The UK Government launched a far-reaching consultation on tax issues last week. The Treasury is actively seeking input on tax policy from businesses, tax professionals and other interested parties. It is expected that the tax system will undergo a complete overhaul. This task will be overseen by a new Government body, The Office of Tax Simplification.
This consultation follows on from the tax changes that were announced in the Emergency Budget last month, when the Government committed to making the making the process far easier for anyone who has to pay tax. The nine announced papers want opinions on proposals regarding pension tax relief, inheritance tax and PAYE system reform, amongst other topics.
The reform of the PAYE system could potentially have the greatest impact on small businesses. It will be changed to reduce the burden on employers, who are currently responsible for deducting income tax and National Insurance Contributions. Under the proposals, tax and NIC would be deducted directly from the gross pay of employees as it enters their bank account. This could save time for many small businesses and make paying their staff less complicated.
Pension contributions will also be looked at closely. It is likely that the previous Government’s plan to lower pension tax relief for high earners will be scrapped. Instead, the pension allowance which allows pension funds to grow tax free will be reduced from a threshold of £250,000 a year to between £30-40,000.
The Government also wants far greater scrutiny into the methods that the rich are currently using to sidestep the inheritance tax laws. In particular, the practice of transferring property into trusts will be looked at more closely.
The small business community has reacted with initial cautious optimism about the proposed changes. Any changes that would simplify the PAYE system would be welcomed, but all the proposals will obviously be subject to a lengthy public consultation process before becoming law.