Two cheers for the Office of Tax Simplification

The Office of Tax Simplification is here at last, but is their idea of simplification the same as the profession’s, asks Simon Sweetman.

Continued...

» Register now

The full article is available to registered AccountingWEB members only. To read the rest of this article you’ll need to login or register.

Registration is FREE and allows you to view all content, ask questions, comment and much more.

Comments
cymraeg_draig's picture

Parity between parties

cymraeg_draig | | Permalink

Whatever the government does, there is a problem which needs addressing.

All legislation is twisted by HMRC who invariably interpret rules to suit them regardless of government's intentions.  Before the system can be simplified there must be certainly so that all parties know exactly what the rules are and precisely what can and cannot be claimed. 

Further there needs to be parity between HMRC and the taxpayer/agent such that where HMRC can impose "penalties" upon taxpayers who make errors, taxpayers should equally be legally and automatically entitled to penalties when HMRC make errors.    

Deja Vu

J Lessels | | Permalink

Frankly, no, I don't think HMRC deliberately twists govt intentions. I think m'learned friends do a good job of that.

However, if I had a fiver for every time I have heard someone banging on about simplification etc etc

The road to simplification is strewn with the dead bodies of former chancellors. It's a nice idea, but any simplification will produce winners a losers and the fact is the whinging of the losers is always louder than the cheers of the winners. Talking about simplification sounds good but the reality would only cost votes. I am sure that Sir Humphrey would have some wise words on this subject.

How about PPR?

Anthony123 | | Permalink

Having tried to explain to an elderly lady how her entitlement to PPR on her first home is affected if she moves to a second home and lets out the first one for a while -  struck me that if you wanted to simplify something that has the potential to affect a significant number of us this is the relief to try.

But can you imagine the uproar?

When you stop and think about it,  the complications are there for sound reasons. Limit on garden so you don't relieve huge estates or even quite modest ones. Limit to one house - quite reasonable again. Limit to relief when letting it out - maybe that could go. Limit to how many years you can be absent - well maybe that could go too.

I thought about a capped amount of relief instead but you would still need the rules on second homes.

There is also the fact that  a significant number of homes must be sold every year with the owners assuming they are entitled to the relief in full when they are not - yet it never gets picked up.

My other thought is to abolish capital allowances and just allow depreciation on accounting principles. But then I am not an accountant, and never have really got my mind round how depreciation is worked out, so not sure if it would be fairer, or simpler, or not really.

 

cymraeg_draig's picture

Personal Allowances

cymraeg_draig | | Permalink

The biggest "simplification" is already underway - and could be speeded up.

Raising the personal allowance to £10,000 will take an estimated 2 million straight out of tax. The lower limit for NI needs to be brought in line with it, so that 2 million lower paid workers & pensioners are no longer the concern of HMRC. 

 

Simplicity and CAs

Andy3T | | Permalink

Allowing depreciation rather than CAs would indeed be a significant reduction in complexity, but the govt came very close to simply abolishing CAs with no relief for capital spend at all.  That said HMRC would probably feel that it had to publish some guidance on 'reasonable' depreciation policies, and accountants would find themselves having to argue whether the policy used was reasonable or not with clients and HMRC both.

Raising the PA would take people out of the net and so have to be paid for somehow but why stop there?  BIK calculations, SSP, SMP, differences in NIC and IT all make the system more complex - and the scope for simplifying the taxation of shares schemes is considerable.

Wrong department

mikewhit | | Permalink

Why not make Tax Credits part of the Tax system, thus eliminating an entire parallel system of collecting and verifying (and getting wrong) information about someone's income ...

It could always be paid out/refunded through Child Credits if you were concerned about it going to the right party.

OK for PAYE, terrible for SA

Andy3T | | Permalink

Bringing tax credits fully into the system presumably means making them part of the PAYE coding system - but a self-employed person might wind up having to wait a year to get the full benefit and we could wind up with even more coding notices going around - and what happens to people on more than one job?

If fundamentally the government wants to put money in people's pockets every week or two, then the tax system which is geared for annual changes in circumstances and payment timetables is not the right system to use.  You could of course make the perfectly valid point that the tax system doesn't fit well with modern society multiple jobs, short term contracts, etc but that is a wider point.

Simple is easy, but politically impossible

NeilW | | Permalink

Simple is dead easy. You scrap the current system and start again.

The problem is political - those on the receiving end of a current tax bung think they deserve it and that it should continue.

Essentially getting there from here is pretty darn impossible. But that shouldn't stop us from trying.

Two stage process?

Andy3T | | Permalink

I agree that we need to try to improve the system.

Personally I'd suggest finishing the re-write project as an interim measure - it stopped at stage one (gather the laws together in a coherent order) and stopped before it got to stage two (cut out irrelevant junk, harmonise similar laws, etc). 

While that simplification is on-going we need to get the more fundamental discussions moving about what we want to tax, how, when, etc.  Until those discussions have been had and achieved cross-party consensus (and agreement between HMRC, business, etc) the ground-zero style rebuild can't start.

Rob Fox's picture

Office of Tax Simplification

Rob Fox | | Permalink

A few starters:

  • Change the tax year to either 31 December (common across Europe) or 31 March.  This would remove the requirement to part-month report in, for example the Construction Industry Scheme.
  • Simplify NICs by reducing the number of classes and aligning the treatment with Income Tax so liability to each is the same.
  • Align taxation of revenue and capital income.
  • End VAT zero-rating of some foods, applying a 5% rate to all foods other than than those with an alcohol content excedding (say) 0.5%, and supplies in the course of catering.

It's not about simplicity - it's about support for the masses to

Dahlia Jacobs | | Permalink

It is very easy to debate about simplifying the tax system, but because of political and bureaucratic constraints, how much change is

possible? Are we even going to be  satisfied with which ever parts of the system they do end up simplifying? As others of

you have noted, it will probably upset the "fairness" balance.

Instead of spending funds and resources on attempting to reform the current system - why not spend it on educating tax payers on the

tax system & providing accessible resources that are genuinely helpful.

It is very frustrating calling the HMRC helplines only to be hung up on, or to be sent on a wild goose chase for the "correct" department

that is supposedly able to help.

Align with the calendar

charles.underwood | | Permalink

The UK changed from the Julian to the Gregorian calendar in 1752.  Until then, we used to pretend that March ended on 25 March and now we pretend that March ends on 5 April.  It is time that a PAYE & CIS month ended at the end of the calendar month.  Many taxpayers treat 31 March as if it were 5 April, causing unncessary confusion when the extra days matter.

The HMRC CIS system says October 2009 is the month BEGINNING on 6 October whilst December is the month ENDING 5 December, so there should not be a November but it accidentally let me file a nil return for November.

Get rid of this unnecessary confusion!  Have March starting on 1 March and finishing on 31 March.

richardterhorst's picture

Tax simplification?

richardterhorst | | Permalink

 Having, and still am, working with two tax jurisdictions and having some knowledge of a 3rd, I must confess that the UK system is a nightmare. It appears that from wishing to tax something or to give relieve on a tax, the system devised is so convoluted so as to lead to 1000's of pages of tax law plus even more 1000's of pages to explain it. Throw in some clever barristers twisting every word and comma leading to amendmends which results in mind boggling legislation.

Part of the problem is also that reading some text the language is open to interpretation beside being complicated by itself.

So to simplify needs not only a simplification in language tested for ambiguity and understanding but also a review of what is being taxed and can the taxing of it and any relieve be done in a more simplistic manner. Not a one man job.

But politicians are involved so it will no doubt be a cock-up

Nick Graves's picture

Great thread!

Nick Graves | | Permalink

There are some really sensible comments here, which many of us have thought of independently form time to time. So it's clearly that complication has been preferred, for muddle-headed or cynical reasons.

Yes, simplification and to a certain extent, rigidisation will be as "unfair" as the current mess. But Politicoes will just have to get over it; life's unfair and it's gonna get even unfairerer in the coming capitulation.

If even the US can come up with a "tax code" which is reasonably easy to work through, what the hell have the legislators here been doing?

Clearly, HMRC is at the brink of collapse. I wish the new office best of luck for everyone's sakes.

 

 

 

cfield's picture

Who are we trying to simplify the tax system for?

cfield | | Permalink

Is it the general public, businesses, politicians, HMRC, tax practitioners, or is it just aimed at everyone? You need to have some idea of who is meant to benefit from simplification or it is bound to fail, or fall between 2 stools.

It would be almost impossible to simply the tax system enough for most of the public to understand. However simple you try to make it, Joe Average will never really understand tax (or at least feel comfortable with it) and in any case, there are always going to be grey areas and the need for advice. Complicated though it is, I think most practitioners know their way around the tax system well enough to advise the general public.

We have already come a long way towards simplifying the the tax system as most people experience it just by making the tax returns easier to understand. When you think what tax returns looked like 10 years ago, that is a major improvement. In that respect, I think HMRC have done well. I think most people would rather keep a few complicated areas if they are there to prevent blatant unfairnesses or exploitation of loopholes.

I agree with the comments by Dahlia. It is better to improve knowledge and understanding than try to simplify the system to the nth degree, which is a forlorn hope. There are so many resources available on the internet now, such as forums and fact sheets, that people understand tax much better than they used to. I've noticed that my clients have become much more savvy about tax over the last 10 years, mainly for that reason. Most of them come to me just to beef up or clarify what they already know. Those that need to understand the tax system better (as opposed to Joe Average) have plenty of resources.

I think it would be a good idea to pool all the best advice on the internet into a central portal, with links to sites offering more specialised advice on individual subjects, so that people know where to go in order to resolve a tax issue rather than having to search the internet and take pot luck . This would take pressure of the HMRC helplines and hopefully reduce all the long waits and shunts round the system, although that depends mainly on HMRC getting their act together.

As for IR35 the best thing they can do with that is restrict it to the classic Friday to Monday cases, which is what we were told it was for when it was first proposed back in 1999. There were so many abuses then by employers forcing their staff to become consultants that there was a need for some legislation to protect employment rights. For people who choose to work through their own companies of their own free will, whether they are IT consultants or nannies, I say leave them alone. The amount of tax involved is too small to make it worthwhile legislating against them, and self-employment will always be a grey area unless they make it totally unfair by imposing fixed arbitrary rules, as they are attempting to do with the construction industry (which will be easy to get round anyway) . IR35 was always a sledgehammer to crack a nut driven more by ideological reasons than anything else and it should be consigned to the dustbin of history.

Chris

jon_griffey's picture

Tax simplification

jon_griffey | | Permalink

Perhaps they can make a start by abolishing the requirement to submit P11D's for non taxable expenses, abolish the seperate P9D rules (does anyone still earn less that 8,500?)  and the whole Employment Related Securities legislation.  I am sure that us practitioners who work at the coal face can come up with lots of constructive suggestions. 

IR35

Andy3T | | Permalink

One of the core reasons that IR35 is unfairn (and there are several) is that it gives no employment rights - it is a tax rule pure and simple.  In a similar vein the proposed new rules for 'false self-employment' which aim to greatly reduce the ability of contractors to argue that they are self-employed will also only apply to tax and have no impact on actual employment law - somewhat ironic given that the purpose of the paper which initiated the false self-employment consultation was written for a trade union!

Less than £8,500 - many part-time staff will get under £8,500 p.a. - including some within the Treasury according to recent news on failure to pay the minimum wage.  But to have law stating that anyone earning over £8,500 is 'higher paid' is archaic - we will have the personal allowance in excess of £8,500 in a few years!

Cuchulainn's picture

Tax simplification

Cuchulainn | | Permalink

Allied to a change in tax year end date, perhaps we could have a SA filing deadline of October or November so that we can all enjoy the festive season without worrying about January looming on the horizon.

johnjenkins's picture

simplification

johnjenkins | | Permalink

I understood that we should be offering our services or "input" to help decide the best way forward. Alo it is only an interim report that is required by Autumn.

The main action of the report has to be that of "tinkering" or "change". We all know the present system is unfair and in parts unworkable. If total "change" is not on the cards then certainly a good starting point would be to get rid of the last 13 years of GiBerish and go from there.

We, also, have to bring our tax system in line with EU law or tell The Eurocrats where to go with their "workers" etc.

ax simplification

mallardbus | | Permalink

In the eyes of the public, lets start with VAT.

Hot or cold food, served in or out, jaffa cake or biscuit.

If we had a government which tasked HMRC to take a view that they could give advice on we would have a start.

As for the businessman, lets consider P11D's, entertaining v subsistence.

The initial arbiter, the local HMRC who goes home at 4.30 and sleeps well is not well geared to understand the businessman, self employed or employed, who does not have the magic fairy depositing a salary cheque every month. Why can't HMRC give considered advice on what entertainment actually means.

Any reform should simplify the application of taxes on the realities of business life, and not tie up the small businessman in red tape

As a profession we should build a definitive list. A lot of these measures must cost the small businessman more than the Revenue collects, but then HMRC has never had to account for the small businessmans cost, just its own.

 

As an example, its usually cheaper to give way on a VAT control visit assessment than defend, so HMRC can recover the costs of most visits by the extra tax collected.

 

OK, rant over, lets get down to being constructive folks. This is an opportunity we should not turn down. Lets all fill John Whiting's mailbox with constructive and workable solutions

 

 

Entertaining

Andy3T | | Permalink

The question with entertaining is 'not what is business hospitality' but 'was the policy purpose of stopping it from happening achieved' and 'is that policy objective still valid?' 

I would question whether some of the excesses seen in overseas subsidiaries, etc will ever become common in the UK, suggest that in terms of business dinners/etc the policy has been a complete failure, and question the benefit hoped for from the policy at all.

That said I would expect that disallowing entertaining results in a fair amount of extra tax, so it is not merely a simplification measure and would have to be paid for somehow.

I wonder however how much cost would be involved in splitting out 'subsistence' level hospitality from 'luxury' hospitality - a per-head de minimis could probably eliminate much of the problem for a lot of small businesses without touching the shows, big dinners, etc which probably bring in most of the revenue, I'm thinking of rules analogous to those for gifts - a definition should be possible.

Entertaining

Andy3T | | Permalink

The question with entertaining is 'not what is business hospitality' but 'was the policy purpose of stopping it from happening achieved' and 'is that policy objective still valid?' 

I would question whether some of the excesses seen in overseas subsidiaries, etc will ever become common in the UK, suggest that in terms of business dinners/etc the policy has been a complete failure, and question the benefit hoped for from the policy at all.

That said I would expect that disallowing entertaining results in a fair amount of extra tax, so it is not merely a simplification measure and would have to be paid for somehow.

I wonder however how much cost would be involved in splitting out 'subsistence' level hospitality from 'luxury' hospitality - a per-head de minimis could probably eliminate much of the problem for a lot of small businesses without touching the shows, big dinners, etc which probably bring in most of the revenue, I'm thinking of rules analogous to those for gifts - a definition should be possible. v

cymraeg_draig's picture

HMRC do not want simplification.

cymraeg_draig | | Permalink

    They will resist anything that reduces their powers, or removes the contradictory rules they hide behind.  The more complex the system is, the easier it is for HMRC to justify their existance and resist job cuts.  Civil servants really do masure their "success" by the size of their departrment and the size of its budget.

Yes we need a simplified system, BUT, that is pointless unless it is also made more fair at the same time.

What is fair?

Andy3T | | Permalink

The term 'fair' is actually very political - it means different things to different people.

My view is that although the rules may be less 'fair' if they are simplified (as presumably the complexity was added, at least in part, to benefit certain groups who were disadvantaged by a broad rule) if simplicity leads to lower costs of compliance, fewer errors and arguments with HMRC, etc then the net effect should be a benefit to all - except those few who use the complexity to obtain what HMRC sees as unacceptable avoidance.

My worry is that HMRC paranoia (sometimes perfectly justified paranoia I note) and government distrust of judges and love of tinkering means that simplification may be very hard to obtain in practice.

cymraeg_draig's picture

Fairness

cymraeg_draig | | Permalink

What is fair?  The term 'fair' is actually very political - it means different things to different people. 

Posted by Andy3T on Tue, 27/07/2010 - 09:37

 

I'll give you my own personal view of "fair".  Something I consider should be  basic right before any tax considerations.

The governents own figures currently put "poverty" at just short of £9,000 a year.

Therefore, in my view, it is immoral and unacceptable to tax anyone whose income is below the poverty line.

Similarly, it is immoral for any pensioner, unemployed person, disabled person, etc to be expected to live on less than the poverty line.

After that tax should be levied on a sliding scale, the first £10,000 at 10%, the next £10,000 at 20% etc up to a maximum tax rate of, say 40% or 50%.

 

possibly fair, impractical

Andy3T | | Permalink

Taxing anyone below the poverty line (however that is defined) may be 'fair' in my view - the person likely makes use of government services so it is 'fair' that they contribute to society in compensation, but collecting the tax is a complete waste of time - any tax must be replaced by higher state charity and so process of 'collect and refund' incurs two costs of government/taxpayer administration for absolutely no fiscal gain for either government or taxpayer.

I'd agree however that it is potentially immoral to collect tax from people below the poverty line.  This is not because of the cash cost - any civilised community should guarantee a 'minimum net income' to all citizens (although there is a question on who is in or out of the net of course and whether alternate contributions should be sought) and so there should be no cash cost (famous last words of course) to the people in question.  The immorality comes in my view from the demands placed upon the taxpayer to be compliant with the tax system, prove compliance, etc - those people living below the poverty line are less likely to be competent to defend themselves from, or even merely explain themselves to, HMRC meaning that the tax compliance process will inevitably be disproportionately onerous for them.

From a practical view therefore I think that the govt should identify the poverty line, add a margin to account for collection costs and sundry fluctuations, and then start taxing above this point.

I'd be somewhat contrarian in that I'd reduce the tax rate as the income increased - I see little practical justification for charging more to those who are less likely to make use of government services, and practically as income increases beyond a certain point so does ability to avoid tax.  Low tax rates for the wealthy (in particular the globally mobile wealthy) should bring in more money than high tax rates if the bands, etc are set correctly.  The wealthy would still pay more than the poor, much of the tax effectively being mandatory charity, however as the wealthy are more likely to be beneficiaries of the current culture charging them more in tax does not seem unfair as long as the enforced charitable element is not excessive.