AAT argues stability is the most important change for the UK taxes

AAT CEO Sarah Beale argues the country needs stability and a long-term strategy for taxes.

The past five years have also seen new taxes introduced including the Apprenticeship Levy, Soft Drinks Levy and Digital Services Tax, with several more new taxes set to be introduced imminently. These include the Plastic Packaging Tax, Health & Social Care Levy, Building Safety Levy, Residential Property Developer Tax and Economic Crime Levy. That’s to say nothing of the various changes planned for existing taxes e.g. increases in National Insurance Contributions and Corporation Tax, Scottish Income Tax thresholds and so on as well as variations around applicability e.g. VAT on compensation and termination payments, the end of temporary VAT reductions for hospitality and leisure, a new regime for late payment of VAT and late filing of VAT returns and of course new Making Tax Digital requirements.

Against this backdrop, the most important change we need to see is a period of stability. Imagine if we were to have a sustained period with no new taxes, no changes to thresholds, no changes to the applicability and criteria of any tax. Such a period of certainty would benefit businesses large and small as well as their accountants, and it would also greatly benefit an increasingly stretched HMRC.

Some may argue that to do so would mean missing out on improvements for reform and improvement. Indeed, over the past five years, AAT has made numerous recommendations as to how the tax system could be made more effective, fairer and where possible, simpler.

Many of these policy recommendations have subsequently been adopted by Government, for example introducing a Stamp Duty surcharge for overseas investors who purchase residential property (fairer) and making online platforms such as Amazon and eBay liable for VAT collection and remittance (fairer and more effective, as well as being simpler for traders). Likewise, additional complexities have been prevented such as the 2018 attempt to introduce a “shared occupancy” test for rent-a-room tax relief. Furthermore, an exemption was secured for small businesses from the new £100 million annual Economic Crime Levy. These policy decisions avoided unnecessary complexity and ensured greater fairness than originally proposed.

There are other AAT recommendations that have not yet been implemented which have stimulated considerable debate. For example, switching Stamp Duty liability from the buyer to the seller, which was briefly championed by former Chancellor Sajid Javid; scrapping fuel duty, VAT on fuel and Vehicle Excise Duty and replacing them with a tax on car usage based on telematics technology, an idea that was adopted by the Transport Select Committee earlier this year, and halving Inheritance Tax (IHT) from 40% to 20% whilst simultaneously ending most IHT reliefs and exemptions.

One thing that unites these, and the recommendations put forward by various other individuals and organisations, is that they are rarely, if ever implemented quickly, often for good reason, sometimes less so. Therefore, were we to have a period of 3–5 years of no tax changes, perhaps even the lifetime of a single Parliament, many improvements could still be recommended and considered. The timeframes to consult widely, pilot and test would be extended to such a degree that problems and unintended consequences are reduced and the chances of success are likely increased.

The economic and social benefits of little or no further changes are clear but the politics of such a commitment would admittedly be challenging. The switch to a single annual fiscal event was difficult enough to achieve given the desire of successive Chancellors to stamp their mark on the economy. Ruling out any significant changes for the lifetime of a Parliament would be uniquely bold and challenging.

However, this new idea builds on something that AAT has long recommended, that Government should publish a clear tax strategy and, as far as possible, stick to it. By setting out Government priorities and its approach to tax at the beginning of each Parliament, the public, politicians and other stakeholders could better hold the Government to account.

Just as importantly, a coherent tax strategy would also provide greater certainty for tax and accountancy professionals and their millions of clients, whilst assisting Government and especially HM Treasury and HMRC in providing an agreed direction of travel.

The Government has previously published a road map for Corporation Tax and last year a 10-year strategy for building a trusted, modern tax administration system was published too. These are small steps in the right direction but what’s really needed is an overarching strategy for the tax system. Scotland appears to have stolen a march on the rest of the UK with the launch of its own ‘Framework for Tax’, setting out the purpose, principles and objectives of devolved tax policy over the course of this Parliamentary session (please see the Kate Forbes MSP contribution to this AAT Time for Change report).

When surveyed in 2017, providing a clear tax strategy was the number one change that AAT licensed accountants wanted Government to deliver. Five years on, there has been little progress. Given the failure to adopt a coherent overarching strategy, perhaps a simpler and almost as effective change would be a commitment to add no new taxes to the statute book and no wholesale changes to the applicability or operation of existing taxes for the next 3–5 years (beyond what is already planned). That would surely be one of the simplest means of delivering a more effective tax system for all.

About Sarah

An AAT qualified Chartered Accountant who worked as Chief Finance Officer, Interim Chief Executive and then Chief Executive at the Construction Industry Training Board (CITB) between 2013 and 2021, Sarah Beale (MAAT) joined AAT as Chief Executive in November 2021.

AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.