Tax Simplification

‘Attempting tax simplification is like painting Brighton Pier while someone else is extending it to France’ is a well-known quote by the late Geoffrey Howe in relation to tax reform.

But John Whiting of the Office of Tax Simplification (OTS) adopted it recently in a speech describing the work his office was doing and what they were attempting to achieve.

Whiting’s arguments for attempting to simplify the tax system included:

1. It would make tax easier to understand by the taxpayer
2. Tax would be easier to deal with by both HMRC and the taxpayer
3. Fewer errors would be made by both sides with less time wasted
4. It would increase trust and confidence in the tax system

He commented that the ‘Holy Grail’ of tax simplification would be when the taxpayer fully understands exactly what is required by the tax system, how to comply and believes the system to be fair’.

To understand how to simplify tax, you first have to appreciate the causes of complexity. The OTS produced a complexity index which examined ten factors which cause complexity in the tax system. They found these were a mixture of technical issues which need simpler tax rules, as well as administration factors which pointed to easier procedures; with the administrative factors being enormously important.

The OTS also identified that solutions to complexity must work for all parties; for example something which might be simpler for HMRC may cause more complexity for taxpayers (Making Tax Digital being a perfect example) and of course a procedure which is easier for taxpayers (for example filing paper tax returns) may give HMRC a shed load of extra work.

Even where tax simplifications are identified there are a number of hurdles to overcome which include:

1. The cost to the exchequer
2. How to deal with those who will pay more, who always shout the loudest
3. The risk of creating tax loopholes and the potential loss of revenue
4. Getting the change through Parliament in the face of inertia and vested interests
5. Lack of involvement of MPs in tax law process
6. How will the policy will play politically – how will it be sold in a soundbite

The flow of tax legislation is illustrated by the Finance Bill 2017, which was the longest in history. We have an enormous amount of tax legislation and stemming the flow of new law is as important as dealing with the existing tax laws on the statute books.

Whiting emphasised that the task of tax simplification was not easy and would require perseverance. He urged his successors in the OTS to communicate what can and cannot be done, and make practical suggestions. However, the key would be to get HMRC onside and create some deliverables. There needs to be a capacity for change within HMRC and it will be necessary to tackle their “it won’t be worth it” attitude.

Whiting concluded that the best place to tackle tax complexity is at the start of the law making process. Simplicity should be built into policy development when the task of writing primary legislation, such as the Finance Bill, is undertaken.

The OTS has suggested four principles to avoid complexity in the tax system:

1. Ensure the proposed tax measure meets the policy aims
2. Focus the measure carefully
3. Design the measure to meet the aim
4. Ensure it’s kept up to date.

In a question and answer session at the end of Whiting’s speech, accountant John Standing suggested that HMRC’s track record over the years would strongly imply that they deliberately make the tax system difficult to easily comprehend so that most ordinary taxpayers will not understand it.

John Whiting responded by saying that whilst the OTS considered that many of the rules were overly complex and in his opinion, unnecessarily wordy, he did not believe that it was HMRC policy to make it so.

John Standing clearly does not agree and nor do I; what’s your opinion?

If you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.

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