While attention at the Spring Budget is likely to focus on any tax giveaways, accountancy and business advisory firm BDO is urging the chancellor to fix some longstanding issues in the tax system.
“There are a number of issues, inequities and anomalies in the tax system that have gone unchecked for too long and which require urgent attention from the chancellor at the Spring Budget.” said Dawn Register, Head of Tax Dispute Resolution at BDO.
- Fix HMRC’s customer service
“We seem to be in a situation in which tax rules are becoming ever more complex but the support available to help taxpayers is deteriorating. The latest NAO report shows that customer service levels are now at an all-time low. New technology can help up to a point, but it isn’t a panacea. Taxpayers with complex issues need to be able to speak to well-trained and knowledgeable staff who can help them get their tax right first time. And businesses are also telling us that HMRC needs more resources. Improving the system will require investment and a fundamental rethink of HMRC’s approach to customer service.”
- Reform the High Income Child Benefit Charge
“Child benefit starts to be clawed back through the high income child benefit charge if a parent has an annual income of more than £50,000. This threshold hasn’t changed since the charge was first introduced in 2013. In a recent interview the chancellor acknowledged the unfairness in the way in which this charge applies. For example, a dual income household with both parents earning just below £50K would pay nothing while a single earner in a household on £60K would have to repay the lot. Raising the threshold may be a partial fix but more fundamental reform to address this inequity is long overdue.”
- Tackle the childcare cliff edge
“Last year, the government announced plans to extend the provision of free childcare in a staggered way. From September 2024, 15 hours of free childcare will be extended to all children from the age of 9 months, and from September 2025, working parents of children under the age of five will be entitled to 30 hours of free childcare a week. While the announcement has been welcomed by many parents and businesses, if one working parent individually earns more than £100K per year, the household becomes ineligible. This produces a sharp cliff edge, adding to already high effective tax rates for people in this income bracket and creates a potential disincentive for working parents seeking a promotion or salary increase.”
- Fix ‘IR35’ (tax status) for all parties
“The current complex rules don’t work commercially for business, they don’t work for individual contractors and, as we’ve seen recently, HMRC can get bogged down in decade-long disputes. The solution should be a new statutory employment test like the model used for the residency test. If you meet the test, you’re employed for tax purposes, if not you’re self-employed. This would give much more certainty and save everyone time, money and hassle.”
- Offer more flexibility on tax debt
“It is right that HMRC collects all taxes owed and pursues those who refuse to pay. However, there should be greater flexibility offered to businesses with tax liabilities and short-term cash constraints to prevent otherwise healthy businesses becoming distressed. If payment plans are unrealistic, we expect to see a greater rise in insolvencies. HMRC needs more resources to assist businesses and individuals who want to pay in full but need instalment arrangements.”
