Can we really make tax simpler? – David Halsey

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Tax Simplification

David Halsey is Head of Office at the Office of Tax Simplification (‘OTS’) and was asked by Ann to provide an update of the work currently being carried out by the OTS. To contact David and to find out more about the OTS please send an email or visit the OTS website.

When I applied for the job at the OTS a year ago now, one of the things I said to John Whiting at the interview (which didn’t seem to do any harm!) was that I’d been keenly interested in simplifying tax throughout my HMRC career.  That enthusiasm had started when working on financial markets tax policy in the 1990s (during John Major’s government) and continued in later roles on the Tax Law Rewrite Project and – more recently – as a Customer Relationship Manager with big business.

Why? Because the tax system will ‘work better for everyone’ if tax can be more like oil than grit, work with the grain of things, avoid distortions, and involve no more administrative effort than is proportionate to what’s being achieved. And the opportunity to work for the independent adviser to government on tax simplification was too good to miss!

But, as Dominic Frisby noted in his blog last month, tax simplification is hard. Though I’d offer a different take on why that is. While there are issues with special pleading and lobbying, I’d say that – from the OTS perspective – there are two main reasons.

Firstly, the constant flow of changes being made to the system, the natural tendency of which is to result in greater complexity, something the OTS has been saying for years. So, it’s good news that the Chancellor has announced that from this time next year he’ll be consolidating the Autumn Statement and the Budget into one event: no longer ‘making hundreds of tax changes twice a year’ should help stem (and prioritise) the flow.

Secondly, there is inevitably a political challenge in making changes that involve a major upheaval or any significant number of ‘ordinary’ taxpayers paying more (or less) tax. For example, consider the government’s response to the OTS’s recent proposals for working towards more closely aligning income tax and national insurance, to help make the system fit for purpose as working patterns change.

In our work on this area, which was commissioned by the government, we found a high level of support for seeing that agenda moved forward. It has potential to remove historic anomalies which currently distort the marketplace (because national insurance for employees works on a per job/per pay period basis rather across the year as a whole like PAYE).  But this appears to be just too difficult – at least for the time being – because of the scale of the change involved and the numbers of people likely to be affected.

While this is frustrating, it’s entirely understandable. Inevitably, with any structural change, it’s the transition that’s difficult: getting from where the system happens to have fetched up, to where one would want to be if starting again (without no less complex transitional rules).

One particular benefit of our work has been highlighting the issues, in the context of the government’s wider consideration of how to ‘ensure that the taxation of different ways of working and different forms of employee remuneration is fair, sustainable and efficient’. Hopefully, income tax/national insurance alignment will have some role to play in that.

Looking to the future, as well as keeping tabs on the tax simplification implications of changing working patterns, we have plenty of new and continuing reviews under way.

Firstly, let me start with our review of the corporation tax computation.

This review started back in the Spring and is running to next February. We published a progress report a few weeks ago and are keen to have views by the end of December. Our focus is on a number of ‘bread and butter’ themes, including

  • the many adjustments made to get from accounting profit to tax profit
  • whether we can move away from the Schedular system (which effectively means one carves up accounting profits into amounts for different types of income, adjusts them in various ways and then adds them all up again to get the tax answer)
  • the approach to handling capital expenditure and depreciation
  • whether a simplified approach for smaller companies would be workable.

In particular, we’d love it if readers of this blog were to participate in our on-line surveys to help form our evidence base, in particular for small companies and their advisers, to help us build a richer picture of this diverse business group. We think these can be completed in ten minutes – though it may take more or less time depending on views of course!

Company directors:

https://www.surveymonkey.co.uk/r/smallbusinesstaxpayer

Professional tax advisers:

https://www.surveymonkey.co.uk/r/professionaladvisers

Secondly, two new reviews were announced at the Autumn Statement in a letter from the Financial Secretary to the Treasury.

Our VAT review will run to next Autumn and examine a range of areas of the tax, to identify potential for simplification. In particular we’ll be looking at the registration threshold, the operation of partial exemption, special accounting schemes, complexities arising from the definitions of those supplies which are subject to different rates of tax, and aspects of making tax digital. But we’ll be steering clear of areas where any work we did could be at risk of cross-firing with government activity in relation to Brexit.

On Stamp Duty, we are looking on the remaining situations where the duty is collected by means of physically impressing stamps on paper instruments (mainly shares transactions) with a view, in particular, to seeing if the operation of the tax can be simplified by changing the tax to operate in a different way. But – before you ask – we won’t be looking at the duty on shares generally (SDRT) or on houses, land and buildings (SDLT) more widely.

So if you’d like to engage with us on either of those areas, particularly from the perspective of smaller businesses, do get in touch.

We will also be continuing to take an interest in the wider issues around employment, self-employment and changing working patterns in what is known as the Gig or sharing economy, mindful – for example – of the review the Prime Minister has asked Matthew Taylor at the RSA to do. To support that we’ve just published a short ‘Focus’ paper highlighting the key tax issues in this area, to inform future debate.

Lastly, but definitely not least, we’re looking forward to welcoming Paul Morton as our new Tax Director in the New Year, to help Angela Knight our Chair lead the OTS forward into our new statutory existence: ‘Our’ legislation in Finance Act 2016 was officially ‘switched on’ by statutory instrument at the end of November. Under our new remit, as well as carrying out formal reviews requested by Ministers, we can also offer advice and comment on our own initiatives, as we’ve already been doing by responding to various HMRC consultations.

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