Budget 2009: A Budget for Serious Times
Chas Roy-Chowdhury, head of taxation at ACCA (the Association of Chartered Certified Accountants) says about today’s Budget 2009:
“There are few give-aways in this Budget from the Government because there has been little room for manoeuvre. The surprising tax rate of 50 per cent for those earning £150,000 or more goes against the earlier election promise made by the Government, unless an election happens before April 2010.
“This is indeed a Budget for serious times, where many key measures had already been leaked to test the reaction. If the Government wishes to make the fiscal stimulus work, then it needs to stop talking about tax increases.
“While tax rises have been brought forward in order to balance the books, it does nothing to encourage spending. We have already seen this by way of people using surplus cash to pay down their mortgages. The worst of the downturn may now be over, so let’s make sure the economy does not just bounce along the bottom by the Government paying negative lip service to taxpayers on the future direction of tax.”
Chas Roy-Chowdhury comments below on five key areas of today’s Budget announcement:
Tax evaders beware: Those cheating the taxman by £25,000 or more will be named and shamed with HM Revenue & Customs (HMRC) publishing a list of offenders. This may act as a disincentive for tax dodgers, but the Chancellor and HM Revenue & Customs would have done better to support this campaign by making the tax system fairer, simpler, clearer and more transparent. There needs to be sufficient safeguards built into the system to ensure the process is fair.
New tax rate: 45 per cent rate rises to 50 per cent: A surprising and contentious move, due to come into play in April 2010/11 tax year, where those earning £150,000 or more per annum stand to be taxed at a higher rate of 50 per cent.
National Insurance Contributions (NICs): The creeping upwards of NIC – by bands in the future – is an unwelcome move for employees paying tax. Today’s announcement will effectively mean a UK basic rate of 21.5 per cent and a top rate of 51.5 per cent. This makes the UK look and feel uncompetitive compared with other jurisdictions.
VAT: Extension to December of the 15 per cent band is welcomed. The Government will need to monitor this closely and extend into 2010 if necessary.
Carry back of trading losses: This measure was introduced at the last Pre-Budget Report, allowing business to carry back losses subject to a maximum of £50,000, for up to three years. Its aim is to help businesses and especially SMEs cope with the recession. An extension of provisions to allow businesses to carry back losses for up to three years and defer tax payments is a welcome move.
Corporation Tax rates: The delay in the increase in corporation tax rates is a welcome move, for the time being. Helping businesses is indeed the “right thing to do”, as the Chancellor stated in his speech.
2. A STRONG FINANCIAL SECTOR
The Future of Financial Regulation: ACCA anticipates the imminent Treasury paper for wide ranging reforms in the financial sector. The Chancellor said that a single set of accounting rules would be introduced, a move which ACCA considers is well over due. ACCA has long called for International Financial Reporting Standards (IFRS) to be the standard rules. Stability and consistency in the system is crucial.
3. SAVERS AND PENSIONS
Savers and pensioners have been hit unfairly during this recession, with low interest rates whittling away at nest eggs. Tax free ISAs £7,200 annual limit, increase total annual limit to £10,200. But why this is effective from the age of 50 seems an unfair and arbitrary figure.
Pensions Tax Relief for higher earners: Removing higher tax relief on pension contributions for those earning more than £150,000 per annum sends out a wrong message for those trying to save for their retirement. The whole tax regime for pensions needs to be rethought.
Stamp Duty Holiday: Extending the Stamp Duty holiday until December 2009 for homes under £175,000 is a welcome move to boost a housing market that is seeing some signs of recovery. But perhaps a wider-ranging temporary scrapping of the duty would have shown real commitment to getting the housing market moving again.
5. BUSINESS AND SMEs
Supply chain insurance: ACCA is delighted about the introduction of supply chain insurance. It brings much needed stability to a system that often fails when credit dries up. Ensuring the chain stays strong is a timely measure, one that should have been introduced earlier. This is a definite win for the SME sector, which is so dependent on stable cash flow.
Capital allowances: Doubling these allowances to 40 per cent allows a much-needed breathing space for businesses and ACCA welcomes this move. It should bring about benefits for large and small businesses. We wait to see what the benefits of this move will bring and the actual detail.
6. SAVING THE CAR INDUSTRY?
A cash boost: The £2,000 incentive for car scrapping will need to come from somewhere and again, the tax coffers will be prised open for this. The challenge for the Government is to balance this £2,000 incentive while encouraging carbon neutrality. It is a mixed and confusing message. It remains to be seen whether people owning a car that is ten years old or more will be driving round to their local car show rooms to purchase a brand new car before March 2010.