CIOT warns govt ‘tinkering’ with tax rates could affect competitiveness

The Chartered Institute of Taxation (CIOT) has warned the government that “constant tinkering” with left field changes to tax rates and allowances undermines the consistency that taxpayers and businesses crave, and risks reducing international competitiveness.

The note of caution comes as a number of changes to allowances for businesses are quietly working their way through Parliament in Finance (No. 3) Bill.

The CIOT argued that such “surprise changes”, without prior consultation, and particularly where they have immediate effect, create uncertainty and are both “unwelcome and disruptive to taxpayers”.

Furthermore, the institute said this is compounded when the full package of law and guidance are not finalised by the time of the announcement, resulting it in a lack of clarity on how the measure will operate and who will be affected.

Commenting, CIOT tax policy director John Cullinane said: “Tinkering constantly with rates and allowances in unexpected ways undermines the principles of stability and certainty that taxpayers need, and reduces the international competitiveness of the UK’s tax system.”

In particular, the CIOT has drawn attention to the frequency of changes to the Annual Investment Allowance (AIA).

Cullinane added: “In just over ten years, the level of the allowance has changed five times, to amounts ranging from £25,000 to £500,000. It is currently £200,000; being set at this supposedly ‘permanent’ level in the Summer Budget 2015. Budget 2018 saw a time-limited increase in the allowance to £1 million, from 1 January 2019 to 31 December 2020, after which it is suggested it will revert to its current level of £200,000.

“Affected businesses making long-term plans will just have to guess what the government will really decide for periods beyond that, or indeed, on past form, what further changes might be made before that time expires.

“The right level for AIA is a matter of political judgment but it is damaging if it is repeatedly altered, and it can be complex where a business’s accounting period spans changes in the AIA. This can result in a lower amount of AIA being available than expected. The unrepresented or ill-advised taxpayer may fall foul of these complexities. It would be greatly preferable if the Chancellor were able to give greater longer term stability to its level.”

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