FEAR OF FINANCE

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The Independent Online
Last week the Inland Revenue published a report, commissioned by the Chancellor, which promised a concerted effort to rewrite 200 years of piecemeal tax legislation, reverse the trend to increasingly lengthy and unintelligible Finance Bills and translate everything in future into plain English.

By the Inland Revenue's own admission it will take a team of dozens of tax officials some five years to complete the task.

Many experts, mainly among the ranks of accountants and tax advisers, are openly doubtful whether the task will actually be completed in time, because of the sheer complexity of the task and the resources which will be needed to do it properly.

Others doubt whether simplification of the language would actually help - because simplification would do away with paragraphs of clarification and simultaneously introduce new areas of doubt and differences of interpretation.

And even on the proposed timetable the review will not be ready until long after the start of self-assessment, which will oblige individual taxpayers to take over responsibility for completing their own tax statements and calculating their own tax liabilities for the financial year 1996- 97.

Tax advisers are already rubbing their hands at the prospect of a flock of frightened taxpayers forced to seek professional advice to avoid making incriminating mistakes.

But London-based chartered accountants Smith & Williamson have already pointed out that a change in tax law introduced by Kenneth Clarke last month will soon make the daunting task of self-assessment more rather than less complex.

From next April the tax rate on savings income goes down from 25 per cent to 20 per cent - bringing the rate on interest into line with the tax on dividends.

This is good news for standard rate taxpayers, assuming they have savings, but offers no benefit to higher rate taxpayers who remain liable to tax on interest and dividend income at 40 per cent.But the tax on dividends and savings income is traditionally calculated after earned incomes have been taxed.

So in April 1997 -when people receive their first forms for self-assessment - they will first have to deduct their tax-free allowances, then calculate tax at 20 per cent on the lower rate tax band, and then the tax at the basic rate of 24 per cent on the balance of their basic rate allowance.

Anyone who pays a marginal rate of 24 per cent on earned income, and also earns money from interest or from dividends which carries his or her income into the higher rate tax-band, will in future have to calculate tax at only 20 per cent on both interest and investment income which still falls short of the starting point for higher rate, and then the balance at 40 per cent.

Tax will already have been deducted at 20 per cent, but the individual will have to calculate the liability on the balance, send off the cheque. and then wait to see if the revenue queries the calculation.

If it does, the unfortunate taxpayer has been threatened with a very thorough going-over.

Things will be even more complex if the taxpayer has received interest gross which is still liable for tax. Not perhaps the best way to start a process of tax simplification.

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