the UK.
One concern raised is whether the government’s calculations accurately represents the true cost to business, some £2.6bn in employer’s contributions, once foreign owned subsidiaries are taken into account along with deferred bonus schemes and equity plans.
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Visitor comments
A con, as always
Overall the package is a con - pay less now pay (lots) more later. Not too dis-similar from the promise not to raise higher rate income tax and then adding 1% for higher earners.
The package does little for the low paid, provides an added incentive for businesses to sack staff because of the increased NI. Will drive higher earners to sacrifice salary for pensions (so they won't spend); will discourage the CEOs of companies thinking of having a base in the UK because of the 60% marginal tax and provide an added incentive for existing foreign companies to move out of the UK)
The only advantage is that the thresholds for tax and NI can be harmonised so that a brave future government could rule that Employee NI can be dumped and the whole thing called income tax.
A better idea would have been to get rid of Employers NI. Thereby reducing employers costs and encouraging employment, part recovery would come from higher profit and therefore corporation tax, part through added income tax on dividends paid by the small business owners, and the balance could come from changes to income tax rates and thresholds. This would also have the benefit that people who have high income but are not employed (including pensioners) contribute to the NHS rather than just current employers and employees.
Posted by: Philip Roberts , 25 Nov 2008 | 00:00