Accountants drowning under a sea of legislative change are pleading for chancellor Gordon Brown to give them a break in next month’s Budget – and keep it simple. Whether they work in practice or business, members of the profession say they are already too busy digesting vast reams of new tax rules to cope with any big new initiatives.
The request comes as no surprise: most accountants are already struggling with recent rises in National Insurance contributions, this October’s introduction of working family tax credits and the new corporate tax self-assessment system. Businesses have also been hit with more red tape as a result of the minimum wage and the working time directive.
‘The tax system is far too complicated as it is,’ says Iain Cawte, chief accountant at shipping giant Golden Ocean. ‘The chancellor should start trying to simplify the system rather than introducing any more complicated changes.’
Frank Haskew, of the English ICA’s Tax Faculty, agrees. ‘People want breathing space to assimilate the changes of the last couple of years,’ he says.
Nicholas Dee, chairman of the Confederation of British Industry’s tax committee, argues recent changes have cost businesses an extra #5bn, and says any changes in the Budget should be aimed at reducing this bureaucratic burden. ‘We want a Budget which emphasises stability with no great changes,’ he says.
Small businesses complain they are inundated with tax-related paperwork, the complexity of which is out of all proportion with the amounts at stake.
‘We could all do with a bit of a break,’ pleads Chas Roy-Chowdhury, ACCA’s tax specialist. ‘We already have layer upon layer of new rules. Businesses do not want any increase in the compliance burden.’
One area where there is some hope the chancellor will act to cut the administrative burden for companies is over employee share schemes. KPMG partner Mary Carter argues the tax regime in this area is incredibly complex and should be comprehensively simplified.
The main focus of pre-Budget speculation, however, has been on small and medium-sized businesses, which are widely tipped to benefit from new tax reliefs; for example, a tax credit on research and development expenditure.
Brown floated the idea in his November green Budget, along with a cut in the corporation tax rate and enhanced capital allowances for small companies.
But KPMG head of tax Ian Barlow says the chancellor should not neglect smaller quoted companies in his drive to promote entrepreneurship and innovation. He argues that this class of company is often ignored, and says the definition of ‘entrepreneur’ should be widened to include all companies outside the FTSE-350.
What the chancellor gives with one hand, he is likely to take away with the other. This time, the rich could suffer.
David Harrison, head of tax at Kidsons Impey, says: ‘The moves the chancellor is likely to make will focus particularly on attacking personal wealth, such as those with a large portfolio of assets.’
The chancellor is also widely tipped to tighten up inheritance tax rules following the House of Lord’s recent decision in the Lady Ingram case, where the aristocrat was allowed to give her relatives the freehold on the family mansion but keep on living there. The Revenue may well think rules need tightening to prevent such loopholes being used in the future.
Other loopholes the chancellor may act to crack down on include stamp duty. BP and Amoco were able to use a stamp duty reserve tax loophole in their merger, a move that cost the Exchequer some #1.3bn.
The loophole has since been closed, but further tightening of the rules is expected. Brown is, however, expected to avoid the proposed General Anti-Avoidance Rule, following concerns over the expense and complexity of operating it.
Other hot tips include new capital gains tax rules to help investors sell shares in one company and re-invest in another. Reliefs could also be introduced for companies taking minority stakes in smaller businesses.
On the headline-grabbing side, the introduction of a 10% starting rate of income tax has been widely discussed, though the impact on the public purse could be offset with a reduction in, or even the abolition of, mortgage interest tax relief.
The profession is divided over how radical the Budget will prove. PricewaterhouseCoopers tax partner John Whiting expects it to be ‘fairly quiet’. But Grant Thornton head of tax Mike Warburton points to rumours that the Post Office has been put on standby to issue letters to all households following the Budget. Come March 9, he says, we could all be looking at some ‘surprises’.
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