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Simplify the tax system, Santa Brown

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29th Nov 2005
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Gordon BrownLast week we asked AccountingWEB members what they would most like to see in this winters Pre-Budget Report. The results of the survey make interesting reading.

Most practitioners said they would like to see a more simplified tax system.

Simplification was the dominant theme of the comments, echoing number of issues raised on AccountingWEB this autumn. For example, the ICAEW Tax Faculty's complexity barometer indicates that tax legislation has become increasingly complex in the last decade. So it is not surprising that respondents identified some obvious areas for change here.

Rebecca Benneyworth had added a further simplification measure - abolish both NCDs and the nil rate band of corporation tax and make tax simpler for many small companies and their advisors.

PricewaterhouseCoopers tax partner John Whiting commented: "The suggestions and comments are an interesting mix ' as might be expected when advisers are asked for ideas on changing the tax system. They range from the big picture ('merge income tax and NICs') to detailed ('provide return envelopes which actually stick down') and from altruistic ('enable share plans for mutuals') through to personal interest (''less of it payable by me')."

Over two-thirds of respondents were also concerned about Income Tax.

Whiting responded: "It's not surprising this received most attention ' it is the biggest tax, after all! Equally, it's not surprising to see calls for the abolition of IR35 which remains a controversial provision five years after its introduction."

One AccountingWEB member urged: "Change the definition of share so that mutual organisation can setup share incentive plans for employees with same tax benefits as those of plc."

National Insurance Contributions were also high on the agenda for practitioners taking part in the survey, with 53% of respondents ranking NIC as the second most important issue that needs addressing in the PBR.

Many practitioners backed the call to amalgamate Income Tax and NICs as the best first step to simplify the tax system.

As one AccountingWEB member commented: "Be honest about what it is: call a tax a tax and amalgamate it into the income tax rates."

Another AccountingWEB member said: "Combine NIC with Income Tax; this would simplify the system. 'NIC contributions' would be replaced by minimum levels of income or tax paid."

John Whiting said: "I identify with a number of the comments here ' calls for the amalgamation with income tax, or at least the harmonisation of definitions strike a chord with me. It's the most regularly cited idea for simplification, particularly from employers."

Practitioners also made suggestions for a more simplified VAT system, with one member calling for flat rates on all systems.

One AccountingWEB member recommended: "VAT on everything at one single rate and an overall cut in the rate of VAT from 17.5% to say 10%, 12.5% or 15% to compensate. Massive simplification in administration and no more multi-billion pound court cases about what is and isn't dutiable."

Andrew Needham, director at VAT Solutions, commented: "While a single rate may seem administratively attractive, the EU 6th Directive limits the standard rate to nothing lower than 15% so there would be little overall saving.

"In addition the exemptions are also contained within the 6th Directive and all member states have no choice but to apply them. Even if you could just charge a flat rate on everything it would mean that all the current zero-rates and exemptions would go, so we all pay VAT on food, children's cloths, books, insurance medical care, education, domestic property rental, the sale of new and second hand housing (everybody who sold their house would have to register for VAT) etc. So it is a non-starter as it will be legally impossible and politically suicidal."

Other suggestions included:

  • Re-establish the distinction between legitimate tax avoidance and illegal tax evasion they are not the same
  • Bring back local tax offices handling local taxpayers.
    Goodbye to the call centres that we are not able to get through to.
  • Reduce the pension burden of the civil service

John Whiting commented: 'There was clearly a heartfelt plea from one respondent for the division between tax avoidance and tax evasion to be re-established: 'they are not the same thing', as the writer put it. In one sense the division remains as it always was ' avoidance is legal, evasion isn't ' but as the writer implies, the boundaries have become increasingly blurred.

"I do like the call for a change in our tax year end from 5 April. The writer asks for 31 March which many would settle for, though I wonder if going the whole hog ' as the Irish did a few years ago ' and moving to 31 December wouldn't make more sense. Undoubtedly the 5 April year end, if familiar and manageable through familiarity, remains an anachronism."

John Newth added his views: "What I would like to see is some honesty from the Chancellor. He has robbed non-government pension funds by abolishing the right to reclaim tax credits. 'Stealth taxes' such as IR35, section 660a, the POA situation for inheritance tax and the NCD rate of corporation tax have all been been introduced, among many others.

"It is fairly clear from the current query by the PCG that the 'take' from IR35 is pretty meagre.

"If more receipts from tax collection are required, the honest solution is to increase the basic rates of Income Tax and Corporation Tax, and abolish some of the complicated and unfair stealth taxes. I realise that this is pie in the sky, but it is worth saying'."

By Dawn-Marie Dart, News and feature editor

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By AnonymousUser
29th Nov 2005 17:51

complicating the simplifications
I like the idea of amalgamating IT and NIC as it is honest but this may be very bad news for pensioners and other classes of taxpayors who do not usually pay NIC.

So to avoid disadvantaging them when simplifying Gordon Brown will have to introduce more reliefs which will create more complications.


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By User deleted
29th Nov 2005 22:04

NIC
The problem with NIC is that it is a tax on earnings. Historically, earned income was always taxed at a lower level than unearned income, with things like earned income relief (before 1973) and investment income surcharge (before 1979 (?)) I think I may have given my age away here!

Now we have the situation where unearned income is taxed at the lower level, hence the current trend to low salaries and payment of dividends.

The other problem is that the government promised not to put up income tax, so has put up almost everything else!

In other areas, the jump from basic to higher rate tax is too wide. When the new system was introduced in 1973, the basic rate of tax was 35%, with higher rates from 40 to 83%, so higher rate taxpayers started with a gentle increase of an extra 5%. Now it's a huge 18% difference.

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By NeilW
29th Nov 2005 12:55

Complexity
If the chancellor had any idea how complicated the NCD system was he would NEVER have introduced it.

If the chancellor had realised how complex it was, then he'd have probably introduced it across the board. This chancellor likes complexity because he thinks it shows how clever he is at 'targetting'. More complexity equals more people doing the processing equals more jobs. It's Keynesian economics by stealth.

The people who do well out of it are the lawyers, accountants and of course HMRC in penalties and fines.

NeilW

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By Sheila Morrison
29th Nov 2005 12:12

Abolish NCD's
If the chancellor had any idea how complicated the NCD system was he would NEVER have introduced it. I am sure that none of the small businesses which I deal with understand it and many try and shoot the messenger (us) when we tell them of their liability to Corporation Tax on very small profits. "I thought I had the first £10,000 free of tax" they say. Ha Bloody Ha

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