Tax complexity in 3D…

No escape from the budget as yet. Unfortunately we accountants have a myriad of notes issued by the Treasury and HMRC to pore through and pick out the information that was not contained in the Chancellor’s speech to the House of Commons and as ever I have been swamped with “Budget Briefing Notes” from all the accounting firms that I deal with.

Maybe it’s because I am not a politician and don’t understand these things but it does seem strange to me that having warmed people up nicely to accept a reduction in the 50p tax rate, George Osborne then hit them with a totally unexpected “Granny Tax”. I would like to think that if I ever contemplated such a left field announcement in my role as a Finance Director, my more “customer focused” colleagues would make sure that such a situation would never happen (the white coats would be optional).

One of the main features of Budget (and Autumn) statements of recent times is the way that tax changes are announced which will impact on the next tax year but one. For example the increased personal allowance may be good news but it won’t be happening until 2013/14 as will the reduced top rate of tax.

Therefore not only do we have an extremely complex tax code to deal with, which apparently runs to over 14,000 pages (compared to just under 5,000 in 1997), it now appears that we have to cope with the fact that the extra dimension of time has been added. Try explaining that to – well almost anyone.

By the way 5 million people will be higher rate tax (40p) payers by 2014 according to the Institute of Fiscal Studies due to the whittling down of the higher rate tax threshold that is effectively paying for the increased tax free personal allowance. That is a lot of highly paid people assuming that you think that £42k a year is highly paid.

And if you think that the UK only has three rates of income tax (20%, 40% and 50% soon to be 45%) then thing again. There are a number of people who will face a variety of tax rates as their tax credits or child benefits or personal tax free allowances are withdrawn based on any increase in income they might receive. Apparently if you have eight children and fall foul of the child benefit clawback provisions you could face a marginal tax rate of 101%! I think that might be seen as a disincentive to better yourself or work harder but then what do I know.

I am increasingly of the view that we now have more and more extra-terrestrial politicians i.e. not of this world, who have no idea what real life is actually like out there. It wouldn’t surprise me if they try and add VAT to sausage rolls that are sold at a temperature above that of an ambient room. Oh hang on…..

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