Tax: is simple better than stable?

The Conservatives are keen to simplify the tax code - but are small businesses more interested in stability?

by
Last Updated: 31 Aug 2010

The Government has spent the last year shooting itself in the foot on tax. The ill-judged abolition of the 10p rate, the unexpected CGT hike and the controversial non-domicile levy have done serious (possibly terminal) damage to its credibility with the business community, many of whom are seeing their tax bills rise. And it’s presumably making the UK a less attractive place to do business - not to mention hammering the Government’s popularity ratings.

So it’s no surprise that the Tories think this is an area where they can score some serious points. Fresh from his inheritance tax triumph, Shadow Chancellor George Osborne set up a new working party (led by former Chancellor Lord Howe) to investigate ways to simplify our incredibly complex system. And this week, the group produced its opening salvo: it’s recommended the creation of an Office of Tax Simplification, charged with making tax-paying easier, while extending the consultation period on new laws and creating a new cross-party group of experts to scrutinise changes.

The idea of more government quangos might fill you with horror, but the principle sounds perfectly sensible – after all, we can’t imagine anyone opposing a simpler tax regime (except very clever tax accountants, perhaps). At a time when some European countries are introducing flat tax rates, we surely can’t need a tax code that’s apparently longer than any other country in the whole world (though we suppose it’s nice to be a market leader in something).

The problem is, simplification can be complicated. ‘Everyone’s jumping on the bandwagon of simplicity, but in my experience it’s easier said than done,’ says Andrew Green, head of tax at accountant RSM Bentley Jennison. He argues that for businesses – particularly small businesses, who’ve been worst hit by the recent hikes (higher corporation tax, higher CGT) and are less likely to be able to disappear offshore – stability is actually the prority. ‘Simplicity’s important, but entrepreneurs really want certainty,’ he says. More than anything, they want to know that there are no nasty tax surprises around the corner, so they can plan for the future with some degree of confidence. If a new department is constantly fiddling with the rules, you might not get that. 

That’s not to say he disagrees with the quest for simplicity per se. In fact, he reckons the Tories should think about reviewing the whole corporate tax base, to make life easier for small businesses (technically, this ought to be within the remit of the proposed OTS – although it would probably be much harder to achieve politically).

But for now, there’s no real hope of a better deal for small businesses – these days the Government is so skint that the chances of extra tax breaks are pretty much zero...

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Tax: is simple better than stable?

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