Writing to the Financial Secretary to the Treasury, ICAEW’s Tax Faculty has called for the Autumn Budget to accelerate work to build a modern tax system. While urging a “manageable pace” of transition, it cautions against implementing tax changes without consultation, such as the new Health and Social Care Levy.
The Autumn Budget is an opportunity to further the work needed to transform the UK’s tax system into one that is fit-for-purpose in a modern world, embracing simplification and digitalisation, while supporting the UK’s economy post-Brexit and its net-zero commitments, according to the ICAEW.
However, this cannot be achieved unless taxpayers, tax agents and HMRC have clarity over changes, and are provided with realistic timeframes for implementation, including an 18-month lead time to update software.
In its customary letter to the Financial Secretary of the Treasury ahead of the Budget, ICAEW’s Tax Faculty highlighted the government’s long-standing commitment to create a more predictable, stable and simple tax system. It concludes that: “The Tax Administration Framework Review and tax simplification should be at the forefront of the forthcoming Budget proposals.”
While acknowledging the extraordinary impact of the coronavirus pandemic, it highlights the need to continue to consult with the industry and taxpayers. It suggests, for example, that better alternatives could have been found to the new Health and Social Care Levy, which was announced without consultation and passed through the House of Commons in a single day.
“We are concerned that the levy will not only impose additional compliance costs on employers and HMRC but will further exacerbate the fiscal imbalance for employers and workers between different employment statuses.
“We believe that other, better options could have been explored which would have given a similar result but without the considerable increase in cost and complexity.”
Recommendations on simplification
The Tax Faculty urges the government to consider the “back catalogue” of recommendations from the Office for Tax Simplification (OTS).
The faculty argues that since its creation in 2010, the OTS has “built up a solid track record of making sound and sensible recommendations” while at the same time the UK tax system has increased in complexity to such an extent as to “damage the attractiveness of the UK as a place to live, work and invest”. It highlights in particular, the OTS’s recommendations on capital gains tax (CGT), published in May 2021.
In view of the difficulties encountered by taxpayers with in-year CGT returns for UK property disposals, the faculty recommends that HMRC suspends the 30-day deadline and links the in-year regime to its self assessment processes.
Taxation of work
It also urges the government to revisit the recommendations of Matthew Taylor’s 2017 review of the taxation of work, arguing that the current approach of trying to fit employees, gig workers and the self-employed into two categories for tax purposes is “unsustainable”.
MTD ITSA and basis period reforms
In the letter ICAEW reiterated its support of the deferral of the introduction of Making Tax Digital for income tax self assessment (MTD ITSA) and its calls to drop proposed reforms to basis periods.
While acknowledging that the basis period proposal would result in some simplification to the tax system, the faculty argues that it would introduce “extra complexity and uncertainty” for businesses which do not have a tax year end and could “damage the UK’s international competitiveness”.
Future opportunities
ICAEW’s letter ends by focusing on the future, encouraging the government to explore opportunities offered by the UK’s departure from the EU, such as the simplification of VAT rules.
It also argues that future tax policy must be sustainable from both climate change and fiscal perspectives. It cautions against introducing complex new green taxes, suggesting that existing UK legislation can be used to address environmental goals. For example, using fuel and air passenger duties to influence consumer and business behaviour.
ICAEW concludes by echoing the Public Accounts Committee’s suggestion for a roadmap for tax measures to deliver the UK’s net-zero targets.
More support on tax
ICAEW's Tax Faculty provides technical guidance and practical support on tax practice and policy. You can sign up to the Tax Faculty's free enewsletter (TAXwire) which provides weekly updates on developments in tax.
Sign up for TAXwireJoin the Tax FacultyTax Faculty
This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.