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ACCA Gives Rundown On Pre-Budget Report

by Carla Johnson, Investors, London

15 October 2007

Richard Aitken-Davies, Deputy President of ACCA (the Association of Chartered Certified Accountants) has spelled out four key principles for a better-run UK tax system, based on the recent Pre-Budget Report.

These principles were: stability, certainty, simplicity and fairness, allied to a call for the establishment of a Tax Policy Committee (to be run along similar lines to the Monetary Policy Committee), and a single Budget at the commencement of each Parliament to achieve more stable and less burdensome tax legislation.

In a statement published last week, the ACCA announced that:

"The government's sweeping away of Capital Gains Tax taper relief and indexation allowance does not meet the stability and certainty test. It will represent a sudden and unexpected increase of 80% in the potential tax on disposal for many small business owners and could lead to a rush of entrepreneurs disposing of their businesses before April so that they pay 10% CGT rather than 18%. It also leaves entrepreneurs uncertain as to whether running and owning their own business is something Government wants to encourage. Fears show that the tax rules in this respect will impact adversely on economic activity by encouraging short-termism."

It continued:

"While it could be argued that the introduction of the flat- rate CGT charge meets the simplicity test, it is thought that the near-doubling of the effective tax rate in a now well-established and understood taper relief system and its negative effect on business growth outweighs that benefit.
The inheritance tax changes, on the other hand, do meet the simplicity test by removing the need for tax planning to capture the benefit of the exemption thresholds for married couples, and this is to be welcomed. However, IHT could have been further simplified, albeit at a higher cost to the exchequer, by increasing the thresholds for everyone."

Richard Aitken-Davies argued:

"Similarly, the introduction of a GBP30,000 levy on non-domiciled residents is potentially a simple, fair and certain tax. The Pre-Budget Report was a curate's egg - good in parts where it proposes simplification and increases fairness in the UK tax code - but bad in other areas, notably the CGT changes, which will not help SMEs, the lifeblood of the UK economy, and continue the instability and uncertainty in our tax system.
""ACCA would still like to see radical action being taken on how tax law is produced in the UK."

He concluded by observing that: "A change to the annual Pre Budget and Budget processes is also needed as these create instability and uncertainty for businesses and individuals. There would be strong merit in setting a long term Budget at the beginning of each Parliament and making only minor adjustments on an annual basis to reflect objectively measure changes in economic conditions. Major changes introduced and amended regularly for political purposes create uncertainty; the UK needs certainty and simplicity in the tax system."

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