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Making Tax Simplification Digital

28th Feb 2019
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Digital Online Tax Payment Policy Office Concept

The Office for Tax Simplification has recently shared some thoughts regarding the prospect that technology and digitalisation could eventually render it purposeless.

While that is a lofty ambition, there is a risk that technological change could actually lead to increasing volumes of tax legislation rather than reductions.

The main reason that the laws of the land relating to tax have become overblown and, at times, impenetrable is the desire of so many to avoid taxes, primarily by finding and utilising sometimes dubious loopholes.

If everybody paid the tax that Parliament intended when it set down each piece of primary legislation, we would probably have a relatively small number of quite simple statutes. However, as we regularly discover, the well-to-do both corporate or individual have a knack of paying tax at considerably lower rates than anyone could realistically expect.

If you have £1m of income and a 45% tax rate cuts in at £150,000, with two-thirds of the remainder at 40%, then the man or woman in the street would assume that your tax liability would be in excess of £400,000.

For many, that will be the case. However, one would wager that a majority of the independently wealthy manage to find ways to limit their liabilities, in some cases to levels that are laughably low.

At a corporate level, it is often even more extreme, as the world’s largest companies shelter profits from tax in this country (and others) by siphoning their activities through tax havens.

Since this is big business for professionals and continues to boom, the prospects for serious tax simplification must be pretty slim. Instead, we can expect the tax code to continue to grow like Topsy, regardless of any positive impact of computerisation.

A separate issue is the failure of HMRC to implement technological change effectively. Making Tax Digital has hardly been a great success so far, although after a lot of teething problems online filing is now beginning to look like the real thing. That is a big simplification and must surely be welcomed by anybody that owns a computer.

In the fullness of time, one imagines that technology will make life easier for both taxpayers and the authorities. In particular, having greater unification of data relating to an individual, company or group within the system could save a lot of hassle for us, both as advisers and taxpayers, while it might also mean that the authorities are better able to counter certain types of illegal activity such as fraud and evasion.

The serious simplification has to await massive change that will only peripherally be assisted by computerisation. Taking people out of the tax net completely is the perfect way to achieve this, but comes at a cost. Reducing rates, reliefs and interest/penalties would help a great deal but for political reasons, rather than practicality, it seems unlikely that any government would be willing to do anything more than tinker around the edges.

The most interesting development would be around direct data collection by the tax authorities. In principle, if they could automatically collect P60 information from employers, interest from the banks and other information for equivalent third parties that might help a great deal.

However, many of us might regard this as an unwarranted and completely unacceptable invasion of our privacy, thus negating all of the potential benefits.

It will be fascinating to see how this debate develops over the coming years but do not expect any quick fixes.

Replies (1)

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By johnjenkins
01st Mar 2019 11:37

I think your main assumption that the business world find ways around paying tax causes our tax system to be incoherent is wrong.
When people or business are taxed with direct and stealth taxes up to the eyeballs then a fightback will inevitably happen. The amount at which you pay 40% tax was and is far too low and has been for too many years. There shouldn't even be a 40% tax rate. Capital gains and inheritance tax shouldn't even be on the statute books. The personal allowance for people should be set at a figure which gives the basic cost of living, which in my view certainly wouldn't be under £15k. Yes I'm well aware of some earning under that amount.
Squeeze an orange gently and most of the juice goes in the glass. Hit it with a hammer, axe etc. and the juice goes all over the place. All we need is one tax rate which adjusts to the amount of money Government need. This will never happen because the electorate can then see which party is "value for money".

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