Party pledges which lack financial sense
The Institute for Fiscal Studies, an apolitical organisation which has undertaken to assess the financial implications of the main parties’ election pledges, have expressed their concern that some of the headline grabbing policies are not financially sound. Despite what they described as ‘large differences’ between the plans laid out by the main parties, neither the Conservatives, Liberal Democrats or Labour have finances in mind when it comes to their plans for taxation and benefits.
The Institute is concerned that there is a lack of clarity over the details of the plans, and they believe that the piecemeal approach to making changes to the system, rather than implementing a wider scale series of changes which would improve the efficiency of the system as a whole. The IFS are concerned that there are some key policies which are unlikely to work in practice due to lack of coherence or clarity.
These include the increase in the personal allowance so that those who earn £12,500 or less will not be liable for any tax. This has been proposed by both the Conservative and the Liberal Democrat Parties, in a move which could cost the country £4 billion per year in tax yield. However, according to the IFS, previous increases in the personal allowance already mean that 44 per cent of adults in the UK do not pay income tax due to low incomes, meaning that this move will benefit those with higher incomes rather than those with smaller incomes.
Labour have proposed to do away with the transferable personal allowance available to married couples, and to reintroduce a starting rate of income tax of 10 per cent. The IFS believe that this will replace one complexity of the current system with another, pointing out that there is little justification for having a 10 per cent tax rate which would only cover a small range of incomes. The effect would be the same as upping the personal allowance, especially given that the benefit would only amount to around 50 pence per week for most taxpayers.
Those who use the self assessment system for completing their tax return will usually the most acutely aware of any changes to personal allowances as they see the figures in black and white when the complete the process. Those who might have been encouraged by the parties’ pledges to reduce their tax bills might find that these plans aren’t as easy to implement in practice as they appear.
If you work for yourself and want to understand more about contractor tax then our handy guide has plenty of information to help you understand your position. For those who want to take advantage of tax planning opportunities, our guide to the advantages and disadvantages of limited companies could help you identify whether it is the right decision for you.
Whether you are already working for yourself, or in the process of making the move to contracting, then using an experienced accountant is the best way to ensure your financial success. Give us a call today on 01442 275789 or email firstname.lastname@example.org for more information.