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New Year, new approach – a cry from the heart. By Rebecca Benneyworth

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10th Jan 2008
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Although I am ensconced in my office with client records stacked all around me, I have spent most of the first weekend in January having a jolly good sort out. Taking down the Christmas decorations always does this for me – I tend to clean places that haven’t been looked at for an embarrassing amount of time. And with the last kids shipped back to uni yesterday I also got to go places I haven’t been for a month – rescuing a variety of crockery and …well I’ll go no further. Those with sons and daughters approaching their second decade probably know what I mean.

All this domestic bliss(?!) leaves me feeling very cleansed and ready for a new year with a nice fresh start. It made me start to wonder whether the tax system could do with a bit of a “best foot forward” approach to 2008.

Now that the shock has worn off after the announcements (and non announcements) in December there are several areas needing urgent attention – these might be the tax equivalent of under my daughter’s bed!

So first let’s get the CGT straight. Sorry, Darling but your time is up. Either say something or say that it will be delayed for a year. Stringing this out until after the end of January is unacceptable and unfair. Even with the time remaining, there is a grave risk that those who would wish to take steps to mitigate the changes will no longer have the chance. The current situation is worse than announcing the changes on Budget day to take immediate effect. We know that something is coming but we don’t really know what, and the uncertainty is probably worse than the shock of a sudden announcement which taxpayers can do nothing about.

Next, small business tax and policy. Please (and here is the heart felt plea) will someone take a policy initiative with regards to small business tax and decide what to do about it. The chance came and went with the so-called income shifting debate, but the issue is still crying out to be dealt with. If it is Government’s belief that businesses should not be able to save tax by running a business through a different structure (self employed, limited company) then it is high time that someone devoted the resources to coming up with a proper policy based approach. This would limit the “tinkering” that we get and the constant feeling (as advisers) that we are waiting for the next thing to happen. Reading Simon’s article the other morning echoed what I had previously heard – putting up the small company rate of corporation tax was “it”. Not so much a policy more a sticking plaster then. Or if Government really think that the issue is solved, then they should say so – but I think they are wrong. Managed service companies, IR35, income shifting – all part of the same problem – a lack of coherent policy approach to very small businesses of which there are a very large number indeed. So please, please will someone who understands small businesses decide on policy and then make good clear law to back it up.

What next? Oh well, while we are there I also think that the taxation of married couples and civil partners is crying out for a more coherent approach. Either it is good to share (Inheritance tax nil rate bands) or it is not (income tax bands). Capital Gains tax falls mid way and the fall out on divorce is truly spectacular. Why do we have a tax system which allows a married couple to put various financial arrangements into place and then skins them alive when it is necessary to unravel it on divorce (unless you are “fortunate” enough to get divorced in the same tax year as you separated)? The question to be asked is - Do we want married couples, as a question of policy, to have a more favourable treatment than unmarried? If so, what are the intentions? I suspect that the resistance to income splitting or shifting is really about the unbudgeted cost, but the new legislation will not prevent income splitting in relation to investment income. Is that because it doesn’t happen? Or because it doesn’t cost much tax? Or for policy reasons?

There are other areas where policy could do with a good hard look too, but as I found this weekend – you can only do so much and it’s best to tackle the worst areas first. Is there anyone in Government who cares about the mess that the tax system is in?

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Replies (12)

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By carnmores
15th Jan 2008 21:33

peter
righton all counts , and i love the way you listed all those points, begining not to care myself

what is a form 42!

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By CrowtherP
15th Jan 2008 19:36

The danger is
I believe the real danger is that most accountants work harder, and harder, at applying the rules, which are ever more complex. Most small business have no clue at all about Income shifting, IR35, associated company rules, VAT registration thresholds, Class 2 and 4 NIC maxima, GWR, CGT planning, The Flat Rate Scheme, restricted relief for losses, the remittance basis, UITF40, PILONs, 18% tax rates, repairs v capital improvements, new CAs scheme, etc. Yet they have to pay for the advice. The more complex you make it, the more work we have to do, and the more bewildered and disinterested the consumer / small entrepreneur / business owner becomes. He / she just want to go home, at night, having paid the "right amount of taxes". There is a real danger here that many taxpayers simply do not care very much, about the accuracy of their financial affairs.

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By AnonymousUser
15th Jan 2008 16:43

Dear Rebecca
An empty wish alas: "please will someone who understands small businesses decide on policy and then make good clear law to back it up".

There are many of us out here who should be asked because there is certainly nobody in pwer who has the faintest glimmering of an understanding of small business.
I seem to remeber a few years back the Inland Revenue wanted a study done on small business so they naturally asked KPMG to do it. They don't have a flying clue about it either.
We small practitioners do. But nobody will ask us.

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By AnonymousUser
15th Jan 2008 07:52

How right you are, Rebecca.
Government not fit for purpose?!
The whole system needs radical reform. After incessant tinkering with a post war model [ and the Motor vehicle ones also had the basics rooted in pre-war designs!] it reminds me of a Triumph Vitesse convertible I had in the 60`s, which, when I parted with it was more repair than original - remember Isopon?
The Tax System is similar, only worse. Using it is akin to coping with Motorway conditions in a Model T ford. The only sectors it benefits are lawyers and Govenments [mostly composed of 2nd rate lawyers] who wish to obfuscate their true motives.
Am I cynical? Oh- you noticed!

Mike.

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By AnonymousUser
14th Jan 2008 20:38

The penny has dropped
I refer to your last paragraph - You are right - nobody gives a damn. Sadly this does not only refer to the tax system.

I would like to see sole trader & partnership tax returns filed within a set number of months of the traders' year end (12 or 18), 5th April could be kept for rental income etc. This would spread work loads in the profession and in the tax offices. Government cash flow would be over the year instead of two big lumps in January & July. Did this not work happily before S. A. ?

Are there any unsurmountable problems? - Apart from Accountants & Tax Advisors being able to have Christmas & New Year back to spend with their families.

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the sea otter
By memyself-eye
14th Jan 2008 18:15

I wish...
Someone would save me from this lunacy.
But it won't happen, our dear Gordon is a manic fiddler with no conception of the KISS principle. Talk about fiddling while Rome burns.
Still, Northern wreck will come home to roost soon
Won't it Darling!

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By k.gordon
14th Jan 2008 17:19

Tax system is not a trifle
Sorry, Nichola - but how can the tax system be described as a "trifle"?

Trifles are sweet and easily digested.

Discretion and a lack of time prevent me from adding to Rebecca's list of woes about the current state of UK taxes.

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By notmy realname
14th Jan 2008 17:18

Danger
We are entering extremely dangerous territory IMO with a combination of an increasingly de-motivated and de-skilled HMRC on one hand and a tax system growing in complexity and vagueness by the day - which by definition needs some very highly skilled HMRC staff to ensure even half decent compliance of.

If you are going to de-skill HMRC staff, then you need to make the taxes very simple and certain too not going in the complete opposite direction as its an open invitation for fraud and non-compliance.

I would quite agree that aligning the tax rates for Ltd co/s and sole traders and decide whether married couples should be taxed either (a) independently or (b) together [I really don't care which] that you would remove most of the problems except IR35 which would be just a function of employers NI once sole traders/ltd co.s tax has been sorted out.

Once all our toys are taken away, all we would be left to play with is making things capital gains and not income now there is such a staggering difference between the two, even for short held assets. Suits me quite frankly, my clients just want to know what their tax bill is, not what it might be based on one opinion and then based on another!

I am seriously thinking of putting a range of opinions on my letters to clients like pension advisor's do so I don't get into trouble for not disclosing possible interpretations of the new rules.

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By kenfrost
14th Jan 2008 16:51

HMRC
Rebecca,

if the government doesn't want to improve HMRC then it is up to us to make them want to improve it, by shining a bright light on this most dysfunctional of organisations.

Politicians and those running HMRC may not care about detailed and complex policy discussions re tax, but they do care when they are publicly humiliated and made to look foolish and inept.

Ken Frost

http://www.hmrcisshite.com

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David Winch
By David Winch
11th Jan 2008 07:34

Be careful what you wish for !

Rebecca

You are wishing for a policy initiative from government? Dangerous!

Government policy initiatives have a habit of destroying any good features of an existing system and replacing it with something that simply doesn't work.

In my neck of the woods I deal with a lot of solicitors and barristers attempting to survive the reform of criminal legal aid. (It's what Lord Carter did next after sorting out the Inland Revenue.) Don't mention policy initiatives within earshot of them for fear of a deluge of expletives!

David
www.AccountingEvidence.com

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By User deleted
10th Jan 2008 17:44

Does anyone care?
Obviously not, and reading todays' lastest batch of consultations we are going to be in the most incredible chaos by the end of this year with an unworkable system that creates semi-automatic penalties.

What worries me most is that having made a total mess of HM Revenue and Customs, and having now turned the tax system into what can only be termed "trifle", Brown now has the NHS in his sights.

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By Sherlock
10th Jan 2008 17:02

Excellent
Good stuff, Rebecca!

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