TaxPersonal TaxInsider Business Club: capital gains tax changes

Insider Business Club: capital gains tax changes

our experts discuss the impact of the government’s unexpected cgt changes on the business community

Insider Business Club

Insider Business Club

Have the CGT changes gone against government’s intention to encourage
enterprise?

Frank Haskew, head of the ICAEW tax faculty, technical

When we at the ICAEW heard the capital gains tax changes, everyone fell off
their chair because the announcement came completely out of the blue.

It was quickly apparent there were going to be lots of winners, but
particularly that the losers were, by and large, going to be the business
community. It was a complete reversal of existing policies, with no consultation
and no advance warning. It was pretty obvious that it was going to be a major
issue.

The government’s made a big virtue of consultation, and when it’s done well,
it has definitely led to better legislation. So it’s surprising that the
government didn’t consult, particularly as it has said that it would consult,
even in the areas of anti-avoidance, which it has always been a bit concerned
about.

In the past six years, we’ve had [policy decisions] that have been
increasingly against business, but it’s difficult to understand how six years
ago we had a regime that was encouraging business, and here we are, six years
on, seemingly doing the exact opposite, without really any explanation as to why
we have had a complete about turn.

It appears the pre-Budget report has created more business losers than
winners. Why is this?

David Kearn, economic adviser to the BCC, formerly NatWest group
chief economist

The underlying reason for this is that public finances are really in big
trouble, and [the government needs] a lot of money.

It’s a big economic issue. The government says that it’s met the fiscal
target in that ten year cycle that ended in March, but there’s a lot of
controversy about the way it calculates the cycle, and it changes the
definitions every year.

The new cycle is starting in big deficit, and it needs more and more money,
and I think the temptation to hit businesses is very high, so that is the
underlying reason for what is happening, and I think it finds more and more ways
of hitting business, so yes, we are concerned.

We think that this is a process that is likely to continue, that we haven’t
seen the end of it and businesses are concerned there will be additional tax
increases.

I do agree that people won’t necessarily stop creating a business because the
CGT rate has gone up from 10% to 18%, but many existing businesses may have
problems. Bear in mind that the economic cycle has changed ­ since the summer we
have had a big credit crunch.

Is small business tax too complex?

Bill Dodwell, Deloitte tax partner

I think the government owes a special duty of care to micro-business and to
individuals to make sure the [tax] system is clear and understandable for them.

It’s all very well for a larger business with greater resource that can
perhaps work through more complexity, and inevitably some of the transactions
they get into means there is some more complexity, but the government does have
to really work hard at the really small business area.

The National Audit Office report that came out in July, on the taxation of
large business, basically pointed out that 54% of corporation tax is paid by
medium and small businesses, a remarkably high percentage that tells you there
is a huge tail of business that doesn’t hit headlines routinely, but which is
absolutely critical to this country.

It’s pretty clear that there were a lot of micro businesses that were using
companies [through income splitting] to plan their tax down, or avoid tax,
however you want to characterise it. I think that is why the small companies
rate has been increased, and it’s fine to argue against it, but there has been a
lot of planning in this area.

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