Appendix 3: Association of
Certified Chartered Accountants
About ACCA
ACCA is the global body for professional
accountants. We aim to offer business-relevant, first-choice qualifications
to people around the world who seek a rewarding career in accountancy,
finance and management.
ACCA has 162,000 members and 428,000
students in 173 countries, with 64,000 members and 79,000 students
in the UK, and works to help them to develop successful careers
in accounting and business, with the skills required by employers.
We work through a network of over 89 offices and centres and more
than 8,500 Approved Employers worldwide, who provide high standards
of employee learning and development. Through our public interest
remit, we promote appropriate regulation of accounting and conduct
relevant research to ensure accountancy continues to grow in reputation
and influence.
The expertise of our senior members
and in-house technical experts allows ACCA to provide informed
opinion on a range of financial, regulatory, public sector and
business areas, including: taxation (business and personal); small
business; pensions; education; and corporate governance and corporate
social responsibility.
Comments on the Budget
1. InMarch 2011, the Treasury Committee
set out six principles by which it recommended tax policy should
be measured. This memorandum seeks to comment at a high level
on the extent to which the measures announced in the Budget comply
with those principles.
2. The Principles are in summary thattax
policy should:
· be
fair;
· support
growth and encourage competition;
· provide
certainty;
· provide
stability;
· Tax
policy should be practicable; and
· Finally,
the tax system as a whole must be coherent.
3. As the global body for professional
accountants, ACCA welcomes the elements of this budget which embrace
global principles for better taxation which support enterprise.
The budget includes a number of measures specifically targeted
to enhance investment, encourage compliance and foster a responsible
attitude to spending. ACCA in particular welcomes the paper "Tackling
aggressive tax planning in the global economy: UK priorities for
the G20-OECD project for countering base erosion and profit shifting".
4. As has been widely acknowledged,
the issues facing domestic tax authorities in addressing the perceived
structural weaknesses in the interaction between sovereign tax
jurisdictions and global cross border business forms require coordinated,
coherent and consistent action from as many actors as possible.
ACCA fully supports, and is committed to facilitating and contributing
to, this process.
5. ACCA welcomes also the OTS paper
published alongside the budget, "Competitiveness review:
initial thoughts and call for evidence". The paper considers
the relative performance of the UK in global terms, but also makes
the very valid point that comparative performance is not the only
driver. Simplification and improvement of the UK system is a valid
and indeed a compelling driver in its own right.
6. This Budget has seen less in the
way of undue complexity than has perhaps been the case in previous
budgets, and to the extent that there provisions likely to cause
significant practical difficulties for taxpayers, advisers or
HMRC they are confined to the anti-avoidance arena.
7. However, the pace and nature of developments
in the anti-avoidance field have given some cause for concern.
The Government has continued to share a significant proportion
of the draft clauses for the Finance Bill in December, and this
is welcome. While the scope for detailed scrutiny is to some extent
restricted by the Christmas break, there is an inevitable compromise
between the interests of officials and Ministers preparing the
policies and legislation and the interests of those stakeholders
engaged in the consultation and review process.
8. It is notable that the clauses exposed
for consultation in December included elements of anti-avoidance
legislation, such as the onshore intermediaries rules and the
revisions to partnership taxation. It is of course not always
possible to consult widely on anti-avoidance legislation and any
opportunity for compliant businesses which may be caught up in
the impact of such provisions is welcome.
9. Even so, there have been a number
of calls in respect of both these provisions and other aspects
of the anti-avoidance legislation to allow more time for consultation
and consideration of the legislation, and for compliant businesses
and advisers to adapt to the proposals. The changes to the taxation
of partnerships will impose on many genuine existing businesses
a need to fundamentally revise their terms and manner of operation.
Although there had been some prior consultation over the summer
of 2013, the draft clauses which were published in December were
a departure from the existing direction of discussions and have
caused significant widespread concern among businesses and their
advisers. However, while some minor changes were announced at
the end of the consultation period on the draft clauses, the implementation
of the measures is to press ahead.
10. In the complex area of employment
status for tax purposes, the government consulted widely with
interested bodies and has responded with a number of changes to
the proposals for onshore intermediaries, and some revisions to
the timing of their implementation. Nevertheless, there are still
some fundamental areas of concern, particularly around the practicalities
of the interaction with compliant PSCs. The process for managing
information flow along the contractual chain is also an area of
concern, with worries that the industry will struggle to set up
ICO compliant processes which will satisfy both the commercial
concerns of taxpayers and the information requirements of HMRC.
11. While the timing is an issue, another
theme runs through the intermediaries and partnership measures.
Both involve the government's reaction to taxpayer responses to
tax measures which are themselves a function of the landscape
of business form and corporate laws in the UK. Tax, as a matter
of simple practicality, is aligned to legal form. Resolution of
the underlying tensions between economic substance and legal form
where the two might diverge is key to the efficiency of the system.
12. At the same time, the tax system
is often used as a mechanism to encourage or reward certain legal
forms. For example, while employees make a greater proportional
contribution to the exchequer from their earnings than the self
employed, they receive a greater return in social security protections.
Conversely, the rate of tax on invested capital is (currently)
lower, and measures such as the SEIS encourage further investment
in equity.
13. The final proposals to revise the
treatment of partnerships and provision of services and labour
represent adjustments to aspects of the system which are fundamental
to decisions about business form and commercial operation. They
deserve more than 4, 8 or 12 weeks of consultation. The changes
in each case are recognised by HMRC to potentially have significant
impacts upon compliant taxpayers. The Finance Bill Sub-Committee
of the House of Lords Economic Affairs Select Committee urged
a delay in implementation of the partnership provisions to give
time for business to react to the changed economic landscape,
and ACCA supports that call for a measured approach to such fundamental
reform.
14. The field of marketed tax avoidance
schemes has also been the focus of considerable government attention,
with consultations starting over the summer of 2013. Again however,
the scope of proposals has grown and changed over the course of
the consultation process. There is universal agreement among the
professional bodies that artificial and contrived schemes whose
sole purpose is generation of a tax advantage through abuse of
the rules is a legitimate target for focused and proportionate
measures. However, the breadth and scope of the powers outlined
in respect of high risk tax agents prompted expressions of concern
from many that there were significant potential risks to compliant
tax payers.
15. In December 2013, indications of
a further extension of HMRC powers to tackle users of such schemes
through the 'follower notice' mechanism were given, and again
prompted expressions of concern from advisers. In late January
2014, at the height of the personal tax filing season for individuals
and the yearend reporting process for big business, the detail
of the follower notice regime and the related accelerated payment
provisions were published. The consultation period was just four
weeks. Despite the brevity of the consultation period, and the
business pressures upon them, the proposals provoked an unprecedented
response from ACCA members, unanimously opposing the radical extension
of HMRC powers.
16. The budget itself saw the announcement
of an HMRC power to take money directly from taxpayers' bank accounts.
While we understand that there will be a number of safeguards
around the measure to prevent abuse, or the infliction of consequential
hardship on those relying upon the relevant accounts either directly
or indirectly, it is vital that HMRC manages taxpayer expectations
and operates any such power in a transparent and proportional
manner. While it might be characterised as simply the equivalent
of distraint powers, and exercised in similar circumstances, the
fact remains that the potential side effects could be catastrophic
for wrongly targeted taxpayers. As is noted elsewhere, HMRC is
dependent upon the goodwill of taxpayers, and misuse of such powers
would rapidly erode trust and goodwill.
17. Again, the speed of change raises
concerns. In particular, the indications that much of the material
has been developing internally for months if not years without
any external consultation are a concern. The particular confluence
of circumstances which contribute to the apparently compelling
arguments for introducing these new powers are the result of temporary
circumstances in a fast moving area. Introduction of permanent
powers which would previously have been rejected by many commentators
out of hand should be approached with caution and safeguards,
and ideally in time limited form.
18. The Budget includes a number of
measures designed to enhance investment, research and development.
However it is notable that the measures in this budget, and previous
budgets, can be characterised as displaying a piecemeal approach
to incentives. Welcome as the incentives are, a more structured
long term approach to them would increase the confidence of business
in the long term stability of the tax system.
19. The continued extension to the scope
of the Annual Investment Allowance is an example of a measure
designed to encourage investment and growth but whose effect may
diluted by complexity of application. As has been noted previously,
implementation of the enhanced limit from 1 January requires businesses
who do not have a 31 December year end to apportion their income.
This is the fifth different rate of allowance in 7 years, hardly
the stability called for by the Committee. The stimulus is welcome;
the additional complexity, the burden of which will be disproportionately
felt by SME businesses, is not.
20. There is of course a further aspect
to the availability of the enhanced annual investment allowance,
and that is that many businesses may have suffered uninsured losses
as a result of flooding and other extreme weather conditions in
recent months. While no more than a silver lining at best, the
ability to replace plant up to £500,000 with immediate tax
relief and no further administrative burdens will be welcome.
21. The last of the Committee's principles
is that the tax system as a whole should be coherent. The introduction
of the Corporate Tax Roadmap has been widely recognised as a positive
step towards coherence of the system for taxation of incorporated
businesses in the UK. However, the majority of active businesses
by number in the UK are not incorporated, and in many cases the
taxation of their profits is effectively assessed under personal
tax rules.
22. Taxation for most individuals is
a 'fact of life', and the interaction of the tax system with household
budgeting is limited to the impact of changes in tax rates. The
development of long term policy is of limited relevance, as in
most cases individuals are unable to arrange their affairs so
as to take any particular advantage of knowing what the structure
of liabilities may be in two or three years' time.
23. For businesses on the other hand,
prediction of after tax returns is a significant ingredient in
long term commercial success, while modelling of cashflows is
fundamental to short term survival, especially for smaller businesses
which may not have reserves. What is needed is not so much a personal
tax roadmap as a business tax roadmap - and ideally one which
incorporates NICs as well. Changes in the approach to employers'
NICs impact directly upon business profits, and while the setting
of rates is beyond the scope of the Committee's work, and will
always inevitably remain a short term political decision, any
guidance for business would improve the ability to plan ahead.
24. In any event, the impact on a single
business of rate changes in personal tax is likely to be lower
than that of corporate tax. A 1% rise in income tax rates would
deliver a similar amount to a 4% rise in corporation tax rates
based purely on rates, but the impact of behavioural change would
likely increase the disparity, as companies are more able and
willing to plan to mitigate their exposure to tax rises.
25. The vast majority of tax receipts
come in with no active intervention or management from HMRC, whether
through PAYE or self-assessment for income or corporate tax. Even
so, current projections indicate that by the end of this parliament
the yield from HMRC interventions will have doubled. There is
an increasing focus on potentially high yield taxpayers, and it
is notable that in both the personal and corporate tax arena a
significant proportion of all receipts comes from a comparatively
small number of high value taxpayers.
26. It is vital that the voluntary compliance
of the majority of taxpayers is not taken for granted. There is
anecdotal evidence from practitioners that some small businesses
are developing an attitude that if 'big business' is going to
seek to avoid tax then they too will look for any opportunity
to reduce the amounts paid to HMRC. Unfortunately it is of course
the case that for many small businesses the lack of complexity
in their tax affairs means that the only scope to influence the
ultimate tax liability is to somehow suppress the reported profit.
The erosion of taxpayer goodwill is a significant possible threat
to wider revenues and must be resisted.
27. Overall, the 2014 Budget has delivered
a coherent package of measures which for the most part continue
the direction of travel towards the principles of good taxation.
In order to maintain that movement, ACCA would welcome the extension
of the corporate tax road map to business tax more generally,
and the adoption of a more measured approach to fundamental changes
to the environment for businesses.
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