Osborne told how to simplify tax reliefs

Aligning income tax and national insurance would remove a “major cause of complexity” for both business owners and the claimants of specific tax reliefs.

As well as merging the liabilities, entrepreneurs’ relief under the capital gains tax regime should be simplified, and late night taxi relief must be eliminated.

All these recommendations, by the Office of Tax Simplification, stand to affect some IT contractors and consultants, assuming they are accepted and proposed in the Budget.   

Overall, the OTS named 17 reliefs for simplification; 54 that should be kept or retained – including the £100,000 Annual Investment Allowance, and 47 that it wants to cancel. 

Among those too burdensome or ineffective to stay include employee luncheon vouchers, tax relief for meals on cycle-to-work days and tax relief for painters and blind people.

“The OTS deserves credit for tackling difficult issues in the report,” said the Chartered Institute of Taxation. “Nearly all tax reliefs benefit somebody and they will usually not want to see them disappear.

“However, as the report points out, the cost of them is borne by all other taxpayers and simpler, more effective tax laws are in the overall public interest.”

According to the OTS paper, Review of Tax Reliefs: Final Report, merging income tax and national insurance was raised by stakeholders as something which they actually want.

To be explored in greater detail in the OTS small business taxation review, due out on March 10, the proposal was just one of a number from the business community.

On Entrepreneurs' Relief, OTS “received representations from businesses that …consideration be given to increasing, or possibly removing, the lifetime limit to encourage investment by serial entrepreneurs.”

The relief should also be renamed what it is – [the] “entrepreneurs’ rate,” and should be the end-result of a simple checklist or flowchart approach to help individuals assess their tax position, the report says.

This would guide a person who is “selling his business through the conditions to ensure they are all met” and that he qualifies for the relief, said the OTS, with the conditions and approach to be “binding.”

“If the chancellor takes up these recommendations, this will be a first step on the road to a simpler tax system,” reflected Vincent Oratore, president of the Chartered Institute of Taxation.

“Simpler tax laws would mean an easing of the administrative burden on business, individual taxpayers – especially the unrepresented – and HMRC,” he said. “They would [also] make the tax system more transparent and more comprehensible”.

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