Increasing personal allowances will redistribute income

A third of organisations believe the government’s proposed increase in personal tax allowances is an effective way of redistributing income through the tax system by 33%, according to research by accountancy firm Baker Tilly.

Of the 405 respondents to its online survey, a further 23% said the plans, which focus on staff on lower and middle incomes and are predicted to make an appearance in next week’s emergency budget, would act as a stimulus for work, so generating income.

However, 16% said the proposed increases to personal allowances from April 2011 will cost too much.

Employers have also had a mixed response to Chancellor George Osborne’s plans to tax non-business capital gains at rates similar or close to those applied to income. This move has raised concerns over the future of employee share schemes, because the government has yet to clarify whether employees’ shares will be classed as business or non-business assets.

Only 8% of respondents thought it was fair to tax all gains at rates similar to income tax. Meanwhile, 34% of respondents said long-term investment for growth should be encouraged by a restriction on the period for which gains are to be taxed.

The findings also showed 37% of businesses wanted the government to simplify capital allowances by abolishing all first year allowances and reducing writing down allowances.

Addressing journalists at a briefing on the government’s emergency budget, George Bull, head of tax at Baker Tilly, said: “I very much hope we are not going to see fine scale political policy driven measures without adequate thought or without adequate consultation.”

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