Welcome to the May 2008 Newsletter from Connolly Accountants & Business Advisors

In a politically-motivated attempt to quash growing concerns over the abolition of the 10p tax rate, Chancellor Alistair Darling this month announced a £600 increase in the income tax personal allowance. Whilst the surprise move has been largely welcomed by Labour backbenchers, economists fear the temporary concession may jeopardise the Government’s borrowing forecasts.

Meanwhile, workers are to be given more rights under new proposals designed to improve employment conditions. Proposed changes include extending the right to request flexible working to parents of children up to the age of 16.

Darling raises personal tax allowance

The Chancellor has outlined plans to increase the personal tax allowance to £6,035 to help those hit by the scrapping of the 10p tax rate. Delivering what has been branded a ‘mini-Budget,’ Alistair Darling told the Commons that 22 million people on low and middle incomes would benefit from the proposed changes.

The £2.7 billion tax 'cut' will effectively mean that those earning up to £40,835 will receive an additional £120 this year. The concessionary measure, which is to be backdated to the beginning of the financial year, will see eligible pay packets boosted by £60 in September, followed by £10 monthly increases until the end of the year.

'80% of households are fully compensated with the remaining 20% compensated by at least half. And in addition 600,000 people on low incomes will be taken out of tax altogether,' read Darling's statement on 13 May.

Individuals paying tax at the higher rate will not be affected by the changes.

While the move was greeted by cheers from Labour MPs, some experts have warned that it may have an adverse impact on an already faltering economy. As a result of the compensatory tax deal, public borrowing is likely to be pushed towards the £50 billion mark this year, thereby compromising the Government’s fiscal rules.

Furthermore, the Institute of Fiscal Studies (IFS) estimates that 18 million families will be worse off after the 2009 Budget when the tax concessions expire. According to the think tank, families will lose an average of £150 per year.

‘By announcing a big ‘one-off’ increase in the personal allowance […] Alistair Darling has not only created millions of winners this year; he has created millions of potential losers next year,’ claims IFS director Robert Chote.

Darling’s announcement may also result in more red tape for companies, as PAYE codes and tax systems will need to change half way through the fiscal year. HM Revenue and Customs has told employers to refrain from taking any action before the details are finalised in the coming weeks.

Please visit our website regularly for all the latest tax rates and information, or contact us to discuss how the proposed tax cut may affect your personal finances.

Government to extend flexible working rights

Some 4.5 million more workers may soon be able to request flexible working from their employers, as the rights are to be extended to parents of children up to the age of 16.

Current rules limit the right to request flexible working to parents whose children are under six or have a disability, but the opportunity will widen as the Government is set to implement the recommendations of an independent review.

The Prime Minister unveiled the plans in his draft Queen’s Speech earlier this month. Gordon Brown also informed the Commons of his intention to grant employees the right to request time off for work-related training.

Small business representatives have criticised the move. ‘The announcement puts small businesses in an impossible position,’ said Alan Tyrrell, Chairman of the Federation of Small Businesses. ‘You can't have an extension of flexible working and at the same time clamp down on the means by which many small businesses cope with it which is often through temporary workers.

‘The current flexible working regime seems to be working but the Government should be cautious about extending it too far which could be damaging to small businesses and, as a result, the millions of people they employ,’ he added.

However, Business Secretary John Hutton claimed the extension would give a ‘big boost’ to busy parents.

He said: ‘It is important that employers retain control over deciding whether it suits their business to allow people to work flexibly, but extending the right to request to parents of older children will allow families to take priority when decisions are made.’

Research suggests that more than 90% of requests for flexible working were approved by employers last year.


Click here for key tax deadlines for the coming month.


'Although many organisations practise the age-old philosophy of 'presenteeism' they should open their eyes to the new work ethic spreading across the UK and try out home working.'
Phil Flaxton, Chief Executive of Work Wise UK, on the changing landscape of the British workplace


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Personal tax information and guidance
Access a variety of information on personal taxation issues by visiting the 'Your Money' section of our website

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