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UK accountancy bodies call for tax simplification

An emergency UK budget shows support for public companies and small businesses, however, much needed simplification of the tax system has failed to materialise.

Corporations have been provided with welcome relief, while banks and especially families are the victims of the government’s plans to tackle the budget deficit.

The Institute of Chartered Accountants in England and Wales (ICAEW) head of tax, Frank Haskew, called on government to simplify the UK’s complicated and burdensome tax system to help drive economic growth.

“The Office of Tax Simplification needs to harness the resources and experience of the tax profession to help it achieve its goal of a simple, stable and predictable tax system” Haskew said.

Association of Chartered Certified Accountants tax leader Chas Roy-Chowdhury warned some parts of the new budget will cause pain through complexity.

“I'm disappointed that there has been no movement on simplifying the tax system - some measures, such as the regionalisation of National Insurance Contributions, could confuse issues for small businesses struggling under the burden of the system,” Roy-Chowdhury said.

Among the winners, corporation tax will be gradually scaled down to 24% over the next four years, making it one of the lowest rates among major global economies. The small business rate will also change to 20% next year.

Frank Haskew said the government has listened to businesses concerns and provided businesses sufficient time to plan for the reductions through various tax reliefs.

“This will help build confidence in the UK as a place to do business,” Haskew said.

However, there are concerns coming from banks regarding a new levy that will apply 1 January 2011. The banking levy will be based on banks’ balance sheets and the proposed rate will be set at 0.07 percent, with an initial rate of 0.04 percent in 2011.

UK head of Banking at KPMG Nigel Harman said the changes to corporation tax are a double-edged sword for banks.

“On the one hand, the gradual reduction in this tax over the next four years means that the value of deferred tax assets to UK banks will reduce considerably, and on the other hand the ongoing reduction in the headline corporate tax rate will mean lower taxes on future profits,” Harman said.

Another loser from the tax overhaul will be middle income families, who are receiving savage tax credit cuts to child benefits.

Roy-Chowdhury said the changes will see tax credits aimed much more at those on lower-incomes and there will be a steeper cut-off too.

Haskew said the government should review how benefits are delivered to those who are in most need and the options for structural reform.

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