Striving for a better tax law
4 Aug 08
Donald Drysdale backs a suggestion from the former Tory Chancellor, Lord Howe, for a Government department to reform and reduce UK tax law
by Donald Drysdale
Alistair Darling’s tax changes have caused unprecedented confusion. While the changes themselves may be matters of party political judgement that should not be questioned here, the mannerof making them should concern us all.
Former Chancellor Lord Howe has brought forward interesting proposals aimed at bringing simplicity and stability to tax. He suggests a new Government department to examine the existing tax code and make proposals for simplification, reporting to a select committee on tax and supported by external advisers. He also recommends that any fundamental tax changes (as distinct from tax rates) should be announced no later than the pre-budget report, about four months ahead of the annual budget, to allow time for reforms to be understood and debated.
These ideas come at a time when there are misgivings about the success of another tax simplification drive. In spite of some continuing support, the Government’s project to rewrite all existing tax law in a new and more understandable style is taking much longer than originally anticipated and may run out of steam.
The volume and complexity of UK tax law have become unacceptable. Taxpayers and their advisers need not only better tax law, but also very much less of it.
Practicalities of a local income tax
Responding to the Scottish Government’s consultation on local income tax, ICAS has been examining legal and practical issues rather than policy, urging that the tax should not be introduced while doubts remain about its competence under UK and EU law.
ICAS regards HM Revenue & Customs as best placed to administer local income tax, but questions whether HMRC would be willing to do so. It envisages deduction of the tax under PAYE from the earnings of Scottish taxpayers, expressing concern at the burdens this could impose on employers — not only in Scotland but also south of the border.
Another crucial question, still unanswered, is whether Scotland would be compensated for the loss of the existing council tax benefit from Westminster.
The new option to tax
New VAT “option to tax” rules were introduced on
1 June for supplies of land and buildings. The law has been simplified, and new provisions deal with opted properties held in a VAT group by relevant associates, the opting process for taxpayers with a number of properties, an extended (six-month) cooling-off period during which an option may be revoked, and other detailed changes.
Since the first options to tax (made from 1 August 1989 onwards) will become eligible for revocation after 20 years, there are new rules for making valid revocations of options with effect from 1 August 2009.
Moving the goal posts?
Gordon Brown’s fiscal rules have reinforced his reputation for prudence. One constrains Government borrowing to not more than 40 per cent of gross domestic product. Public borrowing in France amounts to 55 per cent of GDP and in Italy to100 per cent.
In recent months, public expenditure here has been rising and tax receipts falling. The Chancellor is quoted as saying the fiscal rules are under review, seemingly accepting that taxpayers will not bear higher taxes and hinting that public borrowing must rise instead – veering away from Brown’s prudent course.
As ordinary citizens are caught between the credit crunch and rising inflation and therefore forced to reduce consumption, the Government requires a firm hand to demonstrate its skills in responsible housekeeping.