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21 March 2012
Simplicity, certainty and stability should be at the heart of today's Budget, argues the ACCA.
With public finances in their current straitened circumstances no one can expect much in the way of great tax giveaways in this budget – and nor is there scope for the chancellor to raise vast amounts through simple rate changes or new taxes.
One thing ACCA would like to see is an emphasis on the basics – not the three Rs, but the three Ss: Simplicity, Certainty and Stability. Simplicity does not always mean brevity (the OTS proposals for a new disincorporation relief, which ACCA welcomes, are a case in point) but it does mean having a tax system under which taxpayers can truly self-assess in a proportionate manner.
Certainty is more important now than ever, as every household and every business looks to budget its own expenditure with increasing accuracy. An unexpected demand for extra tax can be enough to tip a set of finances over the edge, while the uncertainty of having to provide for a liability which may never materialise is wasteful and inefficient. The clarity which comes from simplicity builds certainty and thus efficiency.
And finally we come to stability. For business especially, making long term investments with sometimes fractional returns, but also families with children or pensioners on limited income, knowing that they can rely on predicted tax levels in the future is key. Managed change, such as the raising of the personal allowance, or reduction of CT rates, is key to the long term thinking which will underpin a recovery from recession. Ill-considered reactive change does enough damage to an economy in boom times. With the recovery so fragile, any unexpected shocks to the system would have knock on implications far beyond their immediate impact.
Which leads to consideration of some of the specific measures which have been discussed ahead of the budget speech, and a final subjective condition by which many judge the tax system: is it fair?
There is clearly a ground swell of public opinion against perceived avoidance by wealthy individuals, and discrete issues such as stamp duty avoidance through use of corporate shells for domestic property ownership should be relatively simple to legislate for. More complex areas such as taxation of income or wealth directly will have a far wider impact, and while a simplification of the rate structure for income tax would be welcome, any attempt to tax accrued wealth (for example through property ownership) would be fraught with danger.
At the same time, there is a tension between the urge to encourage business and the need to raise tax revenue from it. Many are looking to the SME sector to pull the economy back into prosperity, and a fit for purpose tax system which reflects the UK’s unique economy will be key.
The UK workforce is unusually mobile, and a significant element of the freelancing sector exists to serve the UK’s world leading in financial services sector. Tax measures which affect the efficiency of change management in the financial sector have an impact far beyond their immediate financial cost, and measures (both practical and legislative) to encourage enterprise will be welcomed.
Finally, we look to HMRC’s own budget. This is the only department of government where a pound spent can raise ten or one hundred times that in revenue. ACCA would like to see the cuts to HMRC staffing and funding reversed, and attention focussed on provision of a world class tax authority to match a world class economy.
Jason Piper is Technical Manager, Tax and Business Law, at ACCA