Budget commentary.

21st March 2012

The Chancellor set out his Budget as being one that would deliver a simpler tax system, one that would take the lowest paid out of tax whilst increase the tax paid by the wealthiest. Many of the changes announced will take effect in 2013 allowing time for further consultation in areas such as income tax relief and employee share schemes.

The most significant and well publicised change is the desire of the government to work towards a personal tax allowance of £10,000 with confirmation that the allowance will increase to £9,205 in 2013.  It is proposed that income tax relief generally will be restricted to £50,000 or 25% of income whichever is the greater from April 2013, following a period of consultation. This will be combined with the reduction in the additional rate of tax from 50% to 45%, also from April 2013.

This provides the opportunity for higher earners to plan ahead making the most of the existing regime. Businesses may consider the timing of cash and share awards given the forthcoming tax reduction in much the same way as they did prior to the introduction of the 50% income tax rate in 2010 something the Chancellor referred to when he revealed that £16bn of income had been shifted into the previous tax year.

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