'Late' PBR affords more time to plan
Limited companies have a small but not to be sneezed at extension to the time they have to prepare their affairs for change, thanks to a later than expected Pre-Budget Report.
Rather than being delivered on November 25th, as widely anticipated, the annual statement from the chancellor will be made at 12.30pm on Wednesday December 9th.
Kate Cottrell, an advisor on IR35, the unpopular law that Alistair Darling has been urged to bin, said the date meant PBR 2009 would be later in the year than the six PBRs before it.
Shedding some light on the reason why, advisers at PKF said the 2010 Budget would reflect the state of the UK economy, "so we can expect very little good news" from the PBR.
This means that the PBR is likely to contain a plan for repairing the public finances in the medium term, given that Mr Darling has ruled out drastic measures to raise tax now.
But with a general election looming, political considerations may sway the chancellor into making 'old Labour' moves, such as hiking the tax take on the wealthy, PKF said.
Personal tax rates, though, are unlikely to change, as the state already seems committed to imposing the 50p in the £1 tax rate on people earning more than £150,000 a year.
As reported on CUK, individuals affected by the higher band have been advised to boost dividend payments to shelter some of their income before the rate takes effect in April.
The proposal to scrap the personal allowances of people with annual incomes in excess of £100,000, again from April next year, is also likely to remain, or be firmed up.
Yet there are fears that the resulting bands of tax for high earners, 60% and 50%, may be used by Mr Darling to justify a rise in capital gains tax, levied today at 18%, in the name of alignment.
Tenon, the business advisor said: "We believe that these rises in tax rates are here to stay so entrepreneurs with aspirations to have income of over £150,000, but are not there yet, should take action now!
"Making plans now could save you thousands in tax in later years. The window of opportunity we have before the changes are introduced, is shrinking fast and 5 April will be here before we know it. Action should be taken now whilst there is still time."
Ominously, the argument of needing to narrow the gap with other tax bands could also be made by Mr Darling about the small companies' tax rate, currently standing at 21%, though this is less likely than a rise in CGT.
In fact, delaying the tax hike facing small companies, whose profits are under £300,000, could be a simple way, albeit an expensive one, to signal Labour is looking out for small business.
Meanwhile, thousands of 'husband and wife'-owned companies in that population will be hoping proposals to clampdown on 'income-shifting' will stay in the long grass.
Fortunately, then, PKF believes deferring the detail of how the taxman might treat such jointly-owned companies is the likelier prospect, in spite of the Treasury's "shortage of funds."
Larger companies, by contrast, can expect little direct help as the cost of anything other than highly targeted tax reliefs (be they new or extended) will not be affordable, the firm said.
More worryingly for the white-collar types at the helm of such outfits, Mr Darling might signal a closer look at non-domiciled individuals, and is likely to tighten the screws on offshore account holders and tax avoiders.
PKF explained: "Leaving aside the argument about whether or not affected individuals are entitled to engage in sensible tax planning without being branded as 'tax avoiders', it seems clear that the government will want to be seen as being tough on high income individuals.
"Therefore, the chancellor is likely to announce the closing of various tax 'loopholes', rule changes to block complex planning arrangements and specific anti-forestalling rules."
Along with draft legislation for the incoming 50% tax rate, the PBR may also see some general anti-avoidance rule, specifically for 'additional rate' payers, introduced, the firm said.
It reflected: "In other times, such a general block on individuals' freedom to plan their financial affairs would have caused heated debate but, in the current austere climate, it may find its way into legislation with little opposition."