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Will Chancellor bow to latest Lib-Dem income tax demands?

Will Chancellor bow to latest Lib-Dem income tax demands?

Contractor accountants may already be aware that Nick Clegg, the Deputy Prime Minister, recently urged the government to speed up its plans to increase the income tax threshold to £10,000.

However, PwC has warned that implementing such a plan would cost the country £11 billion. HMRC has estimated that raising the personal allowance by £100 costs the Exchequer a minimum of £0.5 billion. This has led to Alex Henderson, one of PwC’s tax partners, saying that raising the threshold faster than originally planned would be a heavy drain on the UK’s financial resources.

Part of the original pact between the coalition partners was that the income tax threshold would rise to £10,000 by the time of the next election in 2015. This was one of the demands made by the Liberal Democrats in return for joining forces with the Tories to form the current coalition.

Nick Clegg now wants to see the plan accelerated to help relieve some of the financial pressure facing families on low incomes. But Henderson points out that such a move would have to be paid for. Either tax receipts from borrowing or growth would need to improve, or we would see significant tax rises or cuts in existing reliefs if the government was to balance the books. To illustrate the scale of the gap, he explained that raising VAT to 22% from the current 20% would just about compensate for an increase in the income tax threshold to £10,000.

Under current plans, the Chancellor is expected to increase the income tax threshold to £8,105 when he gives his Budget on the 21st of March.

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Image: To Do List by westy48

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