The Chancellor of the Exchequer has failed to tackle the fiscal drag and his increasing the personal tax allowance next year to £10,500 won’t translate into a benefit for hard working families and individuals, says ACCA (the Association of Chartered Certified Accountants).
ACCA says that Chancellor George Osborne MP has missed the chance to tackle fiscal drag - tax thresholds dragging behind rising earnings – and that even by raising the personal allowance to £10,500 in 2015, more people will be sucked into the higher, 40 per cent tax band.
Chas Roy-Chowdhury, ACCA head of taxation, said: 'The slight rise in 2015’s 40 per cent threshold to £42,285 won’t exclude the many families and individuals who are now being pulled into that tax bracket. It will still catch too many people. In 1990 just six per cent of UK taxpayers paid income tax at 40 per cent. In 2014 it’s 15.8 per cent. Even raising the personal allowance threshold won’t give those affected the breathing space they need.
'While the Chancellor’s moves on pensions and ISA’s are welcomed and clearly make sense, many people won’t have anything to save with. They will have paid all their money to the Treasury through the 40 per cent tax band.'
The higher rate threshold for 40p income tax to rise from £41,450 to £41,865 next month.
Savings & pensions
Chas Roy-Chowdhury said: 'The pensions changes so far outlined capture the pulse of our times and is a brave and necessary step forward to allow prospective pensioners to eke out their hard earned savings in retirement. We await to see the full manifestation of the proposals following the consultation period.
'We consider the ISA simplification is long overdue and the raising of the limit to £15,000 is a very welcome move which give out all the right signals.'
ACCA says the Chancellor had missed an opportunity to help people get onto the property ladder by tackling the punitive nature of stamp duty.
Chas Roy-Chowdhury said: 'The cliff-edge nature of SDLT hurts those looking to take their first steps on the housing ladder. House prices are rising and not tackling this today in the Budget will be a major blow for those looking to buy a home. The Government clearly wishes to shield its revenue stream from housing transactions.'
Retrospective tax avoidance crackdown
ACCA says that the Chancellor’s plans to tackle tax avoidance with a retrospective ‘pay now, clear your name later’ approach was bad tax policy.
Chas Roy-Chowdhury said: 'Because these measures are retrospective, people who might have been in perfectly legitimate tax plans could be hit with a very large tax bill going back 10 years that they will have to pay. Although they might get it back if it transpires their tax planning scheme was perfectly legal, few people will have that kind of money available to hand over to the taxman. It seems very punitive when many who will be affected won’t have done anything wrong.
'At least the Chancellor has invested more funds into HMRC to tackle tax avoidance, something we have been calling for. Whether that translates into speeding up investigations in these retrospective cases will remain to be seen.'