News Article - The dog that didn't bark

Do you know the Sherlock Holmes story about the dog that didn’t bark in the night? Last week’s Pre Budget Report (PBR) reminded me of it: it wasn’t so much what the Chancellor said as what he didn’t say that struck me. Government borrowing is now forecast to reach £178 billion, but to drop to half that figure in four years. Unless the economy turns around dramatically, there are only two ways to achieve this: spending cuts or tax increases. The tax increases announced were nothing like sufficient to do the job and more tax rises are likely. So what can you do to minimise their impact?

 We know that from 6 April 2010 there will be a new tax on incomes in excess of £150,000 and those affected will need to consider whether they can legitimately take more income in the current tax year and less next year. Those with income between £100,000 and £112,950 will also lose some or all of their personal allowance – people with income in excess of £112,950 will lose the allowance completely. Personal allowances will also be frozen at this year’s level.

The rules for pension payments were changed in the Budget to restrict higher rate tax relief for people earning in excess of £150,000. In the PBR, the Chancellor extended the net to people earning in excess of £130,000 and further complicated the definitions and detailed rules.

There was good news for companies carrying out research and development expenditure and for small companies (where the rate of corporation tax remains frozen at 21%). Employers – and employees – however, will have winced at the announcement that national insurance will be increased by 1% (twice the amount announced in the Budget) from April 2011.

The Chancellor also confirmed that he still intends to withdraw the special tax rules for furnished holiday lettings from 6 April 2010 and if you currently enjoy the benefit of this special tax break you should take advice sooner rather than later.

Two final points: remember that VAT will rise to 17.5% on New Year’s Day and to take advantage of the new, higher Individual Savings Account Limits.

Most commentators expect further tax rises to be announced over the next year - whoever is in power - and the next few months provide tax planning opportunities that may not come again for some time.

Paul Aplin OBE is a tax partner with A C Mole & Sons and a former chairman of the Institute of Chartered Accountants in England & Wales Tax Faculty. He can be contacted on 01823 624450, email paulaplin@acmole.co.uk. Bridgwater based tax partner Paul Kingdom can be contacted on 01278 446088, email paulkingdom@acmole.co.uk.