Message for Hammond: simplify tax system
What will the Chancellor do in Wednesday’s Budget statement, and what should he do? These are are two very distinct questions and outlining what the Chancellor should do is a far more valuable pursuit.
Despite recent headlines suggesting Philip Hammond has an extra £10 billion to play with following better than expected tax receipts and stronger numbers from the wider economy, comments from Treasury officials continue to suggest the focus will be on productivity and infrastructure, and not on any specific giveaways.
Changes implemented by Mr Osborne has meant that investing in property is a far less attractive proposition. The hope is the current occupant of Number 11 will not see property owners as the same cash cow his predecessor did. The return on people’s investments has already been squeezed therefore he should squeeze no more.
Tax relief for pension contributions is an expensive business for the Government and steps have already been taken to restrict how much certain individuals can contribute, whether that be on a year to year basis or over a lifetime.
Whilst pensions remain an attractive proposition for most, they are a far more costly proposition for those with significant levels of income. The damage has already been done therefore the Chancellor should look elsewhere when trying to generate more revenues.
You would expect me to follow up with a suggestion for generating more revenue, but that’s not my job and I don’t think my clients would thank me for doing so.
The best thing the Chancellor can do for tax payers and tax advisers alike is to accelerate the process of tax simplification.
We currently have one of the largest tax statutes in the world and the system is full of inconsistencies and laden with unnecessary complications. The Office of Tax Simplification has done a good job since its inception, but progress is slow.
Take the tax position on employment income as a prime example. You have to pay two separate taxes at two separate rates on the same source of income. You are given two different thresholds at which you start to pay these taxes and if you have a problem with how you’ve been taxed you need to deal with two different departments within HMRC. This is only the tip of the iceberg.
Throw into the mix the fact that the Scottish Government now has the capacity to alter the rates and thresholds that apply to income tax for Scottish residents, then I begin to wonder why I didn’t become an auditor.
The Chancellor should leave property and pensions alone and aim to simplify the whole system for everyone’s benefit.
Graeme Cran, is Tax Senior Manager at Johnston Carmichael