Tories set out agenda for tax reform

The Conservative party has highlighted IR35 and Section 660 as two areas of complexity for small businesses in its agenda for tax reform.

Shadow Chancellor Oliver Letwin rejected any suggestion that the Conservatives should make specific promises on tax at this stage, although he has released a document - "Towards a Lower Tax Economy" - which sets out the party's agenda for tax reform.

The document identified five areas of the tax system the Shadow Chancellor regards as 'manifestly unfair' - council tax, inheritance tax, stamp duty, income tax/NI thresholds, marginal rates, and taxation of savings and pensions. The three areas he regards as over-complicated cover capital gains tax, small business taxation, and environmental taxes.

In the section relating to Tax complexity and the taxation of small business it said:

"The tax picture for small businesses has become more uncertain in recent years. The introduction of IR35 in 2000 has resulted in confusion over employment status for tax purposes.

"The Revenue’s use of the settlements legislation continues to cause concern for husband and wife businesses. The government’s introduction of a zero rate of corporation tax in 2002 and its swift removal by way of the tax on corporate dividends in this year’s Budget only served to create more uncertainty and increasing complexity. On top of these changes both VAT and corporation tax law have become ever more complex, including a myriad of new anti-avoidance measures.

"The burden of taxes on small business has increased substantially. Attempts by the government to simplify taxation for small business, such as the introduction of new VAT registration limits, do not do enough to reduce the burden on small businesses."

Tax reform panel

Mr Letwin has also set up a six-strong panel of senior Conservative MPs to advise on tax changes.

The new Tax Reform Panel comprises five former Financial Secretaries to the Treasury, and the current Shadow Financial Secretary to the Treasury. The members are Peter Lilley, Francis Maude, Stephen Dorrell, Sir George Young, Michael Jack, and Andrew Tyrie.

The panel will begin work in October when Conservatives publish the first of eight consultation documents containing costed options to make the tax system fairer and simpler; and will advise Mr Letwin and party leader Michael Howard on preferred options in the light of responses to the eight papers.

Mr Letwin said: "The tax system is both unfair and complex. The Labour government has put up taxes 66 times. Pensioners, homeowners, businesses and families on all income levels are paying more to a Government which is not giving them value for money."

"Our agenda is to stop the unfairness, and lay the foundations for lasting reform of the tax system. I am delighted that these highly experienced politicians have all agreed to play a crucial role in the process."