Now we know the facts from last weeks budget, there are several changes announced.
I was disappointed that the planned fuel increase I’d hoped would be scrapped is going ahead. Fuel costs are a big part of the expenses for the self employed, and the tax rate on fuel is already very high.
The main changes that are taking place relate to personal allowances.
These continue to rise, with a higher than inflation increase, towards the governments goal of a £10,000 personal allowance.
This was already a complex area, with the sliding scale reducing the higher age allowance as peoples income increased. This scale made it difficult for people to understand what allowance they would receive as tax codes are issued a year in advance.
In many cases, this meant underpayments of tax arose as the tax codes could turn out to be too high.
The new rules for existing people receiving age allowances will be welcome, unfortunately their removal from those people first receiving their pension after April 2013 will be most unwelcome.
Tax & National Insurance Integration
This is something that has been proposed for many years. A consultation is going to take place to see how it could be achieved.
People may get a shock though at their level of tax if these are combined – under the current system they are separate, although still taxes.
Without an agent preparing detailed computations each year, someone who is self-employed thinking they only pay 20% tax will now see clearly that is actually 29% when national insurance is included.
Personal Tax Statements
From 2014/15 taxpayers will be provided with a simple statement that shows the total tax they have paid. What differs is that the statement will then break down this total and show how this tax has been allocated between the different government services such as education and policing.
This is an interesting proposal, which is to be consulted upon.
The thinking behind it is to make it easier for people not complying with their tax filing obligations to do so. It will allow people, and accountants, to use standard allowances for expenses and to simplify the accounts required.
On the one hand this has advantages for people without advisers, as it may help them to comply with the regulations.
However, it could be of limited use as the standard allowances will not always be the best solution for the taxpayer.
As always, taking professional advice to decide on what is likely to result in a lower tax liability is going to be worthwhile – everyones situation will be different.
One other point to watch out for is that simplified accounts will not provide the full information that a business owner needs for planning purposes.
The accounts are not just something prepared for the tax return, they are a useful source of information for planning purposes – helping business owners to maximise profits and plan for the future growth of the business. A set of standard allowances would not do this.
It will be interesting to see the consultations develop.