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Accountants call on Cameron for urgent tax reform

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12th May 2010
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Critical decisions need to be taken on tax policy by the new coalition government – and there’s no time to waste, warn accountancy professionals.

David Cameron has been the UK’s new prime minister for less than 24 hours, but accountancy groups are already urging the new coalition government to make tax policy its number one priority.

The Conservative Party leader promised an emergency budget within 50 days of taking office, but a change can’t come soon enough, according to the UK200 Group, a body of independently assured accountancy and legal firms, which called on the government to move quickly to “remove the uncertainty surrounding its plans on tax”.

The power sharing deal between the Conservatives and Liberal Democrats is expected to produce several tax debates over the coming weeks as the parties’ divergent policies are harmonised.

“It seems to be more or less established that the rate of CGT will increase substantially, perhaps to be at the same rate as income tax, which will require a fundamental re-think of much tax planning that has been undertaken in recent years,” predicted David Whiscombe, a partner at BKL Tax in London and member of the UK200 Group’s tax panel.

“This change would mean that the current 18% capital gains tax (CGT) rate would increase to 40% or even 50%, with effect from Budget day," said Chris Maddock, head of private clients at Vantis.

"Whilst reliefs have been promised for business assets, this rate increase could significantly increase the tax cost of disposing of any capital assets, including a business or shares," he added.

“It is now clear that the Lib Dems’ ‘mansion tax’ plan will be dropped, which is obviously a good thing and I assume the hare-brained idea to levy VAT on new homes will also go. The dropping of the 1% national insurance rise is also good news for SMEs, while it seems the commitment to a £1million inheritance tax nil rate band will not come in during this parliament,” said Whiscombe.

There are also high hopes for employee tax breaks, according to Bill Dodwell, head of the tax policy group at Deloitte.

“We hope that the ‘generous exemptions’ for profits related to business will stretch to include employees. At present, many employees do not qualify for the current entrepreneurs’ relief – yet their involvement with growing companies is vital. Employee tax breaks help to make a big contribution towards getting good people to take reasonable risks with growing businesses.

“We also hope that the government will keep the current level of CGT annual exemption at £10,100. This benefits those on basic rate, as well as people who are further up the scale. Additionally, it substantially reduces HMRC (and taxpayer) administration.”

“What will also be interesting will be to see the extent to which the Tories’ commitment to support for the family is watered down as a result of the compromises inherent in coalition,” noted Whiscombe.

“Given the ludicrous extent to which the current tax system penalises one-earner couples, one had hoped that a Tory government would have gone at least some way to remedying this but now I am not so sure. Any failure to do so would be a grave disappointment.”

 

Replies (10)

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By User deleted
12th May 2010 13:42

It is now clear that the Lib Dems’ ‘mansion tax’ plan will be dr

Is it now?

I would love to be enlightened?

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By cymraeg_draig
12th May 2010 14:13

HOW?

Perhaps some decisions need to be taken on HOW the tax system is run.

A more professional, less confrontational Revenue would be a good move. Perhaps less of the "guilty till proven innocent" attitude might actually get more cooperation from accountants.

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By User deleted
13th May 2010 09:29

Why is dropping the 'mainsion tax' fair ???????????

One would have to challenge Chris Maddock, head of private clients at Vantis when he says:

'.. It is now clear that the Lib Dems’ ‘mansion tax’ plan will be dropped, which is obviously a good thing ..'

Why is some form of equitable rates system not seen as a sensible approach

See the following: What is wrong with a fair rateable value for all?

https://www.accountingweb.co.uk/topic/tax/heads-down-budget-no2/425262

Perhaps Mr Maddock would care to elaborate of why dropping this approach is 'fair' bearing in mind that 'fairness' seems to the 'in' word at the moment

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By johnjenkins
13th May 2010 09:33

Tinker

Will they just tinker or will DC apply his "totally reforming politics" policy to the tax system?

I really do hope that is is the start of a new era, because if it isn't!!!!!!! Well look what happened to Greece. Mind you if smeone gave me a few billion to be repaid over umpteen years I wouldn't be crying too much.

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By Gina Dyer
13th May 2010 09:42

Mansion tax

Sorry, just wanted to point out that the comment about mansion tax in fact came from David Whiscombe, partner at BKL Tax in London, and not from Chris Maddock as previously reported.

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By User deleted
13th May 2010 10:28

Comment

I agree with others - why is it obviously good for the mansion tax to be shelved? It is obviously good for the relevant homeowner, not for anyone else. If it is hare-brained for VAT to be chargeable on new homes, why is it chargeable in certain other EU countries?

 

In my opinion, there are few things less enlightening and more unedifying than tax advisers criticising the detailed elements of the tax system that adversely affect their clients (and by extension the income of the tax adviser). Truly repugnant.

roger rabbit

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By User deleted
13th May 2010 11:29

Valueless comment

Agreed.  I'm tired of this sort of lazy dissembling from politicised, self-interested "experts".  They do the profession no favours at all. 

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By Andy3T
14th May 2010 13:10

Mansion tax issue

Without making any statement on behalf of why others dislike the mansion tax, I would suggest that a tax on capital such as the mansion tax is less preferable to a tax on income or expenditure as it takes no account of ability to pay, use made of government services, arises on an asset bought out of taxed income leading to accusations of double taxation, distorts the market for the asset (seen routinely with SDLT), etc.

With specific reference to the Mansion tax an elderly widow with a moderate house bought decades ago in certain parts of London could find themselves caught by the mansion tax despite having little income or saving with which to pay it - should they be forced to move or part sell their property to pay the tax on it?  There were also issues with valuation of the asset (a nice earner for surveyors perhaps for current valuations?)  Lack of fairness if historic price was used (why should two people with identical circumstances in identical properties pay divergent sums simply because one has held the property longer?)  The tax also had obvious avoidance issues if historic valuations were used (properties held via offshore companies and trusts), etc.

The tax was in my view an 'envy' tax suggested to buy votes (except for certain Liberal MPs in certain London constituencies) rather than a practical suggestion on how to raise funds.  Many of the problems could have been worked out with sufficient care but without the detail I'd definately 'vote no' - and for the benefit of the suspicous posters neither I nor my clients would have been at risk of paying it...

My personal view is that a widening of the VAT base and uplift in the rate would raise substantially more funds, would allow a significant increase in the personal allowance to compensate lower earners for their VAT losses, etc.  A super rate of VAT on 'super' luxury goods which are bought partly due to their exclusivity would allow those who want to soak the rich and being voluntary shouldn't cause too much fuss amongst the wealthy.

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By Peter C
14th May 2010 15:13

Mansion tax issue

For heaven's sake:  the mansion tax proposal was obviously ludicrous and one of the few good things to have come out of the new government so far is that it has been dropped.   It was a wealth tax by another name and a very skewed one at that.   If I have two (ten, twenty) properties each worth £1.9 million I would not pay it, but if I have one property worth £2.1 million then I would.   Similarly, if I live in a five bedroom property with a large garden in most areas of the country then I would not pay it, but if I live in one in parts of London and the south-east then I would.   If I switch my property worth £2.1 million to £2.1 million in a savings account then I have the same wealth, but pay no direct tax on the asset.   Fair?  Fair, my foot.  Taxing income, gains, purchases and use of services (rates) is one thing, taxing people on what they already own is another.  Apart from all that, there would have been huge problems in making the tax work.  The only people to benefit would have been accountants and lawyers as they fought expensively over valuations...   Perhaps that explains some of the views in favour...        

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By User deleted
14th May 2010 15:52

Fair to whom?

Not sure those less well off are really compensated for a VAT increase by an increase in personal allowances. 

For one thing, we won't get to £10,000 in one go (if ever in the life of this parliament), whereas a VAT increase is likely to happen overnight. 

For another, a lot of very low earners and pensioners pay no tax already.  How exactly would an increase in personal allowances compensate them for their living costs shooting up?  Whereas a couple earning 2 x national average salary, for example, would come out of it very well.

I always thought this was a half-baked, uncosted policy that the Lib Dems put in their manifesto for publicity.  I'm amazed it isn't being quietly dropped.

What about the deficit that we're waiting to be punished for? 

   

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