Simplified tax would still require advisers

Simplified tax system would still require advisersA flat-tax rate system in
the UK would still be complex and would not completely rule out the use of tax
advisers, experts have argued.

The concept of a flat-tax system, in which a single rate of tax applies to

all incomes, is in vogue in Eastern Europe and is being debated among German
politicians. The idea is popular with Angela Merkel, the Christian Democrat
leader in Germany and frontrunner in the country’s general election on 18
September.

One intention of the scheme is to simplify tax systems, leading some to
suggest that it would make tax advisers redundant.

But Bill Dodwell, a tax partner at Deloitte, said: ‘There will still be
substantial work needing to be done.’ Tax advice would still be needed on
allowances, he argued. Even a flat-rate system would have to specify the level
at which tax became payable. ‘The more special allowances, the more people will
need to be advised on claiming them,’ Dodwell said.

Tax professionals claim they would still have to advise on transactions for
large companies, and on international activities, unless everyone had a flat-tax
system at the same rate.

They would also retain a role in transfer pricing, when advising on
‘arms-length’ prices for companies transferring goods from subsidiary to
subsidiary. In such cases, tax authorities are concerned about goods being
mispriced to reduce tax liabilities.

‘If you actually had a worldwide flat tax, it would become possible but, at
the PricewaterhouseCoopers end, a huge proportion of our work is international
and would remain so,’ said PwC tax partner John Whiting.

Remuneration would be another key area, and whether benefits provided by
employers were taxable.

Dodwell stressed that any decision on a flat-tax rate would be ‘years away’.
Chancellor Gordon Brown has rejected the idea, and the Centre for Policy Studies
warned this week that it would not solve the issue of complexity.

If the Conservatives opt for a flat-tax manifesto commitment, they could not
hope to implement it until after 2010, the potential date for the next general
election.