The Chancellor’s aims of closing tax loopholes and cracking down on tax avoidance is welcomed by ACCA (the Association of Chartered Certified Accountants) today.
ACCA’s head of tax, Chas Roy-Chowdhury, also believes that this has been a Budget aimed at Small and Medium Sized Enterprises (SMEs).
Chas Roy-Chowdhury says: 'HMRC has launched a report today called ‘Making tax easier, quicker and simpler for small business’. Offering a ‘radically simpler way for small businesses to calculate their tax’ – their words not mine - HMRC is looking to introduce cash basis accounting to determine how much tax SMEs need to pay, and also use what HMRC calls simplified expenses rules. The aim is to ensure that SMEs use rules designed for them, rather than rules designed for larger business. Allowing for cash accounting is a good idea if it helps SMEs but HMRC need to make sure that it doesn’t affect the credibility of the tax system and isn’t a Trojan horse for ever-rising thresholds.'
Tax avoidance - ‘Morally repugnant’
Talking about tax avoidance and the Chancellor’s promise to crack down on aggressive tax planning, Chas Roy-Chowdhury says: 'The Exchequer needs income via taxes – it’s as simple as that. But the UK’s tax system is notoriously complex. That’s why we welcome the idea of an annual tax statement as it will make it clear to taxpayers the link between their pay, the tax they have to pay and how that is spent by the government. Overall, this is a positive move, but the statement needs to say the right things and be issued in the most efficient way possible.'
But ACCA warns there are still unintended consequences when it comes to General Anti-Avoidance Rules (GAAR) and avoidance.
Chas Roy-Chowdhury says: 'The Chancellor’s hard-hitting statement about aggressive tax avoidance being ‘morally repugnant’ to him should be viewed in the light of his announcement about GAAR – the question we have is how will the GAAR distinguish between aggressive and other types of avoidance?'
Chas Roy-Chowdhury also comments on the stamp duty measures linked to avoidance, and raises more questions: 'The Chancellor had already promised to hit those avoiding stamp duty ‘like a ton of bricks,’ so it’s not unexpected that he’s introduced punitive measures. It’s quite a reasonable policy, but it’s going to be interesting to see how it works in practice. Is this going to retrospective? How much will the annual charge be?'
The increase in stamp duty on properties worth £2m and the limit on allowances for high earners are two compromises on the Liberal Democrats’ proposals for a mansion tax and a tycoon tax. Chas Roy-Chowdhury adds: 'While this is an improvement on the previous proposals, they are still flawed. The stamp duty increase rather than a mansion tax at least links the tax to the ability to pay, but stamp duty is now historically quite high. The imposition of a limit on allowances that cuts across the rest of the tax system is still bolting something extra onto the tax system. It indicates a lack of faith in the tax system and could create all sorts of new cliff edges and kinks. Rather than micro-managing the tax system and putting in new rules, the government needs to look at reforming the tax system as a whole.'
Speaking about the tax personal allowance increase, Chas Roy-Chowdhury said: 'The personal allowance rise to £9,205 has been heavily trailed in the headlines over the past few weeks – but what happens to pay for it? This move could drag some basic rate taxpayers into the 40 per cent tax band. Some taxpayers might be the happy recipients of a higher personal allowance, but they could also see the amount of tax they pay leap up.'
Summing up on the Budget, Chas Roy-Chowdhury says: 'The two year tax record of the Government is positive, on balance. The Office of Tax Simplification is a good idea and has been scoring some easy wins, while the rest of the government’s tax institutions have been refreshingly open and willing to engage. However, the coalition needs to go further on simplification and needs to stop making piecemeal changes to the way the tax system works and look at the system as a whole.'