Summary of income tax changes

So NOW we've heard it. Alistair Darling's third Budget. Behind it were unprecedented circumstances, a General Election looming and the dire economic situation. So what did the Chancellor say, and more importantly, what did it actually mean?

Budget speeches tend to be fairly uninspiring affairs, but the background documents are more enlightening. To save you trawling through hundreds of pages press releases,cour summary of the main income tax changes will quickly bring you up to speed.

In summary, this was a Budget with the General Election very much in mind. It contained no surprises on the income tax front and was very much a 'do nothing' Budget. It is almost inevitable that, once the General Election is over, whichever party is in power, there will be another Budget in which the real tax and spend decisions are revealed.

So what were the main income tax changes? Well the good news was that there was no new announcements over and above the tax rises already announced in the December 2009 Pre-Budget Report.

Tax rates - As previously announced, the Government proposes significant changes to the system of personal allowances and tax rates for 2010/11:

• Allowances and rates - The 2010/11 personal allowances will remain broadly the same as 2009/10. The basic rate limit will also be maintained at £37,400.
• Changes for 2010/11 - The Government had previously announced that the personal allowance would be subject to an income limit of £100,000 per annum, the personal allowances will be tapered, so that by earnings of £114,000 will suffer a marginal rate of income tax of 60 per cent.

Because of these tax rises, many small business owners will be looking to cap their earnings at £100,000 per annum. They certainly will not want to be earning between £100,000 and £114,000 per annum.

A new rate of income tax of 50 per cent will be introduced from 6 April 2010. This applies to taxable income above £150,000.

Dividend income is currently at 10 per cent where it falls within the basic rate band and at 32.5 per cent where liable to the higher rate of tax. A new rate if 42.5 per cent will be introduced from 6 April 2010 for dividends above the £150,000 income threshold.

Special Annual Allowance Charge - The new rules aim to provide a tax penalty on pension contributions for individuals with income above £130,000.

Removal of Pension Relief - The Chancellor had already announced in the Pre-Budget Report in December 2009 the removal of higher rate relief for pension contributions from 6 April 2011 for those with higher incomes.

Offshore - The Chancellor announced 'tough new penalties' for those who fail to pay taxes due on offshore income and gains, with penalties of up to 200 per cent for deliberate and concealed evaison.

For further information contact Phil Harris on 01604 660661 or email : admin@harrisandco.biz

 

 

Source - Business Times

Posted Date: 07th Apr 2010