Income Tax & NIC merger plus Small Business Tax changes

 Pensioners may be penalised

Next week’s budget will make various changes to the current tax system. If the proposed simplification proposals for merging income tax and National Insurance (NI) are implemented, retired people and those living off savings stand to lose out as they do not currently pay NI. Unless specific allowances are made for pensioners they are likely to lose out.

Flat-rate tax for small businesses

The recommendation for a flat-rate tax scheme to help small businesses would be difficult to implement fairly and could ultimately create a more complicated tax structure.

Any flat-rate scheme will require HMRC establishing an “average” tax rate that will be applied to small businesses. Some businesses will benefit and others will lose out, so to be fair there would have to be many flat rates, and this could ultimately be quite complex.

If the government introduces a voluntary scheme, small businesses will have to decide for themselves whether or not it is financially worthwhile joining. Small businesses would be wise to seek advice before making any decisions.

Flat-rate tax is a good idea in theory, but as we have already seen with the flat-rate VAT scheme, which was introduced in 2002 but has not been universally adopted, simplicity does not always result in cost savings.

Savers risk paying too much tax with new tax software

Savers face being pulled into a higher tax bracket as a result of new computer software being implemented by HMRC. The software is designed to reduce data processing errors by automatically updating individual’s tax codes when their self-assessment tax return is sent to HMRC.