It's a bit of a lottery, really...

Rarely can the portents for a Pre-Budget report be as ominous as this one. Chancellor Alistair Darling will stand up on Wednesday shortly after noon to make what many people predict might be his last Pre-Budget statement.

His advisers at The Treasury always makes sure he has something to say - for example, the massive public deficit resulting from this year’s bank bail-out - but will it really matter?

The change of the rate of VAT back to 17.5% was set out in March’s budget and a new 25% flat rate for capital gains tax is expected, but could the impending general election make this year’s PBR be the dampest of squibs?

Trying to predict the contents of the Pre-Budget statement is always a bit of a lottery but, with a little bit of insider knowledge, here’s what we at The Smart Frog offices are predicting.

· Confirmation of further staged VAT rises in the future.
· A raise in the basic rate of income tax by 1p across the board from April 2010.
· Further 1% rise in NICs across the board from April 2011.
· Duty rises in petrol/diesel.
· No alcohol duty rises for some pre-Holiday Season cheer.
· Extension of the new three year carry-back of £50,000 of losses beyond the scheduled expiry date of November 2009.
· Increase in relief for entrepreneur and employee shareholders/investors to encourage long-term investment.

Check back to see how many of these predictions were correct. And before you ask, The Smart Frog is keeping the numbers for next weekend’s National Lottery a closely guarded secret!

Super, Duper...

The Smart Frog remembers back to the day when he was but a tadpole squating around the monopoly board wishing he was aboard the battleship. But, alas, he always seemed to be bankrupt by the end of the game by continually landing on the space between Park Lane and Mayfair and collecting a whole lily-pad of Super-Tax debts.

This blot on his wonderful youthful days has come back to haunt him in the form of the aforementioned Super-Tax being introduced in real-life. In real-life in the UK, next April, to be precise.

With a bit of analysis, it is easy to compare the new tax rates with those from the early '80's where rates were at 60%, but thankfully we're not at the 98% rate from the 1970's just yet. In the current financial climate, the Government is naturally keen to fill its coffers, and by our reckoning the new tax and national insurance rates, coupled with the changes to pension tax relief, will empty almost £13.24 Billion from the pockets of the UK's top 2% of earners by 2013. That's a lot of dosh!

The new rules will start to bite from April 2010. But what are they? See how these float your boat...

- Earners will start paying tax at 50% on that part of their income which exceeds £150,000 per year

- Personal tax allowances will be restricted by £1 for every £2 of income which exceeds £100,000 per year. This means that once income reaches about £113,000 (using today's rates) then there will be no personal tax allowance available at all

- Higher rate tax relief on personal pension contributions will slide away where income exceeds £150,000 per year (this rule applies with effect from April 2011), such that no higher rate relief will apply where income exceeds £180,000 per year

- Because of the peculiar way the system will work, the effective tax rate will actually reach 60% for those unlucky enough to find themselves in the worst income bracket

So, how can those poor souls protect themselves from the ugly clutches of the 50% (or even 60%) tax man? Well, there's plenty of ideas, but the basic premise is to try to ensure that income falls below £100,000 per year. Here's a few thoughts...

- Try to structure 'income' as 'capital gains' - this will most likely apply to employees who participate in company share schemes. Capital gains will not attract the Super-Tax rate, and indeed can be as low as 10%

- Try to 'split' income between spouses - for instance, ensure that income (such as investment income - dividends, bank interest, etc.) is equalised between spouses such that neither sneaks into the Super-Tax league. This can also apply to family companies by, maybe, ensuring that shares are held equally between spouses (but, be warned, tax avoidance rules are prevalent here, so take advice!)

- Ensure that trading losses are claimed as beneficially as possible - this will most likely apply to business owners

- Try to 'trigger' income arising before the new rules hit, for instance employees participating in short-term share schemes might want to exercise their options before 6 April 2010. Ok, ok, it will bring forward any tax payable by a year, but it could significantly reduce the amount of tax to pay

- Try to make full use of tax reliefs whilst they still apply, for instance Gift Aid relief and Personal Pension relief

So, that's The Smart Frog's civil duty done for today. Ensure you message him for specific advice before you take action, otherwise Super-Duper could become Super-Pooper!

Flippin' eck!

The news has been saturated recently with the revelation of MP's expenses, and quite rightly so. They've been very naughty boys and girls.

But now there has been the sacking by Gordon Brown of Kitty Ussher for 'flipping' her private residences for tax purposes in order to maximise her capital gains tax exemptions. The Smart Frog thinks that this is a step too far and completely unnecessary.

There is an important difference here. MP's have blatantly abused their internal rules for their own financial benefit. The rule which allows an individual, any individual, to elect to treat one residence over another as his or her home for capital gains tax purposes is simply part of this great country's tax laws, and surely each and every one of us is entitled to arrange our tax affairs as efficiently as possible. For the head of our Government - the guys who approve these laws - to get rid of a member of his staff for legitimately benefitting from those rules is quite simply wrong.

It's like saying that Joe, the self-employed plumber, can't claim for the use of his van. Or like Sir Green can't claim to be not resident in the UK. All are simply arranging their tax affairs in as tax efficient manner as possible, within the letter of the law, and so why should one lose her job because of it?

Coincidentally, the Smart Frog is currently advising a client on the same issue. The advice will be taken or not taken, but nonetheless he would be remiss not to give it, because that's what he's paid for. To criticise an MP for taking very good, sound advice from her accountant is simply not on. Would Joe or Sir Green ignore the advice of their accountant if it was going to save them heaps of tax. One thinks not - yet one suspects that they were nodding their heads with approval upon hearing the unfortunate fate of Ms Ussher.

The practice of flipping one's properties in order to optimise one's tax position has been around for years and years. It's taking it a bit flippin' far when one can lose one's job over it.

Why so complex???

The latest Budget could well prove to be the final nail in the Labour Government's coffin as far as many voters are concerned.

Among other reasons the proposed additional higher income tax rate of 50% and yet further layers of complexity adding to what is already a hideously complicated tax regime must have had the Government's opposition doing cartwheels.

The Smart Frog is no political commentator and any comments about the Labour Government are solely based on his views of the UK tax system. He speaks as he finds. And sadly what The Smart Frog finds is a tax system more unfathomable and incoherent than at any time in a tax career that spans over two decades.

He has expressed the view on numerous occasions that the tax system needs to be straightforward enough that the vast majority of taxpayers can understand how their tax bills are calculated. What the latest Budget suggests is that this will never happen under the present Government, because simplicity does not seem to be on their agenda.

Ah well, at least is does keep those pesky tax advisers in a job, so it's not all bad...

Tax Returns? What Tax Returns?

So, 31st January has been and gone. The first year of filing online and oh what a joy!

In years gone by, The Smart Frog has hopped down to the local tax office before midnight on 31st January, frantically shoving last-minute Tax Returns through the already-jammed tax office letter-box. Not this year though. Oh no. This year went by without hitch, all thanks to the seemingly effortless way that the HMRC online filing system has worked. Credit where credit's due - it's fabulous and never once let us down. There are a small handful of clients for whom we just couldn't submit their Returns, but these are those who presented their papers to us at the 11th hour and they understood that they might be late.

Only a week has gone by since the Tax Return deadline, yet it seems like a distant memory. Work which was put on hold during January has surfaced to bite us all on our tail-less bums. We're not complaining, though. Without it we would be sitting here twiddling our webbed-fingers wondering what to do with ourselves - or we would were it not for Mr Taxman setting constant deadlines for us to plan for; the next big one is obviously the end of the tax year (5th April) where tax planning keeps us occupied. Can't wait.

Until then, The Smart Frog team have noticed a large increase in queries recently from clients about 'Residence'. It seems that many are off to sunnier climes and want to know how it affects their tax position in the UK (it does, by the way, greatly affect it). Is this a knee-jerk effect because of the recent spate of arctic weather, or to get away from the sliding economy? With the £ faring badly against the Euro I am not sure that taking time out in Europe will have the desired financial effect, but I can imagine the warmer climate will ease the burden somewhat. Personally, I like to stay hidden from the sun - it has a nasty effect of turning my lovely green skin a light shade of yellow. Yuck!

3 hours or 3 minutes? Your choice...

In the lead up to the 31 January Tax Return deadline The Smart Frog becomes more popular than usual amongst friends. Friends who need help with their Tax Returns at the last minute. That's not a problem, of course, because The Smart Frog does like to help out whenever he can.

This week a friend had been trying to complete his Tax Return online using HMRC's 'intuitive' online software and, boy oh boy, what a pullava. Suffice to say, he eventually gave up and so sought my help. After 3 hours online, being thrown out several times in the process, we finally finished what would have taken 3 minutes using our own specialist Tax Return software.

Preparing a Tax Return is easy when you know the tax law inside out and prepare Tax Returns day in day out. But for a layman doing it once a year it is a completely different story. I hadn't appreciated this quite so much until I actually tried to help my friend this week and all I can say is that I wouldn't want to be a non-expert trying to grapple with the ever-increasing complexities of the UK tax system and accompanying tax forms. And god forbid anyone who actually gets it wrong - penalties galore for non-compliance or for getting it wrong.

I shouldn't complain. The more complicated the tax system and the Tax Return process then the more The Smart Frog is in demand, and it does keep the wolf from the door. But, please, please Mr Taxman, give us a break and tidy up your online sysems a bit. We all have better things to do with our time.