York Society of Accountants - Wednesday 21st March 2007.

Budget requires time to absorb say Chartered Accountants

The Institute of Chartered Accountants in England & Wales has made some initial observations on aspects of the Budget.

Duncan Meredith (Garbutt & Elliott, York & Leeds), speaking on behalf of York Society of Chartered Accountants, summarises some of the main points here.

Changes to capital allowances
" 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
" 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
" 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
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
"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
" 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 (Missing Trader Inter-Community Fraud)
"The ICAEW has consistently emphasised the need for concerted action in this area of international VAT fraud. 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
"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."

Duncan Meredith added that obviously there would need to be in-depth consideration of the details over the coming weeks to fully evaluate the impact on both individuals and business.

"Our biggest concern is that while the Budget income tax cuts have grabbed the headlines, there is little information on who will actually end up paying for these, and the Chancellor has not really shown any tangible benefits or beneficial changes for small businesses."

Duncan Meredith can be contacted on (01904) 464100

Issued by Sonia Kenson, Media Relations Manager, ICAEW Yorkshire & Humber tel: 01757 270171, mob: 07715 496469, e-mail:sonia.kenson@icaew.com