Monday, July 6, 2015
The Institute of Directors (IoD) has called on Chancellor George Osborne to radically simplify the UK tax system when he delivers his Summer Budget on Wednesday.
The IoD said the Chancellor should be ambitious in his tax reform agenda and create an "equity economy," under which taxes on wealth would be "simple and sensible" and investment tax breaks would be easier to understand, to encourage more people to buy shares in entrepreneurial businesses.
The IoD would like Osborne to increase the Annual Investment Allowance from GBP500,000 to GBP600,000 and fix the cap for five years. It is seeking the better alignment of tax reliefs for venture capital trusts and Enterprise Investment and Seed Enterprise Investment Schemes. Small businesses should be given the option of being taxed like an individual or a partnership, and any reforms to the business rates system should not adversely affect microbusinesses, it said.
In addition, the IoD recommended that Osborne consult industry on the possibility of merging the UK's two direct taxes on capital – inheritance tax (IHT) and capital gains tax (CGT). It recommended that, in the meantime, Osborne should merge CGT rates at 20 percent, increase the annual exemption, and raise the IHT threshold to GBP1m. A triple-lock for income tax should be introduced, similar to that for the state pension, so that rate thresholds rise each year in line with consumer prices, wage growth, or by 2.5 percent, whichever is highest.
The IoD said that 90 percent of its members support action to crack down on aggressive tax avoidance. However, they are keen to ensure that legitimate tax planning is not penalized. According to the IoD, the Chancellor should make sure that the Organisation for Economic Cooperation and Development's base erosion and profit shifting proposals are implemented in a way that does not erode the UK's competitiveness. Osborne should also reject "ill-thought out and dangerous" proposals for a European-wide common consolidated corporate tax base.
Stephen Herring, Head of Taxation at the Institute of Directors, said: "As the economy continues to recover, both business and individual taxpayers will rightly expect more wide ranging tax reforms and simplification than the previous Government was able or willing to undertake. Businesses, especially SMEs, are concerned about high taxes on employment, commercial property occupation and transactions as well as being convinced that government ought to try much harder to deliver authentic, far reaching tax simplification."
"Individual taxpayers are rightly concerned with the impact of fiscal drag upon their marginal tax rates. The Chancellor should also take the opportunity to make it clear the Government is determined to distinguish between authentic tax planning by businesses and individuals and aggressive tax avoidance."