National audit, tax, advisory and risk firm Crowe is urging caution in light of calls for the introduction of local income taxes.
The suggestion comes following a report published in March by the Institute for Fiscal Studies (IFS) which recommends the local income tax as the best option for devolving further tax revenues and empowering English councils.
The report suggests that a local income tax could provide a significant new source of revenue for councils but warns that it also could bring challenges, such as ensuring equity between richer and poorer parts of the country.
The IFS suggests a 1% tax on all tax bands could raise £6 billion a year and help local authorities to meet rising social care costs.
Rob Gunn, Tax Partner in Crowe’s Midlands office, said his concern was that it would create artificial internal borders at a time when the country should be coming together.
“You could have businesses looking to artificially relocate to areas which seem potentially more advantageous under this proposed system, which could detract from what’s best for business and unintentionally distort local employment creation.
“Our biggest single issue with taxation in the UK is simplification, not simply adding additional layers each and every time a Chancellor wants to be seen as innovative.”
Rob Gunn also cautioned that the local income tax suggestion comes at exactly the same time as the Treasury Committee is launching an inquiry into business rates to scrutinise how government policy has impacted business.
The remit of the committee will include examining how business rates policy has changed, including business rates retention, alternatives to property-based taxes, such as the proposed digital services tax and how changes to Business Rates could impact businesses.
The deadline for written submissions is 2 April 2019.
Rob Gunn added: “What most businesses would prefer is certainty and being able to plan for the system as it is, rather than local authorities taking on further responsibility when it comes to administering and collecting tax.
“At the same time as these discussions are taking place, many businesses are also faced with the task of implementing the new Making Tax Digital regime.
“If the government is going to review how we pay taxes in the UK either as individuals or corporations they need to take a top down approach and simplify, rather than adding further complications to what is already a complicated system.”