Mitchell Charlesworth urges Chancellor to reform income tax and international tax rules in next week's Budget


Mitchell Charlesworth says the forthcoming budget presents a long overdue opportunity to unravel the UK's overly complex and onerous 'tax tangles'.

Partner Tim Adcock singled out income tax and international tax rules as two areas which are 'mired in muddle'.

Chancellor's_Briefcase

"George Osborne has promised to simplify the tax system and we encourage him strongly to grasp the nettle," he said. "We can tell him that many hard working taxpayers, who want to get a firm grip on their financial planning, are frustrated and want better clearly understandable tax law. We also believe that cutting the additional rate of income tax completely could actually increase tax revenues."

Mr Adcock has commented on a series of key issues ahead of the budget announcement on March 18:

International tax:
"With ever greater scrutiny of UK taxpayers with non UK affairs, the ability for an individual, company or trust to interpret current tax law and apply it to their circumstances is very important. Although we have seen some improvements in this area, for example the introduction of the statutory residence test for individuals, there remains far too many ‘grey areas’ and with no means by which taxpayers can agree their position with HMRC in advance of filing their returns.

"To provide taxpayers with clarity and certainty we would like to see HMRC establish a dedicated international tax office tasked with providing advance assurance as to the UK tax position of individuals, companies and trusts with non UK tax affairs.

"If HMRC and other government agencies are going to continue to focus their efforts on international tax avoidance, it would seem only reasonable that taxpayers who want to fully comply with UK tax law can easily and quickly agree their position with HMRC. This would allow taxpayers to pay their taxes on time without fear of lengthy and expensive enquiry procedures should HMRC disagree with the taxpayer’s assessment of the law."

Income Tax Bands
"In line with the promise to simplify the tax system, the chancellor should scrap the complex income tax bandings at £50-60k and £100-150k of earnings. Taxpayers within those bands are finding it very complicated to calculate and/or understand their tax liabilities, and a simple rising scale would be simpler to administer and understand."

Income Tax
"The Government should consider a brave move to cut the additional rate of income tax completely and leave the higher 40pc rate as the top rate of income tax. Tax revenues were increased in 2013 when the rate was reduced from 50pc to 45pc, a further reduction might encourage companies to release distributable cash reserves to shareholders."

Patent Box
"Last November the chancellor, in conjunction with Germany, issued a statement proposing changes to the patent box regime. This came on the back of EU criticism that the scheme offered companies too much of an incentive to relocate to the UK.  

“It is hoped that the proposed changes to the qualifying criteria will only affect multi-national companies with R&D efforts outside the UK. Similarly it is hoped that UK companies whose R&D is largely or wholly based in the UK will be unaffected by the proposed changes.

"It has already been agreed that relief under the existing Patent Box scheme will no longer be possible beyond June 2021, with new entrants precluded from registering under the scheme beyond June 2016. Those already benefiting from the current Patent Box scheme will be able to continue to use the scheme until June 2021.

“We would like to see the revised legislation issued for consultation as quickly as possible in order that it can be critically reviewed and the effects on UK companies analysed and understood. This will allow companies to consider their position exactly.”

VAT
"We would like to see the introduction of legislation which provides for a reduction in VAT for certain works by VAT registered businesses, from 20pc to 5pc for labour element of the renovation and repair of private dwellings.

“There is currently VAT reliefs for, amongst other things, the construction of a new dwelling, and bringing empty properties back into use. This change would be permissible under EU Law, which allows EU Member States to apply the reduced rate of VAT to certain ‘labour’ intensive services, including the repair of certain goods, window cleaning, domestic care services, hair dressing and also the renovation and repair of private dwellings.

“The UK has so far failed to implement the regulations, contending that there is no evidence to suggest that the measure will have the effect of reducing unemployment, or stimulating these sectors, as proposed by the EU in introducing the measures.  However, a recent study by Experian, commissioned by the Cut the VAT Coalition show that the benefit to the economy would be in the region of £15bn between 2015-2020. In any event, the measure would give a much needed push to the construction industry which has failed to get back to pre-recession levels."

Auto Enrolment
"To support smaller employers, we would like the Government to ease the auto-enrolment pension legislation. Many of our clients will experience significant costs complying with and implementing the rules and would prefer the exemption rules to be extended so that those employers with less than five employees do not have to meet the requirements."

Corporate Venturing
"The current Enterprise Investment Scheme and Seed Enterprise Investment Scheme provide valuable tax reliefs to individuals who want to invest in smaller high risk companies.  Increasingly we are seeing companies that have been successful wanting to invest in other companies. The reintroduction of the corporate venturing scheme would encourage corporate to corporate equity investment and help a significant number of SME’s raise much needed equity investment."

For more information contact Tim Adcock on 0151 255 2300 or send Tim an email.

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