Bury St Edmunds accountant Keith Senior is expecting changes to the tax system later in the year
As the dust appears to have settled after the Chancellor’s Budget on March 3, many will be left wondering what has happened to all those changes that lots of people said were due to be implemented.
There were meant to be changes to capital gains tax (CGT), removing or changing tax breaks when entrepreneurs sell their businesses, alignment of CGT rates with income tax rates, and a simplification of inheritance tax, plus curtailment of tax relief on pension contributions.
Well, keep alert to further changes to be announced later in the year.
The Treasury has said that there will be a raft of consultations issued on March 23, or ‘Tax Day’ as it seems to be termed, on potential tax changes. It is widely expected that these consultations will signal longer term changes in government policy on tax, which tackle both domestic and international tax aspects.
The international matters should include how the government intends to deal with taxes on international tech giants such as Google and Amazon. This should be seen as indicative of the measure of protection or ‘levelling the playing field’ for small high street retailers, whose online presence is less advanced.
Publishing consultations on domestic matters on a single day well in advance of any attempt to enshrine them in law (possibly an Autumn Budget?) should give plenty of time for scrutiny by the public, professional bodies and parliament. That is to be commended provided that responses to the consultations are given proper weight, since it provides for both early recognition of tax rises and an opportunity for acceptance of the needs of the Treasury to provide for repayment of the debt burden that has built up.
Nearly 250 years ago, Adam Smith argued that tax should follow four principles: fairness, certainty, convenience and efficiency. Certainly, the enormous amount of borrowing the government has incurred to deal with support measures in the Covid pandemic has to be repaid and it is important to ensure the ‘buy-in’ of as many people as possible to it being a fair system. Clarity of rules, reduction of complications and this early notification of the thoughts behind them should satisfy the certainty principle. The third maxim of convenience again is partly satisfied by giving us some notice of changes, since it allows us to plan when we need to pay taxes due. And finally, the efficiency of the tax system in collecting the tax has to be maximised, not to take an unfair share from those whom it is easiest to reach but to ensure that higher tax rates don’t promote more uneconomic activity trying to avoid them.
In 2019 the UK reached the highest tax burden since the 1940s, with total taxes raised being 34.4 per cent of national income, so even though some taxes have been cut and the personal allowance threshold has been raised, we are all paying more tax overall. It raises the question about what should happen to tax rates to raise even more and whether more punitive tax rates would raise that burden further to collect enough to help the Treasury’s coffers.
-- Keith Senior is a director at Jacobs Allen Chartered Accountants
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