Welcome to the March 2011 Newsletter from Connolly Accountants Ltd

The Chancellor has this month signalled that income tax and national insurance may be 'merged' as part of a 'historic' move to simplify the tax system. In his Budget speech on 23 March, George Osborne announced the launch of a consultation on plans to align the two taxes, although conceded that any amalgamation would take 'several years' to implement.

Meanwhile, the Government has announced that there is to be a three-year moratorium on new employment laws for small businesses. The measure, which will apply to firms that employ fewer than 10 staff, will supposedly help UK enterprises by cutting 'red tape' and bureaucracy.


Government to consult on NI and income tax 'merger'

National Insurance (NI) and income tax may be 'merged' as part of a 'historic' move to simplify the tax system, it has been announced.

Delivering the 2011 Budget, the Chancellor George Osborne confirmed that the Government will consult on plans to combine the two taxes, but admitted that it would take 'a number of years to complete'.

He said the move was to simplify, rather than raise tax, and that NI would not be extended to pensioners, or to other forms of income.

'For decades, we have operated income tax and National Insurance as two fundamentally different taxes and forced businesses large and small to operate two completely different systems of administration, with two different periods and bases of charge,' Osborne told MPs.

'The resulting anomalies are legion. And it imposes totally unnecessary costs and complexity on employers, and costs the taxpayer in the extra burden it places on HM Revenue & Customs.'

'But it is time we took this historic step to simplify dramatically our tax system and make it fit for the modern age'.

It follows a report by the Office of Tax Simplification (OTS) which supported the case for a merger. However, experts have warned that such a move could create winners and losers.

NI is currently payable at 11% for employees and is due to rise to 12% next month. According to some analysts, the effective abolition of NI could therefore take the basic rate of income tax from 20p to 32p in the pound, and the higher rate from 40p to 52p.

In the current financial year, income tax is forecast to raise £150bn, while NI is expected to net the Treasury £100bn.

A study by the Institute for Fiscal Studies last year said: 'The current UK tax system is opaque and unnecessarily complex, imposing two entirely separate taxes on earnings – income tax and national insurance contributions.

'Recent changes have introduced a bizarre marginal rate structure, with marginal income tax rates rising from 40% to 60% on incomes between £100,000 and £112,950, then falling back to 40% before rising again to 50%.'

You can view our summary of the Budget Report on our website. To discuss how the Budget announcements may affect you, please contact us.


Small firms to be given three-year moratorium on new laws

From April small firms with fewer than 10 staff will be given a three-year moratorium on new employment regulations under plans unveiled by the Government.

At a speech to the Federation of Small Businesses (FSB) annual conference in Liverpool, the Business Minister Mark Prisk announced a raft of changes aimed at cutting red tape and boosting the economy.

The Chancellor George Osborne later confirmed the move in his Budget speech on 23 March, adding that it was part of the coalition's ambition to 'make Britain the best place in Europe to start, grow and finance a business'.

The proposals include revoking regulations that would give parents of children up to the age 17 the right to flexible working hours from April. The Government has also abolished plans to extend the 'time to train' regulations to companies with less than 250 members of staff.

'We are giving those affected an opportunity to tell us which rules are badly designed, or straightforwardly a bad idea,' Mr Prisk told the conference. 'A large company may be able to afford the dedicated compliance and HR personnel to cope with the large volumes of regulation that are part of commercial life. For the smaller firm, this may mean the owner having to waste hours on form filling.'

The FSB, meanwhile, has welcomed the proposed changes. 'Regulation is one of the most burdensome and complex issues for small businesses, so it is a real victory for the FSB and small firms across the country that the Government has finally listened,' said the group's chairman, John Walker.

However, the Chartered Institute of Personnel and Development (CIPD) has expressed concerns over the plans, which it claims may lead to a 'two-tier labour market.

Mike Emmott, CIPD employee relations adviser, commented: 'A moratorium for the smallest firms is a dangerous precedent that risks creating a two-tier labour market, and could even at the margins act as a perverse disincentive for growth amongst firms considering employing the extra staff member that would bring them into the 'regulated tier' of the labour market'.


ESSENTIAL TAX DATES AND DEADLINES

31 March: End of Corporation Tax financial year.
End of CT61 quarterly period.
Filing date for Corporation Tax Return Form CT600 for period ended 31 March 2010.

5 April: Last day of 2010/11 tax year.
Deadline for 2010/11 ISA investments.
Last day to make disposals using the 2010/11 CGT exemption.
Last date for contracting back into the State Second Pension for 2010/11.

14 Due date for income tax for the CT61 period to 31 March 2011.

19/22 Quarter 4 2010/11 PAYE remittance due.

20 Interest will begin to accrue on unpaid PAYE/NI for 2010/11.

For more information on key tax dates and deadlines, visit our 2011/12 Tax Calendar.


QUOTE OF THE MONTH

'Let it be heard clearly around the world – from Shanghai to Seattle, and from Stuttgart to Sao Paolo:  Britain is open for Business'

Delivering his second Budget, the Chancellor George Osborne pledges to attract more international business to the UK


WEBSITE OF THE MONTH

www.bbaa.org.uk

Website of the British Business Angels Association.


ON OUR WEBSITE

Essential information for business owners

For advice on all aspects of owning and running a business, visit our business guides.

The latest tax information

View the 2011/12 tax rates and allowances, plus a host of other tax information here.

Health and safety regulations 'to be relaxed'
The Government has outlined plans to relax health and safety regulations to help reduce the 'red tape burden' on UK businesses and encourage economic growth.
Click here for the full story

New 'enterprise zones' to 'boost UK economy'
New 'enterprise zones' are to be set up throughout Britain to help boost economic growth, the Chancellor George Osborne has announced.
Click here for the full story

OTS publishes final recommendations on UK tax reliefs
Tax-free luncheon vouchers and relief on late night taxis are just some of the allowances that may be culled following a report by the Office of Tax Simplification (OTS).
Click here for the full story

New fuel rates published as petrol prices climb to record high
HM Revenue and Customs (HMRC) has issued new fuel advisory rates, which apply to all relevant journeys made on or after 1 March 2011.
Click here for the full story

Business voices concerns over proposed HMRC spot checks
The Federation of Small Businesses (FSB) has warned that proposed spot checks on company records could be used purely as a 'revenue raising exercise' by HMRC.
Click here for the full story