Andrew Hubbard, director of Tax Policy at RSM Tenon, the seventh largest accountancy firm in the UK, believes the following measures need to be adopted to help grow the UK’s economy and reduce the estimated £1.2 trillion deficit.

• Residency Status: The Government needs to update the rules on residency. Tax residency has had a high profile in the press recently and is of fundamental importance. Recent court decisions have created complete confusion so we need a revised statutory code that’s relevant to modern life, rather than 100 year old principles.
• Business Tax: Small businesses need clarity on the future direction of the tax regime. Over the last few years there has been endless tinkering round the edges. Firms need a coherent long term plan for reform or a commitment to leave things as they are.
• VAT: The UK has the fifth lowest rate of indirect tax in Europe. Although it is not possible to tell if an increase will have any significant impact on purchasing behaviour – certainly the recent tinkering had no noticeable impact - we would like to see the rate increased to 20%. All things being equal, a 2.5% rise in VAT would generate around £10-12 billion.
• Turning Loss to Credit: Businesses need initiatives to help them grow out of the recession, for example, a scheme to allow business tax losses to be turned into a repayable tax credit. Carrying forward losses only helps once the business returns to profit. However, if businesses were allowed to exchange their losses for a cash refund they may return to profitability more quickly.
• Duties: In recent years, duties on alcohol have remained relatively static in comparison to fuel and cigarettes. Raising the duty by 1% for beer, wines and spirits would generate nearly a £1 billion – and go part way to improve the nation’s health.
• Flexible Benefits: Recent contradictory policy shifts means there is great uncertainty over flexible benefits and salary sacrifice arrangements. HMRC is increasingly concerned that too much tax is being lost as a result of initiatives where salaries are reduced in exchange for more holiday or child care vouchers.
However, they are an important way for employers to attractive staff and an easy way to adjust costs depending on the economic climate.
• Capital Gains Tax: A return of capital gains being taxed as the top slice of income must be on the cards and will be a fair way of boosting Government revenue.
• Personal Tax: A signal that the 50% income rate is only a temporary measure would be welcome. We would like to see it phased out by 2012.
• NIC: A National Insurance Contributions holiday – rather than the 1% increase businesses will be burdened with from April 2011, which in all likelihood will be reversed – would help alleviate unemployment by making it easier and cheaper to take on new staff.
• New Pension Tax Relief: The new rules introduced in Budget 2009 are hideously complex. The principle that higher rate relief should be restricted or abolished is a political decision which is unlikely to be reversed, but the method is far too complex. The terms for paying the tax due could have implications for cashflow
• Tax Administration: Taxpayers need certainty over their tax affairs. The combination of HMRC’s new powers, recent court decisions and a greater willingness of parliament to impose retrospective tax legislation means taxpayers may not have certainty over their tax position for many years to come. We needs a sensible balance between the right of the State to collect tax due and the right of the individual to have certainty within a reasonable timescale.