ICAS Manifesto details
General Election 2015 Manifesto
Counting on Change
Maximum Focus on Sustainable, Economic Growth
ICAS believes that the next Government must give a maximum focus to sustainable economic growth. It is the key to delivering a fairer, more prosperous society and balancing Britain's books.
- This means creating a stable, trusted business environment which will encourage investment, innovation and enterprise.
- The next Government should encourage a step change in British exporting.
- It should act to increase the business birth rate and encourage business growth.
- It should encourage the adoption of a sustainable business approach that incorporates the environmental and social impacts of business activities as well as the financial and economic impacts.
- Government, business and the education sector need to work more closely together to ensure that British business has the right mix of skills available for the challenges of today and the opportunities of tomorrow.
A Simplified Tax System
A long-term view rather than short term tinkering is required to give certainty and stability to business and individuals, with an emphasis on further meaningful simplification. The Office of Tax Simplification should be re-constituted after the election, with further investment in its resources, and a cross party commitment to implement its recommendations.
A clear longer term strategy for the tax system is one aspect of the new tax making policy introduced by the coalition government, which has included the corporate tax road map. This was welcomed by business and the tax profession. However, a broader strategy needs to be formulated and adopted across the range of taxes so, for example, there should be a 'business' tax roadmap that could aim to examine how to level the rates of taxation across incorporated and unincorporated businesses.
A strategic roadmap for taxing individuals with a view to levelling the inconsistencies between employment and self-employment would be welcome. The issue of employment status has at its heart the differentials between income tax and national insurance, and the costs of employment legislation and employer national insurance. There is understanding of the issues and problems around this, but ICAS calls for a longer term solution to be identified - one which might look at alignment of definitions of employee (across tax, employment rights, pensions etc). Without alignment, cliff edges and opportunities for avoidance will continue. Consideration also needs to be given to the impact, and perhaps unintended consequences, of devolution of income tax rates and bands to Scotland.
Partnerships are an important business vehicle; they form 10% of the businesses across the UK but in the tax system they are treated poorly and without due consideration. For example, there are significant cost differentials between income tax and corporation tax, with partners taxed at the higher income tax rate. However, if a partnership includes a company within its structure it is penalised with anti-avoidance measures; likewise, a mixed partnership cannot access certain reliefs such as Annual Investment Allowance.
It is time to take a fresh look at the UK VAT regime for the public sector. Changes to the way in which public services are delivered, together with public spending restrictions, have highlighted the impact of VAT on decision making across the sector. Too often it seems the focus is on HMRC getting the maximum amount of tax from the public sector, rather than efficient delivery of services.
Following the Autumn Statement, which included five separate announcements on VAT in the public sector, ICAS calls for an end to the piecemeal approach to VAT management and recovery, and the development of standard models for the efficient delivery of public services.
ICAS calls for efficiency measures to reduce business burdens and to ensure HMRC focuses on key risks in corporation tax collection. There is a danger at present of 'not seeing the wood for the trees'. ICAS calls for a fundamental review of corporation tax compliance and risk-based measures to be introduced with greater reliance on audited accounts for medium sized companies. This will result in better regulation and will help HMRC target its resources at companies who are most at risk of non-compliance.
Wider Availability of Finance for Small and Medium Sized Businesses.
Our research evidence identifies on-going reluctance amongst high growth SMEs to externally fund growth plans, preferring to draw on their own internal financial resources to fund their growth. Many are 'reluctant borrowers' due to fear of losing control over their business and losing the ability to alter or re-negotiate lending conditions. We suggest that:
- more focus should be given by policy makers towards the supply of long term finance, particularly debt finance, for growing firms;
- the British Business Bank should examine demand stimulation mechanisms.
There is still a need for a one-stop shop to help businesses navigate the range of available funding sources. This needs to include both bank and non-bank funding sources, including the evolving alternative funding sources along with signposts to business guidance and advice to help raise the capabilities of businesses in financial planning and sourcing.
Our experience suggests that policy initiatives to improve access to funding should focus more on those at the smaller end of the SME scale i.e. borrowing £100k-£1m, across a range of business activities with differing growth opportunities and historical track records.
We would support a review of the efficiency and effectiveness of targeted tax reliefs to support business investment and economic growth. In particular, we welcome the generous tax reliefs offered to support equity investment in new businesses through EIS, making the UK one of, if not the, best place to start a new business. EIS still constitutes low levels of utilisation amongst SMEs at less than 1%. An additional mechanism to help increase the volume of activity to provide debt to riskier new companies might be to extend tax relief to the interest on loans invested in an EIS eligible business for three years or more.
Existing mentoring schemes tend to focus on growing business. We believe that extending the supply of mentoring to focus on the start-up stage of business would help to increase their chances of success and improve our business start-up rates. To widen access and achieve a step change in the availability of mentoring for start-ups nationally, we suggest that government investment is needed.
A Pensions System that will endure for the long term
Over the period of the coalition government, there has been a period of unprecedented reform to the UK pensions system. The coalition government has also continued with the implementation of pension auto-enrolment, initiated by the previous Labour Government.
Everyone needs to save more towards their retirement throughout their working lives and recent reforms have been driven through with this in mind. Our broad support for recent reforms reflects our view that, when the reforms are complete, people are likely to save more.
However, saving more does not necessarily mean saving enough. The guidance guarantee, while not perfect, is a welcome development for those approaching retirement but individuals need to have access to a range of income projections across a range of options and circumstances. The reality is that people need to have this information earlier and at different points throughout their working life. Finding out not long before you plan to retire that your retirement income is going to be insufficient doesn't leave enough time to rectify the situation.
With the shift from defined benefit pensions to defined contribution arrangements (which transfer risk from the employer to the employee), multiple employments and more options as to how to access your pension pot, getting a clear idea about your retirement income is far from easy. However, ICAS believes that government has a role to play in providing the tools to enable individuals to have a realistic view and that this could provide additional impetus for saving.
Consumer confidence is another important aspect of encouraging saving, and regulation has an important part to play in ensuring investments are secure and that pension arrangements deliver good outcomes.
From a pension industry point of view, government now needs to create a stable and effective regulatory environment so that providers have the confidence to enter the market with new products that will be able to operate without change over the long-term.
Collective defined contribution, a type of defined ambition arrangement for pensions, is a good example of how savers could be well served by pension providers in the future. Collective defined contribution arrangements could provide opportunities for genuine risk sharing among scheme members while also giving them greater certainty around their retirement income: providers may enter the market with collective defined contribution schemes if the regulatory conditions are favourable and they have confidence that future governments won't make significant changes.
Both the FCA and The Pensions Regulator (TPR) have vital roles to play in the regulation of pensions and the delivery of the pension reform agenda, and the Government should ensure they are effective regulators.
The FCA has recently published rules for Independent Governance Committees (IGCs), which are being established from April 2015, with responsibility for assessing the value for money offered by contract-based pension arrangements. We are concerned that making value for money assessments may not be achievable due to the scale of the task and the challenge of defining value for money in this context. Unintended consequences are also possible, as the requirement to deliver value for money assessments has the potential to reduce the choice of funds and encourage more passive investment strategies: these consequences would not be in the interests of pension savers. Instead ICAS believes that the introduction of independent oversight committees with a more realistic and proportionate role would be more appropriate. For example, it may be more realistic for IGCs to consider instead the overall control environment of schemes, for example, by reviewing reports prepared by internal and external auditors and to ensure that recommendations made are responded to and agreed actions delivered. The effectiveness of IGCs will therefore need to be closely monitored in their first year or two of operation and the FCA must be willing to reconsider the role of IGCs should they struggle to deliver.
There is tendency for TPR to produce very lengthy Codes of Practice and other regulatory material. This is not a trend ICAS welcomes as it could encourage a tick box approach to compliance. For trust-based schemes, there is the risk that regulatory material is out of proportion to the messages that need to be conveyed to trustees and we would welcome a more succinct approach so that trustees are not lost in the detail. Smaller schemes are disproportionately impacted by lengthy guidance in terms of trustee time and expense. It is vital that the trustees of smaller schemes have a clear view of TPR's expectations so that they can properly discharge their responsibilities towards their scheme and its members.
Better protection for Consumers of Accountancy Services
We call on the Government to introduce consistent regulation of all firms and individuals providing accountancy and tax services to the public on a commercial basis. This could be achieved through the reservation of these services to individuals or firms who have been able to demonstrate adequate levels of competency, fitness and propriety and are subject to proportionate regulatory oversight.
We recognise that there is a de-regulatory agenda for business, but consumers in the UK have come to expect all professional advisers to be subject to rigorous regulation and high standards. Medicine, dentistry, legal services and architecture are regulated professions (that is, all providers of these services are subject to regulation in the public interest). Accountancy and tax services are central to UK business, taxation and the economy yet not all providers of these services are subject to an assessment of technical skills, ongoing regulatory oversight or, a requirement to maintain their professional development, high ethical values and minimum insurance protection. As evidenced by the survey mentioned above, many consumers are unaware that this is the case, and would be surprised to find that their accountant and tax adviser may not have the qualifications and professional background which they expect.
There are many competent and experienced accountants who have developed their skills through experience. We acknowledge that competition and choice is good for the consumer and we don't expect the majority of existing providers to be excluded from the market. There is however a risk for consumers if the current arrangements are allowed to continue. A new code of conduct for tax advisers has been developed by the regulated profession, yet it will not apply to nearly one third of tax agents in the UK who are not members of a regulated profession. We believe that there is now an opportunity, and a public demand, to introduce much greater clarity so as to improve the safeguards behind the quality of services received.
More consistent regulation of services is in the public interest and would increase public confidence, create a mechanism to protect consumers and ensure consistently high professional standards.
The consistent regulation of accountancy services will also help the UK in the fight against serious organised crime; the ability for anyone to adopt the description "accountant" can help convey a veil of respectability that is, on occasion, unwarranted. Consistent regulation of accountancy services would encourage and promote high ethical standards and may help disrupt and deter serious organised crime.
ICAS and the rest of the accounting profession would be happy to work with Government to deliver a suitable framework which promotes competition and choice in accountancy and tax services whilst protecting the interests of the consumer.