Tax – Richard Baron.

It is hoped the new Finance Bill that is currently motoring its way through the Houses of Parliament will get through before a general election is called.

This year’s bill is half the size of what we have grown accustomed to in recent years, but at 292 pages, it is still quite hefty enough. And this teaches us some very interesting lessons. The first lesson is that any new tax usually leads to a huge addition to the bulk of legislation.

This year we have the aggregates levy. It takes up 70 pages in the Finance Bill. Conversely, just think of the simplifications we could get if whole taxes were to be abolished.

If tax had remained a constant percentage of gross domestic product over the past five years, instead of growing by 2.5% of GDP, we could have afforded to abolish inheritance tax, stamp duty (both on shares and on land) and business rates.

The second lesson is that we are still stuck in the world of complicated drafting to put simple ideas into effect.

This problem is most obvious with the changes that will let shareholders keep their enterprise investment relief if they receive payments, but also provide replacement value.

The idea behind the plans is easy: don’t penalise someone for getting something if they put back something else of the same value. But the provisions to do the job for income tax and capital gains tax take up five pages, and they do not make for easy reading.

Finally, there is still the pointless Budget secrecy in some areas where early disclosure of the precise proposals would have saved everyone a lot of trouble.

This year, it happened with the increase in the limit on allowable business gifts to #50. This is a very sensible change. But it applies for corporation tax purposes only to accounting periods starting after 31 March 2001, while it applies for value added tax purposes from 8 March.

So for the next few months, many companies will have to operate two different limits in parallel. It would have been much better for the change to apply to accounting periods ending on or after 31 March 2001 for both.

If business had been asked in advance, this could have been got right first time.

– Richard Baron is deputy head of the policy unit at the Institute of Directors.

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