Taxation – IFS forecasts 10p Budget tax rate

The 10p starting rate of income tax will be introduced by chancellor Gordon Brown in the forthcoming Budget, the Institute for Fiscal Studies has predicted.

In a report published yesterday, the IFS said the 10p rate – intended to promote employment and fairness – would signal a step towards an increase in tax allowances.

‘There are reasons to be sceptical about the effectiveness of the policy, either in promoting employment or in helping those on low incomes, and it would create administrative complexity. Nonetheless, it seems likely to be introduced,’ the report states.

IFS said the introduction of a 10% rate was likely to be done at the expense of the 20% rate. Nevertheless, a band of just #1,000 would cost #300m. A #2,000 band would cost #3.2m.

In the company tax arena, IFS said changes to the tax treatment of venture capital and various employee share-ownership schemes could also be on the cards.

In its 1999 Budget representations, also published this week, ACCA said a pause was needed before more major taxation changes are introduced.

‘The high volume of new tax law and the speed at which it has been introduced have not always been to the good,’ the association said.

Additionally, the association believed there were ‘significant problems with implementation’ which need to be addressed before further amendments are applied.

ACCA was particularly concerned about the extra burden which many new tax measures place on small businesses.

The association feared that the additional administration costs of tax to small businesses may be up to 28% of the total tax burden.

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