BUSINESS - Watch for New Tax Rules - This Chancellor Is No Simplifier
Herring, Stephen, The Independent (London, England)
AGAINST A background of consistently low inflation and consistent growth, the Chancellor has made stability his key message for the 2004 Budget, a sentiment many in business would welcome, particularly in terms of tax law.
However, the many press releases and consultation documents issued on Budget day, coupled with the promised merging of the Inland Revenue with Customs and Excise, may spawn a new raft of tax legislation when the Finance Bill is published. This Chancellor does not have a natural inclination towards tax simplification.
Small enterprises may take some heart from his reaffirmation that encouraging enterprise, innovation and productivity is at the heart of the Government's agenda, with promised benefits to 3.8 million small UK enterprises.
Other entrepreneurs may be disheartened by the anti-avoidance measures designed to close some of the benefits that arose when the Chancellor first encouraged small businesses to incorporate as limited companies and allowed them to extract profits tax- efficiently by way of dividends. We consider that the Chancellor should have waited for at least another two years before tinkering with a corporation tax change he himself introduced; ie, the zero per cent tax rate on the first pounds 10,000 of a company's profits.
The Chancellor has also decided that he must act to curtail the more aggressive so-called tax avoidance products marketed by investment banks, law firms and accounting firms. These measures are designed to reduce the more innovative tax planning products which the Inland Revenue consider to have no real commercial substance. They are no longer willing to await the submission of companies' corporation tax computations to review these products, and they expect to receive prior notice when the products have been sold.
Although the Inland Revenue's response may be understandable, these products are often created by our complex tax legislation. The Chancellor appears not to be willing to simplify business taxation and he should not be surprised that businesses obtain advice on how to minimise their liabilities. It would be pleasing to see tax simplification and lower tax rates on business income which would themselves reduce the incentive to undertake aggressive tax planning schemes.
One of the most eagerly awaited aspects of this Budget was announcement of more details about the promised new vehicle for investing in commercial and residential let property. The new vehicle, now referred to as a Property Investment Fund (PIF), is not yet fully developed, and the consultation document does not put forward a preferred option, although the US Real Estate Investment Trust is clearly the main yardstick. …