Gauke admits 50% tax rate is a disincentive

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The secretary to the Treasury has admitted that that personal tax rate hikes have had negative impacts on those affected and ‘could not be ignored’, reports Harris & Co small business accountants.

Speaking at the East India Club in London last night where accountants and business delegates gathered to listen to a line-up of speakers discussing how to cut tax and costs to business – Gauke said: ‘The personal tax of 50% ended up having the opposite effect. It seemed to discourage talented individuals working in the UK and sent the message to entrepreneurs that Britain is not open for business.’

The rate is to go down to 45% in April.

Gauke said the government was pulling all the levers available to it to achieve growth.

‘Tax is one of those levers. This government’s tax policy has been at the centre of very lively debate in recent weeks – about how much we tax, and what we tax,’ said Gauke.

Gauke reminded the audience of government’s efforts to reform tax for business – corporation tax being lowered to 21% from April next year; changes to the controlled foreign corporations to encourage companies to move their headquarters to the UK; and the introduction of the Patent Box Regime.

Referring to the recent OECD report – which clearly pointed out that several multinational companies used sophisticated schemes to dramatically lower their tax burdens, Gauke said that some businesses now felt ‘aggrieved…. Some think that some companies are not paying their fair share in tax’.

‘But a simplified tax system doesn’t mean there will be less avoidance. Many of the high profile cases we’ve seen recently had little to do with complexity. We have to look at the international tax regulation which hasn’t kept pace with the modern global environment – and we have to work with other countries,’ said Gauke.

Citing research from KPMG – which surveyed tax professionals and found that the UK was mentioned in 72% of responses in relation to competitiveness – Gauke said that the UK was ‘increasingly competitive’ and even ahead of countries such as the Netherlands.

But chairman of the 2020 Tax Commission and editor of City AM, Allister Heath, noted that government had done a lot of good but criticised the Treasury for regulatory moves – such as the way in which capital gains tax (CGT) was raised, the increases to transaction taxes, the reduction in personal incentives and the manner in which child benefit tax had been reduced – which he said had been damaging for the economy.

Heath called for government to take a ‘big bang approach’ and slash corporation tax to 11% and abolish CGT.

‘In one day, those two policies will transform the UK’s competitiveness,’ he argued.

The 2020 Tax Commission, which is campaigning for government to simplify and reform the tax system, also cited its final report recommending a single income tax, a proposal now being looked at by the Office for Tax Simplification.

Among the main recommendations of the Commission are proposals for taxes be cut to 33% of national income; for marginal tax rates not exceed 30% and personal allowance rise to £10,000; that taxes on capital and labour disguised as business taxes should be abolished and replaced with a tax on distributed income; and that transaction, wealth and inheritance taxes should be abolished.

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