Budget 2010: Tax has doubled under Labour
One for all those tax exiles out there... better out than in.
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Budget 2010: Tax has doubled under Labour
The Government's share of what we earn has nearly doubled in value since Labour came to power.
By Ian Cowie
Published: 6:50AM GMT 20 Mar 2010
Despite long-forgotten promises not to raise income tax, the Government's share of what we earn has nearly doubled in value since Labour came to power, according to HM Revenue & Customs' statistics.
These show that HMRC took £69bn out of salaries and pay packets in 1997, but expects to raise £134bn in 2010. National Insurance contributions (NICs) – a tax on income by another name – took less than £47bn out of pay 13 years ago, but will exceed £98bn in 2010, according to calculations by accountants Grant Thornton. Other taxes – such as stamp duty, council tax and capital gains tax (CGT) – have risen by even more.
The Chancellor, Alistair Darling, points out that income tax revenues were boosted by rising employment and may have more to say along similar lines in his pre-election Budget next Wednesday. Here and now, accountants are advising clients to count their spoons and take advantage of tax shelters while they are still available.
Chas Roy-Chowdhury, head of tax at the Association of Chartered Certified Accountants (ACCA), said: "The Budget will be all about jam today and pain tomorrow.
"There are several tax rises in the pipeline, but I do not expect to see any significant rises being announced pre-election. I would be surprised if the Chancellor brought the 50pc rate of income tax in to affect incomes of £100,000 this side of an election. But after the election, if the current party in power is returned to office, then I think it is a runner."
Last year, the Chancellor announced the new 50pc rate would apply to people earning more than £150,000 a year. Richard Mannion, of accountants Smith & Williamson, said: "Whichever party wins the election it looks as though further tax rises will be on the cards in the foreseeable future.
"An increase in VAT to 20pc is most likely because that will produce a large sum of money quickly and that rate would still be in line with the other European countries.
"The CGT flat rate of 18pc looks out of kilter compared to income tax rates and so is likely to increase, but CGT does not produce much tax and an increase won't do much to fill the economic bucket."
Mike Warburton, of accountants Grant Thornton, said: "Even after recent falls in revenue, the taxman now takes almost twice as much as in 1997. Stamp duty, CGT and council tax have more than doubled.
"It is surprising that duties have not done so – but don't be fooled. The motorist is paying heavily. It is duty on alcohol, tobacco and betting that have fallen behind inflation – arguably because this is what matters to many core Labour voters.
"Despite all this, there are sensible tax-saving measures that can be taken. Pension funds still offer the most attractive way of saving tax-efficiently. Individual savings accounts [Isas] are a pale shadow of the personal equity plans [Peps] and tax-exempt special savings accounts [Tessas] that they replaced, but are still tax-efficient.
"Venture capital trusts [VCTs] and the Enterprise Investment Scheme [EIS] have had a mixed performance, but can still make a good tax-efficient part of a portfolio and investments in a business or farm can still attract useful inheritance tax [IHT] relief.
"The next few years are going to be tough, but we may as well protect ourselves as well as we can from the harsh reach of the taxman."
Angela Beech, head of personal tax at accountants Blick Rothenberg, said: "Although there have been some leaks of no further tax rises by the Chancellor next week, the 50pc rate of income tax will be with us within a month and there must be a realistic prospect of swingeing cuts in services if he is to make any inroads into the country's serious debt."
But George Bull, of accountants Baker Tilly, said: "The Chancellor is probably secretly hoping that taxpayers facing the 50pc top rate next year will take action to safeguard their position before the Budget, if not before the end of the tax year which, perhaps luckily, falls just 13 days later.
"Even allowing for the fact that the tax becomes payable a year earlier than otherwise, a tax saving of 10pc or more is worth having. Why would he want people to avoid tax in this way? In a word, cash flow.
People facing the prospect of the new additional rate who can bring forward income into 2009-10 will save themselves 10pc on non-dividend income, but that saving increases to 11.11pc on dividends because the effective rate of tax on a 50pc taxpayer's dividend will be 36.11pc."
Accountants Smith & Williamson have measured the impact of all kinds of taxes on families at the request of The Daily Telegraph. They considered the effects of changes in taxation on a family with two fairly average incomes and on another family with two earners and one higher income.
The calculations are set out in detail below. The 1997 figures have been lifted in line with the Retail Prices Index (RPI) to remove inflation from the comparison.
The survey shows that for the family on average earnings the percentage of income paid in all forms of tax has increased from 32pc to 34pc – an increase of 6.25pc since 1997. However, for a taxpayer in receipt of tax credits, the net increase in total tax will be rather less.
The family with higher income has seen their total tax payments increase from 33pc to 36pc over the period. Back in 1997 we still had the married couples' allowance and Miras (mortgage interest relief at source), albeit both were capped at modest amounts.
The basic rate of income tax was 23pc compared with today's 20pc, so basic-rate taxpayers look as if they should be better off. However, the higher-rate threshold has not kept pace with the increase in average earnings over the period so far more earners are now paying the higher rate. This is the phenomenon known as fiscal drag.
NICs are the ultimate stealth tax and have risen substantially over the period. In 1997 the top rate of employees' NICs was 10pc on earnings up to £24,180 a year and above that figure nothing was payable. The employer paid a top rate of 10pc with no upper threshold.
Today, the employee must pay 11pc on earnings up to £43,888 a year and then 1pc on all additional earnings. The employer is now charged 12.8pc NICs for each individual's earnings in excess of £5,720 a year.
An increase from 10pc to 11pc for an employee's NICs may not sound much but it amounts to an increase of 10pc. In the case of the employer, the rise is an eye-stretching 28pc. No wonder NICs are sometimes described as a ''tax on jobs''. Worse still, the Chancellor has already said that NICs rates must rise by another percentage point next year.
Mr Mannion, of Smith & Williamson, said: "Many people may not consider local rates as a tax. However, local authorities are generally being asked to do more with less financial support from central government.
"As a result, most of us have found that our council tax has gone up dramatically over the years. In other words, we are seeing an increase in local taxes, which are not compensated by a reduction in central taxes.
"Our case study shows that the council tax for a typical house in Surrey has gone up by 68pc on a like-for-like basis over the period. And there are no easy ways of mitigating this particular tax, apart from moving to a less desirable property."
Bob Rothenberg, senior partner at Blick Rothenberg, said: "The overall trend over the past 13 years has been a heavier tax burden for almost everyone. Not only has the amount of tax paid gone up, but the burden of compliance has increased and the tax legislation and complication has become almost impossible for the 'man on the Clapham omnibus' to either understand or handle.
"It was not that long ago that a standard tax return was four pages or so. Now the number of pages is many times that number and with the online challenge as well, dealing with one's own tax affairs becomes more and more difficult. On top of this the Revenue has become more remote, and with their own pressures on staffing, less able to help taxpayers with their affairs while devoting more effort to inquiries."
David Kilshaw, of accountants KPMG, said: "The next few days could well be hectic as people try to get ahead of whatever changes they suspect could be coming. It's important to remember paperwork is critical – often cheques have to be cleared, not just written to be effective for tax purposes.
"This is especially true on CGT. Come April 6, there will be a big gap between the top rate of income tax at 50pc and the CGT rate at 18pc. There are strong arguments to leave the CGT rate as it stands and the Treasury is reported to not be considering a change at this time.
''None the less, quite a lot of people are playing it safe by selling assets ahead of the Budget," he said. MORE than 1.5 million pensioners are overpaying tax on their savings income, accountants Beever and Struthers claim.
The accountants calculate that up to £9bn of tax is being overpaid each year by taxpayers as a whole, but say older people are at greater risk of overpaying. They blame complex forms and a widespread belief that income paid by bank and building society accounts is untaxed, when in most cases it has been taxed before savers receive it.
If pensioners have been paying tax on their pension or savings income – other than dividends – during the past six years, they may be due a repayment of that tax.
Anyone who thinks they, or family or friends, may be eligible for a refund should contact their local HM Revenue & Customs office without delay. After April 5, the number of years for which some people can claim repayments drops from five to four.
There are transitional arrangements in place that will allow many pensioners to claim six years' repayments until 2012. However, to be certain of this, action should be taken now.
Claire Kennedy, tax partner at Beever and Struthers, said: "The tax system is obviously very complex and HMRC can be difficult to deal with. Tax repayment claim forms can be hard to understand, but they're worth completing because if you have been paying tax for the past six years, you may be entitled to a repayment worth hundreds of pounds.''
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source: http://www.telegraph.co.uk/finance/p...er-Labour.html
