Tag Archive | "institute for fiscal studies"

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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Accountants for contractors will be deducting more tax from you soon!

Freelancers could be encouraged to ask for advice from a specialist contractor accountant after one financial body revealed that changes to the income tax bands, due to be introduced in April, will lead to an additional 750,000 paying higher rate tax.

In the coming tax year, individuals earning between £35,001 and £150,000, will be taxed at 40%. Currently, people pay the higher tax band on earnings above £37,400.

The Institute of Fiscal Studies launches its Green Budget today which will also reveal that an additional 850,000 individuals will fall into the higher tax rate bracket within the next 4 years if the coalition meets its targets.

A spokesman from the Institute said that real earnings are expected to remain stagnant but householders will face an additional loss of around £200 a year from benefit cuts and tax increases that come into force at the start of the new tax year. This is on top of the VAT increase and higher energy and import prices.

The wealthiest 10% of the population will also have to pay a new tax rate of 50p in the pound on income over £150,000. This will mean that they are losing 3% of their income compared to the average 1% for the rest of the population.

The tax band changes will mean that 500,000 people do not have to pay any tax at all. April’s increase in the personal allowance from £6,475 to £7,475 is the first step in the government’s plan towards raising the personal tax threshold to £10,000.

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