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Chas Roy-Chowdhury-14

 

By Chas Roy-Chowdhury, head of taxation, ACCA

Well that’s it for the fourth Budget of the Coalition Government, and what a bore it was.

There wasn’t really any surprises, partly down to the leak from the Evening Standard less than one hour before George Osborne began his Budget speech.

I can’t help but feel that this Budget was very bland and that more could have been done to boost the economy.

The Chancellor of the Exchequer should have considered a temporary cut to the basic rate of income tax to 15 per cent for one year, instead of leaving it at 20 per cent, as people would have more money to spend and it would help revive the economy.

At a time when the economy is stalling, it needs a genuine boost. Cutting the basic rate to 15 per cent until 5 April 2014 would have been a brave move, but would help working families across the UK. Under today’s proposals they, and many others, will not notice any difference. A temporary tax cut seems drastic but these are exceptional circumstances.

The other “highlights” of the Budget was the personal allowance increase. On the face of it, looks good, but it will only benefit the population who are currently 20 per cent taxpayers, of which there are fewer and fewer. By dropping the threshold for the 40 per cent income tax bracket, many hardworking people who will begin paying 40 per cent for the first time will not just lose the benefits of the increased personal allowance they will actually need to pay additional tax on such things as savings and dividends because of the way the UK system taxes the top slice of income.

On the issue of tax avoidance – while it is no surprise the Chancellor went after it, he will always be treading a fine line between collecting tax and denting the UK’s appeal as a business-friendly economy – an essential requirement for our recovery.

A tougher looking tax avoidance regime might look good to the public, but while the Chancellor has been making noises about a global effort to crackdown on tax avoidance, unilateral measures such as GAAR, risk diverting businesses currently in or looking to move to the UK into the arms of other markets. The question will be whether other business-friendly tax initiatives, such as the patent box and the lower corporation tax rate will help the UK remain appealing. Some evidence would suggest the rot is already setting in.

The Chancellor mentioned that those who actively promote tax avoidance will be named and shamed. ACCA has always said that a ‘loose’ name and shame approach to tax avoidance is counterproductive. Tax avoidance is not illegal. Naming and shaming can penalise individuals and business reputations when they have not broken the law. There is also an issue over where you draw the line There isn’t a clear cliff edge between what you could say is acceptable tax planning and what is unacceptable tax avoidance. There is difficulty in terms of when name and shame becomes appropriate. Is it something that is linked to the amount of tax that isn’t paid, or the way tax is avoided?

There is always the risk with any name and shame approach that it becomes disproportionate and that companies promoting perfectly acceptable financial planning initiatives are severely punished when they have operated within the mainstream rules.

We hope that the Government has looked in more detail at the PAC’s proposals and will consider naming and shaming only when there is repeated, heavy use by individuals of tax avoidance initiatives. A quicker and wider review of the tax system needs to be considered, than what the Office of Tax Simplification (OTS) is currently resourced to implement, with a view to radical simplification.

On families and tax credit – the downside of this initiative is that it is a 20 per cent tax credit, when a full payment subsidy of £1,200 would be a much more beneficial vehicle for many young families struggling to meet childcare costs, which are notoriously expensive. The nature of a tax credit means that where a family is forking out thousands of pounds a year, it is the “carer” that will receive the complicated tax credit. If the Government is prepared to pay up to £2,400 for two children there is no reason why they cannot give it to families as a subsidy, irrespective of the amount they actually pay for the care. A one-child family with two working parents would hugely benefit from the extra funds.

Should one parent lose their job or decide for the benefit of their child or children that they wish to stay at home, the loss of this credit will be felt.

And then we turn to fuel duty – ACCA predicted the rise in fuel duty would be scrapped. That will be welcomed by households as well as businesses in the UK. ACCA’s Drivers for Change survey report showed that UK businesses identified fuel costs as a major short term challenge, so this may give them respite.

So is this a Budget for an “aspiration nation”, and for hardworking families? Time will tell…

Don’t forget to have a look at our coverage of the Budget as it happened here

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aligning stakeholders

By Chas Roy-Chowdhury, head of taxation, ACCA

In the past week I have given evidence at two committees in the Houses of Parliament, discussing the GAAR and the tax conduct of banks.

The House of Lords Economic Affairs Finance Bill Sub-Committee spoke about plans to introduce the General Anti-Abuse Rule later this year, as a means to combat tax abuse.

There is still general confusion between tax avoidance and tax evasion – put simply, avoidance is legal, evasion is illegal.

We have been saying for some time that a General Anti-Abuse Rule is not needed because genuine tax abuse can be caught through the regulations we already have in place to combat it.

If businesses are not paying enough tax, this doesn’t mean they are abusing the system and so a GAAR would not be appropriate.

The tax system needs to be looked at. The taxpayers need to understand fully how much tax they should be paying. A simple tax system needs to be put in place so that everyone involved in the tax paying/advising process knows exactly the right calculations and no mistakes can be made.

We were one of the first to put forward the idea of a Tax Policy Committee which essentially the Government took on board and created the Office of Tax Simplification (OTS). We think the OTS has done a sterling job and should now be expanded significantly and its independence and pro activity should now be guaranteed under statute.

I also gave evidence at the Parliamentary Commission on Banking Standards Joint Committee, which was a panel discussing banking tax practices.

Having a special tax regime for banks is not the best way forward to get businesses to adhere to a particular framework of doing things.

In both cases it seems the answer is a simpler tax system so everyone can understand exactly what they need to pay and cannot get into any legal difficulties without realising it. It would also reduce the ability, or the ‘want’ to ‘tax plan’. If the system is complex then advisers and intermediaries can, and indeed must, be aware of all the alternatives within it.

Let’s see what the Government’s plans will do.