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| CURRENT SECTION :: News | UK's most visited IT Contractor Site - 250k unique visitors March 2008 |
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On the back of a far-reaching Budget by his predecessor , economic crisis in the US and the subsequent tight few months for Britain, Alistair Darling has little room for giveaways when he addresses the House of Commons tomorrow. The chancellor’s inaugural Spring Budget will therefore hear the Treasury’s growth forecast revised downwards – for the second time in six months, from the initial 2 to 2.5 per cent in October, possibly down to 1.7 per cent. But in keeping with Budgets delivered by Gordon Brown, whose final measures as chancellor on corporation and income tax are yet to impact the economy, there will be a modest flexing of Britain’s economic muscle. Britain is better equipped than some nations to avert the fallout in the US from what Warren Buffet, the world’s richest man, calls a recession, as UK interest rates are relatively low, and unemployment remains at the 30-year low. Yet such trumpeting from Mr Darling won’t distract onlookers from how far he might go to address the UK’s rising levels of borrowing and debt; the state’s own borrowing mounts up to £37bn, excluding the £100bn needed for Northern Rock. As a result, the consensus among business and economic experts is that Darling’s Budget, which City onlookers believe will be authored more by Brown than anyone else, will be one of tax rises. “With the new chancellor’s previous attempts to raise money through capital gains tax and a levy on non-doms largely in tatters, his priority will be to raise money without damaging an already fragile economy,” said accountant MacIntyre Hudson. The firm believes Darling might increase the National Insurance rate for income of more than £34,600 – or £670 a week - from the current 1 per cent rate to 2 per cent, while he may also raise NI to 3% for earnings above £100,000. Nigel May, the firm’s tax principal, believes NI presents Darling with a perfect opportunity to raise taxes subtly without incurring too much unpopularity. “The chief attraction of this move is that it would only affect higher earners,” he said, “so [it] would not ruffle the feathers of core Labour voters.” “Any move is likely to be deferred for a year, demonstrating the Chancellor has a strategy to tackle the budget deficit without further depressing the economy at this critical stage.” Corporation tax is also likely to be tweaked, the accountant said, but Darling is unlikely to signal the root and branch reform of business taxation that the CBI demanded yesterday. Instead, the chancellor is expected to adjust the payment regime for corporation tax, bringing companies with profits above £500,000 into the regime of quarterly instalments on account. “Adjusting the payment regime is one way for Alistair Darling to adjust corporation tax without touching the rates themselves,” Mr May said. “True, a manoeuvre such as this would not bring in more money in the long term, as payments are balanced out at the end of the year, but this move would bring in money to plug the budget gap in its year of introduction.” Elsewhere, the momentum behind green taxation at a time of falling car prices could make a Car Purchase Tax likely, particularly as there is “no longer a substantial British car industry to protect.” Experts at MacIntyre Hudson also said a tax on plastic bags, a move made more likely thanks to initiation from supermarkets, would provide Darling with a cash injection instantly and in the long term. “I think we can be sure that generally it will be a tough” Budget on Wednesday, Martin Hesketh, managing director of Brookson said yesterday, confirming Darling has little room for manoeuvre. “What with the current world economic climate, concerns over the ‘credit crunch’ and a possible recession, the pressures on the chancellor are going to be great.” Hesketh highlighted controversial proposals on capital gains tax and income-shifting as adding to assertions that the state’s relations with small firms have deteriorated to an all time low. Both of the proposals, due to be fleshed out on Wednesday, surfaced in the pre-Budget report and dramatically affect how IT contractors, consultants and entrepreneurs conduct their businesses. The Forum of Private Business says the CGT reform, which Darling hopes will earn £350m a year, should be postponed, as should the rise to the small companies’ tax rate, which will raise £1.2bn over the next two years. “Smaller businesses, still waiting to feel the impact of changes made in Gordon Brown's last Budget, fear that the increases in corporation tax and the reduction of capital allowances, in particular, will stifle investment even further,” the FPB said. “Any additional burdens announced by the chancellor will be seen as another direct attack on smaller firms, and may push some of them over the edge.” Unveiled by Gordon Brown in March, the hike to the SCR is the biggest worry for the Federation of Small Businesses’ member companies, alongside the CGT changes. In line with the Professional Contractors Group, the Federation said it “totally opposes” legislation on income shifting – because it will unfairly penalise family-run firms, while burdening them with administration. The Federation’s Budget wishlist also shows the group has another goal in common with the PCG, the UK’s trade group for freelance workers. “Employment status continues to cause problems for small businesses and the IR35 legislation is continuing to cause administrative problems for professional contractors who have to operate through limited companies,” the FSB said in its submission to HM Treasury. “The legislation favours large contractors and suppresses an important route from employment into entrepreneurship. It is an administrative burden for both HMRC and the self-employed and brings in little revenue.” Reflecting on the damage done by IR35, Simon Sweetman, the FSB’s tax chairman, told CUK: “HMRC, I am fairly sure, wish it had never happened. “And they certainly wish they didn't have to deal with the income shifting legislation, which looks like the son of IR35.” For Brookson, contractors should expect “even further announcements about HMRC powers, penalties and compliance checks” in tomorrow’s announcement. “All the evidence points to a significant increase in tax visits over the next 12 months,” Mr Hesketh warned. “Overall though, I hope for a Budget with less impact on the contractor than last year but we shall see.” Mar 11, 2008 Email this article Printer friendly page Previous Page
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