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Will contractor accountants face higher tax bills?

Will contractor accountants face higher tax bills?

An economic think tank has claimed that an additional 1.3 million people, including contractor accountants, are going to be forced into the higher tax band thanks to the changes made in the Chancellor’s Budget last week.

As from April 2013, the threshold at which people pay tax at 40% will decrease to £41,450. Currently people can earn up to £42,475 before the 40% rate kicks in. According to the Institute for fiscal Studies, this will mean five million people in the UK will be paying the higher-rate tax by 2014. Next year, 15% of workers will be affected by the higher rate; in the 1980s it was just 5%.

The Institute also questioned the Chancellor’s claim that the Treasury will only lose £100 million when the 50p tax rate is axed in April 2013. Mr Osborne said in his Budget speech that this loss would be more than compensated for by measures such as increasing the stamp duty on properties costing £2 million or more.

The IFS has described this year’s Budget as a “hotch-potch of reforms”. Osborne said his reforms were revenue neutral but that assumes the rich who avoided paying income tax at 50p will be prepared to pay it at the lower 45p rate.

Paul Johnson, a director at the IFS, said people who got a taste for tax avoidance may carry on avoiding once the rate decreases. He also criticised the Chancellor’s decision to raise stamp duty on high value properties and said a mansion tax could have been a better alternative.

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Image: Stacks of pound coins by Images_of_Money

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