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ICAEW makes six suggestions to improve the tax system

The ICAEW welcomed the opportunity to submit suggestions for inclusion in the Autumn Statement 2014 and produced the following:-

1. Put tax simplification at the heart of Government thinking

The problem is that we have one of the longest tax codes in the world and it continues to grow each year.

The government needs to commit to a real tax simplification programme and follow this through with policy.

2. Give greater certainty for companies entering the quarterly payments regime

Basing quarterly payments of corporation tax on in-year results causes uncertainty and can result in cash flow difficulties. 

A number of solutions could be adopted, including:

Increasing the de minimis limit;
Improving the rules for the transition period; and
Allowing an election for the charge to be calculated on a prior year basis.

3. Give new small businesses the right start

New small businesses may find themselves in cash flow difficulties in the opening years as their first tax payment is not due until 31 January after the tax year in which the trade started, and a payment on account of half this amount will also be due in respect of the following tax year.

Taxpayers should be encouraged to budget for tax payments earlier, incentivised to pay tax earlier and encouraged to budget for monthly tax payments from the very beginning.

4. Remove distortion and disincentives to work in the income tax system

The method by which personal allowances are removed for income over £100,000 should be reformed. Together with the NIC, this results in an effective tax rate of 62% on income between £100,000 and £120,000. The threshold has not been increased since it was introduced.

5. Remove distortions and disincentives when property is purchased

UK SDLT is a “slab” based tax rather than a progressive tax, resulting in cliff edge effects at the boundaries, and an extra £1 on the purchase price can result in a higher rate of tax being applied to the whole of the purchase price.

6. Remove unnecessary restrictions on the Annual Investment Allowance

Partnerships which have a limited company or a trust as a partner are prohibited from claiming the Annual Investment Allowance. This law should be abolished.



Date: 2nd December, 2014
Author: Cathy Corns


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