Alan. W. Simons & Co

The ICAEW, whilst welcoming a future cut in corporation tax, has warned that the other measures announced in today’s budget could cause more confusion, particularly for small businesses

Commenting on the chancellor’s statement, Michael Izza, chief executive of the ICAEW said:

“Yet again, the chancellor has ignored the requests of business and of professionals. A 2% cut in corporation tax is a step forward, but should be implemented now not in 12 months.

"By failing to do something about our over-complicated tax system and with the other changes particularly for smaller businesses, the chancellor has missed an opportunity to ease the regulatory burden.

"It’s therefore not surprising that many businesses across the country feel disengaged from the political process.”

In its budget submission to HM Treasury, the ICAEW called for, amongst other things, a reduction in corporation tax and a formal commitment to tax simplification that will help improve the UK’s competitiveness within the global economy.

The budget submission also urged government to review how its skills policy is working with business and improve the tax credits for small business research & development.

Concluded Michael Izza:

“Whilst we welcome many of the specific measures that the chancellor has announced, it’s still a piecemeal budget which tinkers with the system rather than starting the comprehensive reform which is so overdue.

"The challenge for his successor will be to reform as much as to be prudent.”

The ICAEW has also commented on specific points included within the Chancellor’s statement and budget

Changes to capital allowances

Commented Frank Haskew, head of the ICAEW Tax Faculty:

“Businesses will pay for the cut in corporation tax by changes to the capital allowance rules. Whilst we welcome the proposals to simplify the capital allowance systems, the overall effect will be to raise costs for businesses rather than reduce them."

Alignment of NI and Income Tax

Commented Anita Monteith, technical manager in the ICAEW’s tax faculty:

“The objective of any alignment needs to be reduce administration costs for businesses. This can be best achieved by alignment of rules for national insurance with PAYE rather than with income tax thresholds.

"At best, this is a ‘half-way house’ measure for business as it looks as if other differences between the two will still continue. Simplification of the system should not be revenue raising by the back door.”

Simplification of the tax system

Said Frank Haskew, head of the ICAEW’s Tax Faculty:

“The ICAEW is still concerned that the volume of UK tax legislation has doubled in the last ten years and has added considerable complexity to the system. Reducing complexity will lead to increased competitiveness.

"This is a missed opportunity for government to help businesses of all sizes.”

R&D Tax Credits

Said Anita Monteith, ICAEW Tax Faculty technical manager:

“Innovation is critical to the future success of UK business and productivity growth, so extending R&D tax credits to companies with fewer than 500 employees and increasing the level of credit are both to be welcomed.

“Yet, as our own research shows, the scheme as it is implemented is not incentivising companies to invest in R&D and needs reforming.

"Boosting R&D tax credits will give more firms the opportunity to invest in R&D. But companies need to know if government will help before they invest.

"The criteria for identifying expenditure that qualifies as R&D needs to be simplified, particularly for those seeking lower levels of tax credit. An optional pre-approval process should be developed with the ability for companies to receive the funds in advance.”

Lyons Review

Commented Vernon Soare, executive director of the ICAEW:

“It is important that, with any supplementary rate, not only are businesses consulted but the way in which the additional funds are used is both transparent and focussed on economic regeneration. Businesses must have confidence in any changes to the system.”

Green taxation

Said Ian Young, technical manager in the ICAEW’s Tax Faculty:

“We cannot continue as we are, exhausting the world’s bounty. We need practical realistic policies that work for business in delivering sustainable and responsible outcomes.

"A tax or tax increase should only be classified as a ‘green tax‘ if it is definitely focused on reducing environmental pollution. Other policy goals, such as revenue raising, will only result in tension between environmental goals and other considerations.”

MTIC

Said Frank Haskew, head of the ICAEW’s Tax Faculty:

“The ICAEW has consistently emphasised the need for concerted action in this area. We are pleased to see that the government has listened to some of the concerns we have raised, in particular the raising of the de minimis threshold from £1,000 per month to £5,000 per transaction, which will go most of the way towards keeping business costs in check.

"However, there remains the ever present threat that the fraud will merely move to other goods. We are convinced that the long-term solution is for concerted action at the EU to amend the current VAT rules so as to minimise the opportunities for this type of fraud.”

Penalty regime

Said Frank Haskew, head of the ICAEW’s Tax Faculty:

“The penalty rules need to be designed to discourage non-compliance but also encourage those who have not been compliant to come forward and sort out their tax position.

"We remain concerned that the penalty proposals will merely ratchet up penalties for all and do little to encourage improved compliance.”