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Simplifying the tax system…

JOHN WHITING tax director of the O ce of Tax Simplification, outlines an initiative to simplify the tax system – and seeks your help

MANY readers will be familiar with
the saying that there are only two
certainties in life, namely death and
taxes. I’d add a third: that taxes will
be complicated. I suspect readers
will endorse that!

I’ve long argued that we need a
simpler tax system in the UK. Many
years ago, when president of the
Chartered Institute of Taxation, we put
forward a number of “Quick Wins” –
ideas for specific quick
and easy changes to
the tax system … some
were even adopted.

I certainly haven’t
been the only person
to suggest that we
need to try and call a
halt on what seemed
to be the inexorable
complexification of
the UK’s system. Lord
(Geoffrey) Howe has
been a leading
advocate and a report
he produced
undoubtedly led the
Conservatives to
include the idea of an
Office of Tax
Simplification (OTS) in their manifesto.

The Liberal Democrats had also
registered concern over the complexity
of the tax system when in opposition
and so were presumably happy to
support the idea.

The OTS was referred to in the
emergency budget a few months back
and on 20th July 2010, it was duly

So what’s an OTS?

The OTS has, as the name suggests, a
brief to look at areas of the UK tax
system and report on how it might be
simplified. We don’t have power to
change, just to recommend.

Final decisions have to rest with the
Chancellor of the Exchequer. After all,
we might well conclude that a major
simplification would result if we
abolished income tax.

The Government has to be able to
say, “Nice idea … but we need the
money, so no go.” Of course, we will
be aiming for sensible, practical recommendations that will be hard to

The OTS has a small staff
including three from HM Revenue &
Customs (HMRC) and HM Treasury
(HMT) and secondees from the private
sector. We will be able to draw on the
wider expertise in HMRC and HMT,
both the subject matter experts and the
HMRC statistics team.

As well as our staff, I want to co-
opt many other people to give ideas and
input, by getting out
and about gathering
experiences and
suggestions from
businesses and their
advisers in particular. I
hope articles such as
this one will also
generate feedback –
our contact details are
at the end.

What are we going
to do?

I’d better emphasise
that I don’t believe we
can ever have a truly

simple tax system in
the UK. We live in an increasingly

complex world and tax must to a
degree reflect that, especially if we
want a fair system – fairness tends to
pull against simplicity.

But the system can be simpler –
both administratively and technically.
Above all, we can commit to doing
things in an easier, more
straightforward way.

We have to grapple with two
aspects of complexity in my book:

  • complex laws that are difficult to
    interpret and create uncertainties; and
  • complex procedures that take people
    a long time and a lot of effort to
    comply with.

Both aspects need to be tackled –
but in many ways it is the second that
has the potential to pay the biggest
dividends. To me, tax is a tripartite
arrangement and a simpler tax system
will generate those dividends for all
three sides:

  1. taxpayers, both business and
    individuals (especially the
    unrepresented), who will find the
    system easier to deal with;
  2. tax advisers, who contrary to
    popular belief don’t like excessive
    complexity as they have to wade
    through it all as they help their clients
  3. HMRC, and through it the
    Government, needs a simpler system
    to administer with fewer loopholes as it
    tries to meet the challenges over staff

Project one: small businesses

To start with, we are tackling two areas,
one of which is about as intractable as
any in the tax system: the taxation of
small businesses. This review specifically
includes the IR35 provisions that many
readers will know as a major issue for
freelancers and independent contractors.

Those who know IR35 will probably
suggest “abolish IR35” as an obvious
way forward. But would that open the
door to abuse? What is it about IR35
that readers really see as the problems?
We have our ideas: what do you think?

There are, of course, wider issues,
for example:

  1. many people – and the businesses
    hiring them – would welcome an easier
    way of deciding whether they are
    employed or self-employed. How about
    a checklist of, say, 10 criteria – pass, say,
    seven or more and you are an
  2. there are significant tax differences
    between operating as an employee, self-
    employed or via a limited company –
    should we eliminate (or reduce) these?
    or how about combining income tax
    and national insurance contributions?

Can I invite you to let us know what
are your real areas of difficulty with the
tax system? What aspects of the tax
system really cause problems or just take
too much time to deal with?

I would welcome comments and
suggestions. Would small changes really
help? Or do we need some radical
changes to the tax system? Of course, if
those contributions included ideas for
solving the problems, that would be
even better!

I can’t make any promises, but I do
want to make sure we have a wide-
ranging look at small business taxation. I
don’t want to just add another piece of
sticking plaster to the system, even if it’s
one marked “simple”.

Project two: tax reliefs

The second project is to codify and
evaluate the multiplicity of reliefs in the
tax system.

There are a huge number of them,
all undoubtedly helping someone,
business (large or small) or individual –
but are they efficient/effective? Are
there any that are just too difficult to
claim to make them worthwhile? Do
they really deliver value for money for
the government?

That may start to sound as if I have
a brief to abolish reliefs but that isn’t
the role of the OTS: what we need to
look at is whether the reliefs are
working properly.

I know from a survey I was involved
with over a number of years at
PricewaterhouseCoopers that some of
the business tax reliefs we studied aren’t known about or claimed as widely as
might be expected, so that does suggest
there may be a better way for some of

There will be an initial report soon
listing the reliefs. That will start a
second stage looking at their cost (in tax
and administrative terms) and effect. We
will be looking for contributions from
anyone who is interested on which ones
don’t really achieve what was intended.

Are we independent?

One issue that has come up regularly is
the question of the OTS’s
independence from the Treasury. The
team is accommodated within the
Treasury building and will be staffed at
least in part by HMT and HMRC
people – and we ultimately report to
the Chancellor. Can we be truly
independent? Won’t there be political

There are good practical reasons
why we will be in the Treasury building
– there is space available and there will
be access to a lot of the experts we
need to debate with. But I acknowledge
the independence issue as something
we will have to demonstrate; one way
we will do that is to get out and about,
talking particularly to businesses.

The longer term

I’m sure many people will have ideas
for future OTS projects. I’d like to look
at the tax system as it affects
pensioners: why does tax have to be
more taxing when someone retires
from employment? Does this sound a
good project to tackle? What other
nominations do people have?

Help please!

Many will know the story of
Odysseus (or Ulysses), the Greek
hero, written up by Homer. After the
10-year Trojan War, he set out on a
voyage home that was to take 10
years, with many hazards en route.
The OTS feels a bit like that: setting
out on a long, hard voyage to
simplify the UK’s tax system – a
long-term (10 year? 20 year?) project
with plenty of difficulties to come.

Having long campaigned for a
simpler tax system, I’m delighted to
be given the chance to take the OTS

I hope we can start to make a
difference, but, like Odysseus, I and
my team will need help: as I’ve
indicated earlier in this article, we
really do want and will welcome your
experiences, ideas and input.

That will certainly help my crew
reach that fiscal Ithaca of a simpler
tax system, though we are well aware
it’s going to be a long journey!

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