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Six-point plan to simplify tax for businesses | accountingweb

Tax still needs simplifying for businesses


Chancellor Jeremy Hunt supports the decision to axe the Office of Tax Simplification, but John Hiddleston feels there is still a need for a new or revamped body.

18th Apr 2023
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The Office of Tax Simplification (OTS) was set up in 2010 as an independent body to advise the Chancellor and provide feedback from consultations with industry, taxpayers, professional bodies and advisers. It came after a major drive from the mid-1990s onwards to rewrite much tax legislation following a landmark report to Parliament in 1995 entitled The Path to Tax Simplification.

It was abolished by the then Chancellor Kwasi Kwarteng in his ill-fated mini-Budget last September with its mandate instead delegated to the Treasury and HMRC. However, I believe that an independent body is vital to tackle an ever-increasing paperwork burden – especially for entrepreneurs.

I recently wrote to the Chancellor Jeremy Hunt MP and Financial Secretary to the Treasury Victoria Atkins MP, urging the government to reverse its ill-conceived decision. 

Ever more complicated

Tax can be hideously complicated at times, even for tax experts. Although the OTS has had some successes, the tax system has become ever more complicated since its introduction. It is estimated that the tax code has gone from 5,000 pages in the 1990s to more than 25,000 pages today.

This is not the OTS’s fault. It tried its best but never had the power to overrule politicians. The HMRC and government say they remain committed to tax simplification, yet abolishing the only body that had a mandate to achieve this appears ill-conceived and counterproductive.

I believe the OTS should be reinstated or a new body established as a matter of urgency, with a clear remit to get to grips with tax simplification in a meaningful and productive way. The new body should be beefed up and given greater powers, perhaps even along the lines of the Office for Budget Responsibility (OBR).

Our Byzantine tax rules have long acted as a barrier to entrepreneurialism and economic growth. A new, beefed-up OTS’s first remit must be to redesign a simpler version of the tax system for small entrepreneurs so it is incredibly straightforward for them until they reach a certain size.

Include entrepreneurs

Appointing one or two genuine entrepreneurs to the OTS panel to sit alongside the usual figures from the tax profession would be a significant step forward. Leaving tax simplification to officials within the Treasury and HMRC will probably just result in it foundering on the rocks of shifting priorities and political indifference. Meanwhile businesses and entrepreneurs will continue drowning in the increasingly complex sea of red tape.

There are 5.5m small businesses in the UK with a combined turnover of £2.3tn, according to the government. I welcome the changes announced in the Chancellor’s recent Spring Budget to simplify the tax system for smaller businesses and consultations to pave the way for future reform – but the government needed to go further.

Steps taken in areas of payroll, cash basis reform, tax guidance and forms for small business, administration and customs procedures will help – but a dedicated body would give these and other initiatives a much greater chance of success.

A new or reconstituted OTS could form the centrepiece of a six-point plan to simplify tax for businesses and individuals.

1. Don’t keep changing the tax rules

Frequent changes to tax rules creates uncertainty and instability. Small or medium-sized enterprises (SMEs) need stability and predictability to make informed decisions about their operations, investments and growth plans. Frequent changes to tax rules make it difficult for entrepreneurs to plan ahead, which can undermine their confidence and ability to invest.

2. Replace the OTS with a new body

By including entrepreneurs in a new body overseeing tax simplification, the UK government can ensure that the perspectives and needs of small business owners and startups are taken into account.

Entrepreneurs are often innovative and agile, constantly exploring new ideas, technologies and business models, and they have a unique understanding of the challenges and opportunities in their industries. Including entrepreneurs can help to build trust between the government and the business community.

3. Make tax much simpler for small taxpayers

Compliance with complex tax regulations can be time-consuming, costly and confusing, diverting resources and attention away from core business activities. Simplifying tax for small taxpayers and reserving complexity for multi-nationals and bigger players would create a fairer and more efficient tax system.

4. One in, one out

A rule should be introduced that every time a new tax law is brought in, at least one old tax rule must be repealed. This would help to reduce the complexity of the tax system. By eliminating outdated tax rules, taxpayers would have less to worry about and would be able to focus on complying with the most current tax laws. It would also help to ensure that the tax system remains up-to-date and relevant.

5. Teach basic tax in schools

Many students leave school without a basic understanding of how taxes work, which can leave them vulnerable to making costly mistakes when it comes to managing their finances. Understanding the impact of taxes can help students to make more informed decisions about spending, saving and investing.

6. Strive to be simpler

There should be a statement by the Chancellor at the start of each piece of tax legislation stating that it is “consistent with our aim to make tax simpler”. We need greater transparency and accountability in the tax system. By providing a clear and concise statement of the government's intentions with respect to tax simplification, taxpayers can have greater confidence that the tax legislation is aligned with the government's broader objectives.

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