PBR 08: Simplification demands loom after host of personal tax changes

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

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

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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