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Budget stuff  •  Business Services  •  Business Tax  •  Personal tax  •  Personal Taxation  •  Small Business  •  Taxation

Key Budget 2011 Predictions – What will happen to tax?

By RJP LLP on 18 March, 2011

Every Budget is a difficult balancing act but we really wouldn’t like to be in George Osborne’s shoes when he decides what measures to take on Wednesday. Obviously we don’t have a crystal ball, but these are the changes we expect next week and we can understand why he’s making them.

Taxtalk will be actively commenting on the Budget with many of the business media.  Watch out for Paul Webb and Anne Eager on Businesszone’s live debate using Coverit Live.

We’ll also be tweeting about the Budget with the Entrepreneur’s Business Academy and will give our usual ‘what’s behind the headlines’ interpretation both here and in our newsletter Livewire.

If you want to tweet with us, the relevant hashtags are #taxtalk and #budget2011

So what do we expect in the Budget 2011?

1. Changes to personal taxes

  • 50% tax rate will remain for the time being

This week the Chancellor confirmed that although the 50% rate is likely to be a temporary measure, he could not say when it would be reduced.  It is not a popular tax but the Treasury is faced with a very difficult balancing act and urgently needs to rectify its deficit and generate revenues.

  • Band for 40% tax rate to remain

Middle income tax payers already face higher taxes from the 2011-2012 tax year as the level at which the 40% rate commences reduces from £37,401 to £35,000.Just like the 50% rate, this has been another unpopular measure but again unavoidable given the Coalition’s pledge to increase the personal allowance to £10,000.  Someone has to pay for this and it was a key element of Coalition policy, which is not expected to change.  In this Budget, we predict the personal allowance increasing by another £1,000 to become £8,475 by the 2012/2013 tax year.

  • Non-domicile levy to stay

It is unlikely current policy will change and non-doms will continue to face either the existing £30,000 levy or elect to have their income taxed within the UK system.  We believe this is already showing signs of an adverse effect on the country’s commercial attractiveness and viability as an international financial centre.  The recent news that HSBC will move its offices to Hong Kong is one such example.  The fact that high taxes – including the banker’s bonus tax – have been introduced along with the non-dom’s levy is bound to have had a major influence on this decision.
Changes to business taxes

  • Corporate taxes to drop by 1%

Corporation tax is widely expected to fall and we believe there will be an announcement to cut main rate of corporation tax by 1% from this April.  This will take it from 27% to 26% by 1st April 2012.  In accordance with this the small companies rate will be cut to 20% within the same timeframe.

  • Capital Allowances reformed to stimulate depressed areas

The Annual Investment Allowance has already been cut to £25,000 from April 2012 and further changes to the capital allowances system are likely.  If corporation tax is reduced as expected, this needs to be balanced with income from other avenues.  However the Chancellor needs to give the country and economic boost and this may be through creating special tax efficient enterprise zones in key manufacturing and construction regions.  Many suggestions have been circulating in the media and we’ll have to wait and see what transpires.
Business owners need a roadmap

Reflecting on what are seriously difficult decisions for the Chancellor to make, we agree with Damien Reece at the Daily Telegraph.  Business owners really need a ‘roadmap’ to understand how the tax system will develop over the coming years. Then they can start making planning decisions for their business.  In particular having a long range view will help with longer term workforce planning, deciding whether to hire new staff, where to locate offices and important investment decisions.

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