Office of Tax Simplification - accountants ask for consistency
The new Office of Tax Simplification was launched by the Coalition Government last week. A leading accountancy body has urged the OTS to 'think small first' and to try to make the tax system more consistent. A leading accountancy firm has also said that 'simplification' should not be used as an excuse to scrap tax breaks.
The OTS, which was launched on 20th July, has been planned since 2008. The aim of the new body is provide the Coalition Government with independent advice on simplifying the tax system. The body will draw from expertise across the tax and legal professions - as well as the business community and other interested parties.
Chas Roy-Chowdhury, ACCA Head of Taxation, said, “In recent years, the UK tax policy has changed as often as the people in charge of it. We applaud the Treasury’s decision to establish the Office of Tax Simplification, but to make this initiative truly of benefit to businesses of all sizes, it is vital that the work of the Office remains politically independent and that its recommendations do not fall by the wayside as the Coalition Government shifts its focus to other areas of the UK economic recovery.”
Roy-Chowdhury also believes that the Government should start with SMEs when designing taxation policies for business:
“Currently, the government has a top down approach for business tax but instead it should think small first. It needs to create a foundation of principles that can apply to all businesses, based on the needs of the smallest, with additional layers added for larger, more complex companies.”
ACCA is calling for more clarity around the following areas of business legislation:
- The PAYE system
- Income tax bands
- VAT flat rates for small businesses
- The employee benefits system
- Deductions from business tax profits
Clive Gawthorpe, Partner, UHY Hacker Young has urged the new body not to use 'simplification' to scrap a series of business tax breaks.
“Simplifying the tax system is what all small businesses want to see but the worry is that simplification will be a veil to bring in more tax by scrapping reliefs.”
“A lot of tax reliefs are complex, but they are hugely beneficial to businesses. We must be careful not to throw the baby out with the bathwater. The quest for greater simplification should not be used to scrap vital tax reliefs.”
For example, UHY Hacker Young says that the Chancellor’s recent ‘simplification’ of capital and investment allowances in order to fund a reduction in corporation tax will lead to the Government taking in £890m in extra tax from businesses in the next three years.
The accountancy firm also says that the last two ‘simplifications’ of capital gains tax (CGT) has resulted in a huge rise of CGT.
“Some complexity is inevitable if you want a tax system that produces quite subtle or specific outcomes. Taper relief worked quite well for capital gains tax in encouraging long term investment. It may make things more complicated for the individual taxpayer, but for the economy overall complexity may be a price worth paying.”
“There are some complex areas to the tax system, such as R&D or film tax credits, which are designed to produce quite specific outcomes. It’s debatable whether the British film industry would prosper without that tax relief.”
“A lot of the complexity is to discourage tax avoidance. If the tax code isn’t exhaustive, loopholes will be exploited, which could make the system unfair.”
Posted July 27, 2010
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