Simon Sweetman on simplification
Simon Sweetman takes a comprehensive look at the tax simplification beat and finds that reform will inevitably be slow and bitty.
I am currently a member of the Small Business Advisory panel for the Office of Tax Simplification, but sometimes I seem to have been on the tax simplification beat for ever: certainly since long before the days of HMRC. But I don’t think tax has got much simpler over that time. Certainly the books have got longer and longer.
Winston Churchill, chancellor from 1924 to 1929, said the tax system then was “so complicated and elaborate that very few taxpayers can understand it”. He was referring to the then unmerged income tax and supertax, but also to a system that was a model of simplicity compared with the modern tax code. It just goes to show that people will see complexity in the tax code whatever it says.
The demand for simplification has grown in recent years, probably driven by the profession rather than the ordinary taxpayer. There was a time when demands for simplification seemed to be resisted by the Revenue, sometimes on the grounds that it would reduce fairness and sometimes I suspect on the grounds that somebody somewhere would see a scam they could work if a particular piece of legislation were to be withdrawn. And a time, too, when small business was regarded with the greatest suspicion: a suspicion which may have been nurtured as much by large business and its accountants as by the Revenue. The mantra was ‘large business avoids, small business evades’.
In these difficult days it must be said the clamour from the taxpayers for simplification (as distinct from tax breaks) is underwhelming: even before this there seemed to be many other issues higher up the agenda for small business, more worried by employment law and health and safety legislation.
Continued...
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Simple changes can benefit real tax payers greatly 2 thanks
Part of the problem is that once I have understood how the current tax rules affect me, any “simplification” means I have to understand the rules again. So for most people “simplification” makes there live more complex at least in the short term.
However one good example of “simplification” that just benefited me, I did not have to complete the “foreign income pages” on my tax return as my foreign defendants were below £300, a few years ago I had to complete this page for a foreign income of less than £10;
As I am clearly a basic rate tax payer, there should be a way I can just state that the total of already tax interest payments are less than the amount that would take me into higher rate. Something like if tax payer would need more than £1000 more income to go into higher rate, having tick boxes to confirm that interest and defendants were both below £500.
Likewise, way am I even asked about the amount of gift aid, rather than just being asked to confirm it is below my taxable income? (Gift aid does not change the tax a basic rate tax payer pays)
The process of completing my tax return could have been make easy if the employment pages were prefilled with the data that HMRC already had from the P60 and P45, this is not a simplification of the tax system, but would benefit me at least as much as any likely simplification. (HMRC would also have an easier data matching task, as there would be a lot less misspellings of employer’s names.)
It took me as long to work out the “additional information” box could not cope with the quotation marks I got when I copy/pasted the text from word, than it did to work out the numbers for most of the sections of the tax return. Just making the “additional information” box accepts normal text including “returns” would save tax payers time without needing any changes to the tax laws.
As I have rental income from some properties, as well as being the director of a closed Ltd, there is no practical way for the HMRC to avoid asking me to complete a tax return. However a more “clever” tax return that used the information I had entered so far to present me with less detailed questions could go a long way to making the process quicker.
I also just did the accounts and corporation tax return for an ltd that only had a few pence of interest income each month and one payment to companies’ house for its return, but is not legally dormant due to the few pence of interest each month. The combined HMRC and companies’ house on-line submission system worked, but I had to fill in lots of fields that are trolley meaningless like “accounting policy”, likewise when HMRC looks at the return, it will take someone a short time to work out what is really going on. I assume that a lot of companies are like mine, so way is there not a 3rd option on the system for when all the income is interest and the only expenditure is basic admin? (Once again no changes to the law would be needed)