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March 2010 - Tax Director's Blog
60% tax relief on contributions to pensions or charity?......
** Please click on "quarterly tax newsletter" on the right of this page to pick up the sensible tax update**
- here's my rant!....
Thank you to all those who came along to our seminar on 3rd March - if you want some ideas about tax and pensions in the new era (basically if you are going to make over 100k pa) and want to talk about it, let Kate Brown or me know.
THE PRE-ELECTION OPTIONS....
It's been a busy and exciting time here in "TaxLand" (honest) - the January rush for personal tax is a distant memory and it's heads down for last minute tax planning for the wealthy ahead of the new tax year. And with higher taxes forecast, tax advisers are fairly rubbing their hands in glee...am I too cynical?
The "big news" for some people is the (punitive and wholly unacceptable) 51% personal tax rate (1% National Insurance, 50% tax) on income over 150,000. This is ghastly for those affected - along with the 61% effective tax rate on earnings between 100,000 and 113,000 - the point at which personal allowances are stolen from you to create a truly immoral tax rate.
Sadly, some political posturing to be "seen to do something" to raise tax has taken precedence over really balancing the books ahead of the election. We really have come a long way back from the late 90s when "getting rich" was apparently quite fashionable.
However, our debt fuelled phoney economic expansion of the noughties has come home to roost and the "emperors new clothes" economic nirvana is obvious for all to see. It turns out we weren't really growing our economy! This is something I've said for ages - as exports weren't increasing and we were borrowing more money each year as a nation (and personally). It's simple -the UK is a "shop" - you need to sell more than you buy to create money and wealth. We've been doing the opposite all through the noughties but as the banks kept lending money and some of that found its way to the UK exchequer Brown was happy... net result...disaster when the debt tap is switched off.
I can't help but think we should ask "what would the IMF do if they had to help us?" - let's start that process ourselves..... Ireland has slashed its public sector costs as they simply couldn't borrow their way through the change. Should Britain do the same?
Politicians don't "get it" - the deficit in public finances is surely not temporary, it's not a blip - it's STRUCTURAL so all we are doing by borrowing money (and printing it) is buying time, treading water, until the inevitable moment comes where we have to take the pain. They must know this and that is why they say we will "grow our way out of recession" (is that political speak for "inflate away our debts?"). We are "not Greece" - too right - they've been forced to cut their cloth according to their income now - we have not! Why is the UK perceived to be so much safer than Ireland and Greece when it comes to unbalanced books. True, our national debt as a percentage of GDP is not yet the worst in the world but our annual deficit is absolutely appalling at around 12%.
I really want to remind our Politicians that Callaghan tried something like this (and failed) in the 70s and this was the conclusion that he and Dennis Healey reached
"We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step."
Labour Party Annual Conference1976
Yet still, there is no sign of an real alternative. The Tories appear to be offering no substantially different tax and spend policies - their website talks of reducing corporation tax but fails to commit to an early removal of the silly 51% tax/National Insurance burden for the highest earners, or the 61% marginal rate at 100k approx. Why not? Clearly they fear a backlash - they must lack the "bottle" to say it how it is. Surely our country needs to offer low taxes to stay competitive in the world. I digress - some readers of my blog will feel I am being too "right wing" - I apologise.
The "good riddance" to people who won't pay 50% tax attitude of Ken Livingstone is understandable - but totally naive if we want to have an economy which has a place in the world and which can have sustainable public finances that include schools and hospitals, never mind defence. We need the rich to come here and stay here.
Finally, let me offer the predictions of the day - by December 2010 we will have a 20% VAT rate (maybe higher). By then I think we ought to have a 25% temporary basic rate of tax (currently 20%). VAT, Income Tax and National Insurance are the big "money earners" for the Government and the focus has to be on them - tinkering with the richest minority will bring little real financial gain and does long term harm. It's an unpleasant and, perhaps, very unfair, but I suspect everybody has to get poorer if we are to secure a prosperous future.
Before you get back to your "day job" - have a look at the links below.
As ever, this is my rant and is not the view of the firm or my fellow directors.
Donald Parbrook,Tax Director
CHARITY
"FAT ACCOUNTANT IN MACMILLAN CYCLE EVENT LYRCA SHOCKER"
Am I mad? I've never asked people for donations before (not since I was at school) but if you are minded to give a little, why not put some to Macmillan? - I'm cycling 81 miles in 6 hours ... and that won't be fun for an overweight accountant. If your income is between 100k and 113k pa, from 6/4/2010 you'll achieve 60% tax relief... my recommendation is you contribute HUGELY on 6/4/2010 if you are a high income earner.......thanks.
http://www.justgiving.com/Donald-Parbrook
Why not take a table at this event for a night out with clients and colleagues? -
http://www.epilepsyscotland.org.uk/fundraising/fundraising_events/gla_wags/wags_dinner_glasgow.htm
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