Budget 2015: Accountants advise George Osborne on 'laying the groundwork' to improve lives
The Association of Chartered Certified Accountants' head of taxation, Chas Roy-Chowdhury, lists the top three changes the Chancellor can make to create a 'huge difference to the economic landscape'.
Next week’s Budget is the first by a Conservative Chancellor in a majority government for 18 years. It is an opportunity to set the groundwork for improving the lives all of the 64 million British residents and the millions of businesses that contribute to Britain’s economy.
There are a number of changes ACCA would like to see that would make a huge difference to the economic landscape. The first is to offer a National Insurance threshold increase to all employers who pay their employees at least the living wage. For the employee if you earn the minimum wage and work 40 hours per week, after the personal allowance is taken in to account there is little over £2,000 of taxable income. If you raise the wage to the living wage you would more than double the taxable income.
This would give the employee more income each month and also increase the Treasury take from income tax each year. Offering a small ‘tax break’ would not only incentivise employers but also reduce the burden of the increased wage bill.
Secondly ACCA would like to see the principle private residence removed from the scope of inheritance tax. Property prices have far outstripped increases in the IHT threshold and we are now in the situation where the majority of family homes in the South East would take descendants over the tax free limit. This tax has become a South East England tax and removing the principle private residence from the scope of IHT would redress the unfairness.
Thirdly we would like to see a reversal in the annual cuts to HMRC’s budget. They are due to lose another £80 million of funding next year. We understand the need to reduce public spending but there are some areas where the government could actually improve the budget deficit by increasing spending. HMRC exist to collect tax and reducing their budget reduces their ability to perform this function.
At present around £35bn of tax remains uncollected. By giving HMRC the resources to not just collect this tax but also to investigate and prosecute tax evaders, the government could make significant in-roads to the budget deficit. The tax gap currently stands at 6.8% up from 6.6% last year - if the government is to continue to include HMRC in the public bodies whose budget is not ring-fenced it is difficult to see anything other than an increase in the tax gap.
Every pound that is left uncollected, is another pound added to both the deficit and in turn the national debt, and another pound that the government has to pay interest on. The government has made tackling tax evasion a clear priority since 2010, but this policy needs to be backed up by actions. They have pointed to special projects such as the deal with the Swiss banks but there are only a finite number of these for the government to action. The government needs to address the underlying systemic features that currently make it harder for HMRC to close the tax gap. Only by taking a more strategic and fully funded approach to tackling the wider structural issues, backed by the appropriate resources, will the UK economy see the wider benefits of measures to create a streamlined tax system fit for the 21st century.