Smith & Williamson hedge their bets
In a preview press release, Smith & Williamson's Richard Mannion was equivocal about whether we would see any concrete proposals in this Budget.
“Given that NICs are in effect another tax, it makes sense to lump it with income tax to create one combined tax. However, this would translate as a basic rate of income tax of around 28% which could give the government some difficult headlines,” he said.
“The OTS has agreed that government needs to consider a merger of these two taxes – which would be a revolution in tax terms - but it remains to be seen whether ministers have the appetite for such a major reform. If they decide not to take this idea forward then it is likely that we will see consideration of a number of practical measures to bring the NIC code closer to the income tax code and to improve HMRC’s administration of NIC payments.”
CIPP welcomes “one tax system” consultation
Following yesterday’s budget, The Chartered Institute of Payroll Professionals (CIPP), is in support of the government’s announcement to consult merge tax and National Insurance.
The CIPP would welcome a consultation for the merger; Karen Thompson Associate Director of Policy, Research and Strategic Visibility at the CIPP says “This year it’s been a reasonable budget, the move for a “one tax system” is a good idea and welcomed by the CIPP, it makes perfect sense that tax and NI are aligned”.
This announcement is an echo of the former consultation back in 2006, which New Labour decided not to go ahead with in 2007 as they believed that the benefits did not outweigh the costs. Karen Thompson “hopes that the government will be braver this time around, rather than trying to decrease the administration they should make the NIC’s system simpler otherwise we will arrive back to the same conclusion”.
The announcement is met with concerns about the move to Real Time Information (RTI); when instead of the end of every tax year, payroll information will be sent every pay period. The CIPP feel that it is a shame that the proposed merger could not be done before the move to RTI.
Other announcements made in the Budget that are supported by the CIPP are the drop in corporation tax to 25%; it has been noted by the Policy team that the coalition government are making particular effort to help small businesses. Although the CIPP expected the harsh company car taxes increase, they say that it is comforting for payroll professionals to know the government recognise how essential cars are for businesses.
The increase in Approved Mileage Allowance payments (AMAP’s) rates will also be strongly welcomed, however the CIPP feel extremely disappointed that this has not been reflected in the lower rate of 25p.
Overall the CIPP feel that the government took into account the hardships endured by individuals and businesses during this time of these challenging economic times.
View endorsed by the FPB
The Forum’s Head of Campaigns, Jane Bennett, said: “This review is certainly a good, and welcome, start towards creating a simpler and more proportional tax system.
“We have been calling for the alignment of income tax and National Insurance for a number of years. Most business owners find the continuing distinction between the two baffling, especially given theforthcoming introduction of compulsory pension contributions through the National Employment Savings Trust scheme.
“The OTS has certainly put forward some solid pro-business ideas which will be popular with the SME community. But unless these suggestions are acted on – and soon – business owners will come to see this report simply as a PR exercise. The Chancellor must act on these suggestions wherever possible is his Budget next week and provide smaller firms with some desperately-needed good news.”
In a recent poll, (Tax and Budget member panel survey, January 2011) 57% of Forum members said they were so frustrated with the complexity of the UK tax system, they would even be prepared to pay more tax if a radical simplification programme gave them greater opportunity to develop and grow their businesses. A survey carried out by the Forum in 2009 showed that tax administration costs small businesses in the UK £1.8 billion every year, mainly due to internal time costs.