The Chancellor has effectively torn up his original proposal to introduce a 45% top rate in 2011. Instead the top rate will be introduced a year earlier, on 6 April 2010 and the increase over the existing top rate will be doubled as the new rate will be 50%. This also affects the rate of tax on dividends and the Tax Rate on Trusts.

Baker Tilly analysis

The Chancellor has recognised the need to start repaying the cost of his economic stimulus package sooner and to collect more tax to reduce the debts he is incurring more quickly.

This is consistent with his acknowledgement that the recession will be more severe than he estimated in the Pre-Budget Report in November 2008.

In detail

Partners in professional service firms will see a significant impact as a result of the increase in the top rate of personal tax announced in the budget.  The threshold for the new top rate remains £150,000, as originally proposed in the November 2008 Pre Budget Report, but increasing the rate and bringing the measure forward to 2010/11 will have a significant effect on the Government’s cash flow. It will boost tax receipts due on 31 January 2012 when the balancing payments for 2010/11 and the first payments on account for 2011/12 will be due. While the changes will benefit the governments cash flow they will mean that managing firms cash flow in relation to tax payments will be more important than ever.