Last updated 11:21, Thursday, 27 November 2008

THE proposed five per cent hike in the top rate of income tax will stifle entrepreneurship and wealth creation, a Cumbrian tax expert has warned.

Taxing times: Pauline Jackson, tax partner at Saint & Co, Carlisle, and Chancellor Alistair Darling

Pauline Jackson, of Carlisle’s Saint & Co Chartered Accountants, said that although the move, announced in the Government’s Pre-Budget Report on Monday, will raise revenue for the Treasury, it could also cost jobs in the long run.

She also warned the 2.5 per cent reduction in VAT, also announced on Monday, might not be passed on by retailers.

The proposed income tax increase means anyone earning more than £150,000 will pay at a rate of 45 per cent from April 6 2011. Mrs Jackson said: “The tax rise will do nothing to encourage entrepreneurs who take the risks to create jobs and generate wealth.”

On VAT, Mrs Jackson added: “Businesses will need to immediately review their accounting systems to ensure they correctly reflect the new VAT rate on invoices issued from Monday.

“Throughout December, businesses will be processing invoices issued in November as well as in December. Extreme care will be required to ensure VAT is reclaimed at the correct rate on each invoice.

“The Chancellor appeared to assume that the reduction in VAT will be wholly passed on to consumers.

“However it is highly unlikely that retailers with hundreds if not thousands of lines are going to re-price their stock, it would not be practical especially in such a short period of time.”

Mrs Jackson welcomed the postponement of an increase in the small companies’ rate of Corporation Tax until 2010 as good news for small businesses.

But she said hauliers will lose out because a two pence per litre rise in petrol duty, postponed earlier this year because of spiralling oil prices, will be reinstated from December 1.