The King is dead; long live the King After 13 years under a Labour Government, you could be forgiven for forgetting that the approach to tax policy and legislation is not written in stone. Of course, it's not! Back in June, the new Coalition announced that they would be moving to "a more predictable and stable tax system, and a policy cycle that allows proper time for scrutiny". Last week we got our first taste with the "Overview of the draft legislation for Finance Act (FA) 2011". Before looking at the release, it's worth pausing to consider the Coalition's desire to change the policy approach. One of the most significant criticisms levelled at Labour was their approach to tax policy. The most damning indictment is of course the fact that they doubled the tax code to nearly 12,000 pages but the length of the code was not in itself the deal breaker; it was the desire to continually meddle with the rules. In the absence of light, darkness reigns supreme If you just consider for a moment for a manufacturer: the investment time frame for the plant and machinery required to make your widget could be 20 years. That means that you're putting a large lump of your capital upfront into tangible and largely unmoveable assets and are pretty much tied to your location for 20 years. An unstable tax system which lacks certainty, or indeed which is subject to the undulations of tabloid headlines, is not an attractive proposition under which to make that investment. The question you'll ask yourself and which I am sure was asked repeatedly in recent years, is whether you want to expose yourself to 20 years of regulatory flux, changing rules and the associated threat to your bottom line. Why not just set up in a country where you have a high degree of confidence that rules in 10 years will be pretty much as they are today? Business likes certainty and a country which wishes to attract and maintain a capital intensive manufacturing base absolutely must offer it. The other side of the coin here involves high net worth individuals. We have all read the media coverage since 2008 (when the changes to the non domicile rules were introduced in FA2008) and the general impression has not been favourable. It is of course worth remembering that these individuals tend to be serial entrepreneurs. While there is no doubt they structure their affairs to minimise their UK tax liability, they do contribute to the economy through the business they bring to the UK, the jobs they provide, the corporation tax and the PAYE/NIC they pay, the VAT collected on the wages they provide being spent and well as the general money circulating in the economy. A happy medium needs to be found where the UK remains an attractive jurisdiction but they pay a "fair" amount of tax and aren’t subjected to any no more ad hoc changes pushed through for political reasons. So, the Coalition's announcement of a more predictable and stable approach should be welcomed wholeheartedly. Last week’s release was a good first start in that it flags the upcoming changes well in advance of the legislation being passed but the warning remains the same I guess: unless they truly do deliver a stable tax system, yesterday's good start will be in vain. So what did we get yesterday? Yesterday's release was the follow up to the commitment to confirm the majority of measures in any Finance Bill at least 3 months prior to the Bill itself. So, in effect, yesterday's release was a mini draft Budget. The document contains both the proposed draft legislation and a commentary of impact assessments. It should be noted of course that nothing in yesterday's release is binding and events can still overtake the drafts. The Main Proposals - Income Tax Given the nature of this blog, I am going to stick with the IT proposals. For those of you interested in other taxes you can read it here. Unless otherwise stated, the changes are proposed to take effect from 6 April 2011. Tax Rates and Limits. No changes are intended for the headline rates of tax. They will remain at 20%, 40% and 50%. What will change are the bands. The current tax-free allowance will go from £6,475 to £7,475 meaning the lower paid can earn more before they pay tax. The higher rate band is set to decrease from £37,400 to £35,000. This change is introduced to ensure that higher rate payers do not benefit from the uplift in the tax free allowance. Furnished Holiday Lets (FHL) Labour had intended to abolish this concessionary treatment but the Coalition revised that in their emergency budget and they intend to amend legislation to allow FHL treatment for properties in the UK and EEA (previously it was restricted to UK properties only). They also intend to increase both the number of days the property must be available for letting and also the number of days it is actually let in order to qualify as a FHL. Pensions The favourite!! Everyone wants a go at changing the pension rules and so we have a few more changes. Pension relief will be restricted further by reducing the annual allowance from £255,000 to £50,000 and the lifetime allowance from £1.8 million to £1.5 million. There are also plans to remove the requirement to take an annuity at 75 years allowing greater flexibility in how you take your pension. This is certainly to be applauded; the requirement to take an annuity has long been in need of scrapping. NEST Something which has largely slipped under the radar until now is the National Employment Savings Trust (NEST), which is due to be introduced in 2012. Read more about NEST here but basically the idea is this: it's a compulsory national occupational scheme. So far, the commentary we have seen is muted and I wonder if most employers are aware that the cost of employing individuals is set to increase by a MINIMUM of 3%. The point of NICs, anyone? Actually, the total lack of interest in NEST is a little worrying for us so stay tuned and I'll post some more detail in the coming weeks as employers really need to start thinking about this now.