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How many of those boxes are ticked with the changes to FRS and the MTD fiasco?
Only 3.. Have a plan.
A plan so cunning you could stick a tail on it and call it a weasel.
Unfortunately this respected panel have omitted the one key change which would help the most:
11. Disband the Numpty Department at HMRC and ensure its former members have no influence on proposed changes to tax law.
If you read the full text of recommendation no. 7 in the report - that is pretty much what the panel is saying.
Point 7 is the Sir Humphrey response. If it gets labelled as the Numpty Department, the message will be far clearer, so I'm with mr.mischief.
If you read the full text of recommendation no. 7 in the report - that is pretty much what the panel is saying.
Well that's a possible reading of it. But it seems to be another is that the O’Donnell Review may have got it wrong by splitting policy from operations and breaking up the cadre of people who did largely spend their whole careers dealing with both tax policy - something which seems to be recommended for reinvention.
Message to the Chancellor and three actionable points for the Treasury to consider
Make tax permanent
We have an antiquated system whereby tax is imposed on a temporary basis for one year at a time and if a budget is not passed by 5 August your right to collect tax (under the Provisional Collection of Taxes Act 1968) lapses and refunds must be given of tax paid since 6 April. This harks back to the earliest days of the tax system when income tax was introduced as a temporary tax in 1799 to finance the war against Napoleon. The consequence of this is that there is never enough time for Parliament adequately to scrutinise tax legislation and there are always problems and unintended consequences associated with introducing tax legislation in a hurry. My first recommendation is therefore to make tax permanent. In this way the budget can be a simple exercise in setting tax rates and new legislation can be introduced in an orderly, strategic way without any artificial deadline of 5 August. This small change will revolutionise the way that tax changes can be introduced and allow you to impose order and planning on a presently chaotic system.
Make tax simple
We have one of the most convoluted and complex tax systems in the world. It is unnecessary. There are some easy radical ways to simplify it and you will have the time to do this properly if you make tax permanent. Start by getting back to the basics that existed when Nigel Lawson was able to announce a Public Sector Debt Repayment rather than a Public Sector Borrowing Requirement. This needs the following ingredients:
Lowering of the maximum rates of income tax and capital gains tax to that of corporation tax
Scrapping all special allowances and lower rates for business assets
I discuss these briefly below.
Lowering of the maximum rates of income tax and capital gains tax to that of corporation tax
The increase by Labour of income tax to 50% was perverse.
The action to move it to 45% was half-hearted and dictated by the facts of coalition politics.
You need to lower the top rate of tax to 40% almost immediately and have a vision perhaps for the next Parliament of a top rate of tax equal to corporation tax, with capital gains tax at the same rate as income tax. This lowering of tax rates will send the message that you do not care how income is generated or wealth created, the rate of tax will be the same. It will remove all of the artificial bias in favour of one form of activity over another (income v gains) and encourage the creation of business, employment and wealth in the UK on an unprecedented basis. The UK will be the European hub of successful business and companies and entrepreneurs will locate in the UK with the result that your tax take will increase hugely. Tax consultants who simply help clients shift income taxed at
45% to gains taxed at 18/28% will be redundant and can help their clients instead focus on wealth creation and not tax avoidance.
Scrapping all special allowances and lower rates for business assets
A key part of the simplification is to get rid of the myriad collection of allowances that give specific tax breaks. These effectively reduce high rates of tax for the well advised. By reducing the high tax rates you create the opportunity for scrapping the allowances and so ensuring that all income and gains are liable to tax. Let the accounts of the business prepared and audited in accordance with IFRS standards be the basis for taxation. You will be able to reduce the number of Inspectors of Taxes as well. Abolish the concept of favourable capital gains tax for business assets; if CGT is low enough these assets do not need treatment that leads to a bias and distortion in the market.
These are three actionable plans that will make a difference to the economy
I have never understood the need to separate capital and revenue as far as taxation goes. The pound in your pocket is.... the pound in your pocket.
Why should someone who has spent £1000 of cash on a computer in a big business get treated differently from smaller businesses who can use the Annual Investment Allowance. Capital Allowances are a political football. If you spend a £1, you should get tax relief on a £1.
Whilst I agree with the sense behind having a single tax rate, those who are attracted from overseas by a low corporation tax rate, then have to swallow the hidden tax of Employers NI. For the giant businesses who are adept at avoiding Corporation tax, this is often the only tax they pay.
The true rates of income tax for an employee when adding in NI are 32% rising to 42%. The true rate for the self employed is 29% rising to 42%. The true rate for large Corporations is about to be 32.8%. Where the employment allowance can be used for small director companies, the rate is 19% Corporation tax, plus 7.5% Dividends Tax, which nets down to 6.0% after tax, so this is equivalent to 25% tax, rising to 45.3% once the higher rate dividend tax is reached.
These rates across the various taxes are closer together than the headline tax rates. Unfortunately, politics will always override common sense, because the headline rates will always give political clout for the opposition (of whatever hue).
Let's get rid of the word "Tax", because we are not paying a tax we are contributing to the health and welfare of our country and the people living in it.
So we work out what we need for the basics then divide that by the number of people working (including Ltd's and partnerships). So we now have a figure each entity has to contribute. A decision then has to be made if an amount "free of contribution" should be allocated and if so "how much". Of course, "benefits" also come into the equation.
Anything else, like Trident etc. will have to be paid for separately with a supplement (tax if you like).
There is also a case for an indirect contribution system rather than an income based one.
Whatever the outcome HMRC should be disbanded and reset with just investigations and collections under their control. Yes us Accountants will deal with the administration which wouldn't amount to much more than we do now.
Lets pick one ...... number 8
Remove secrecy and invite challenge.
Not so sure about this one, as mentioned in 1, lots of stuff is leaked in advance of the budget, whilst on budget day, lots tax policy is omitted, it seeps out over the following weeks. During one Budget George Osborne rattled on about Academy schools, to find out the bad news about the budget you had to read and interpret a large budget report.