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In my view

26 Mar 08

The mountain of press releases that arrived with Alistair Darling's first Budget go against its key theme of "simplification"

by Bob Crawford

Overall, Alistair Darling produced a very dull Budget on his debut in the house but, as always, the devil is in the detail. And there is an awful lot of detail!

I cannot recall seeing 107 press notices in a Budget previously – there are 270 pages as well as many referrals to further information on Government websites. All this will produce a whopping Finance Bill.

Darling was talking about “tax simplification” and there are a number of measures in the Budget aimed at achieving this. To take just one example, in corporation tax for limited companies, the rules on associated companies mean that if I am in a partnership with another business, my partners could find their companies on a different rate of tax because of a company I own that they know nothing about. That problem appears to have been fixed now.

Measures like that are good for business, but “simplification” is not really compatible with a Budget that requires 107 press releases.

There has been some good news. Looking at the detail of the new capital gains tax regime, there has been an extension of relief to the trustees and beneficiaries of trusts, which is welcome. The £1m “entrepreneurs’ relief”, previously announced, is also welcome, especially for the smaller enterprises.

It was also welcome, and a surprise, that the Chancellor backed off on the unpopular “income shifting” proposals and promised more consultation. The plan as outlined has caused a furore and would have affected many people in husband and wife businesses. It’s worth noting that if a husband and wife are in a business partnership together, they are sharing a real commercial liability risk, so arguably their respective “roles within the business” are not the only point at issue. They are remunerated for the risk they run as well as the work they do.

We heard a lot about “green taxes”, but it is debatable as to whether taxes on their own will change people’s behaviour. Will someone who wants to buy a big “gas guzzler” 4x4 change their mind because of tax? Only at the margin, I would guess. It’s interesting that HM Treasury’s estimate of the revenue raised from “green” taxes is dominated by elements such as duty on petrol. The “pure” environmental taxes do not raise much revenue.

Tax for non-domiciled residents was another talking point in the run up to the Budget. In my view, it is a pity that this measure was introduced at all. It is effectively taxing the middle income “non doms” because, for the very high net worth individuals, a charge of £30,000 to retain their non-dom status is pocket money. My firm has clients who have indicated they are thinking of leaving the UK.

I welcome the fact that the measures are now more precise, and also that some concessions have been made for offshore trusts, so that income earned through trusts will not be taxed until it is brought into the UK.

The Budget also included myriad changes for capital allowances, although just a few short years ago they were “simplified”. These look set to provide a great deal of work for accountants!

There is a lot in the Budget papers about tax avoidance. With the reporting rules on avoidance schemes that were introduced in recent years, it has become less and less attractive to become involved in any of the more Byzantine tax avoidance schemes. It is clear that, as far as HM Revenue & Customs is concerned, the gloves are off when it comes to tax avoidance.

Tax avoidance is not dead, however, in the sense that opportunities remain for “plain vanilla” tax planning to minimise tax liabilities. To take just one example, I would guess that the extension of “entrepreneurs’ relief” to children, set out in Budget Note 29, will present a good opportunity for tax planning.

So what happens next? Business is crying out for a period of stability. There is hardly an area of taxation that is not in the process of change. While this is good for accountants and lawyers, surely there is something more productive we can do for our clients!

We have a very rules-based system and it is creaking badly. More simplification – genuine simplification and stability are what we need now.

BOB CRAWFORD CA is the owner of Jeffrey Crawford & Co, and convener of the ICAS Taxation Committee.

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Budget | Alistair Darling | tax

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