The Office of Tax Simplification (OTS) produces worthy reports suggesting ways the tax system could be simplified. They are a realist organisation, concentrating on identifying the "quick wins" that can be put in place with minimum effort and resource. However, I really wish they would stop being a mouse and try roaring like a lion.
Its latest 92-page report on "Taxation and Life Events: Simplifying tax for individuals" has 15 recommendations, focusing on five areas.
- the High Income Child Benefit Charge
- the operation of PAYE, as people start work or first receive a pension
- the workings of pension reliefs and charges
- the ability for people to assist others who may have lesser capacity
- the potential for better information and education about tax
But most of their recommendations could be summed up as "explain it better".
HICBC train crash
Consider the High Income Child Benefit Charge (HICBC), which seems both a complex and badly-designed policy area. In fact, this was foreseen by tax professionals back in 2012 when Rebecca Benneyworth described the HICBC as a train wreck.
Parents need to register a claim for child benefit for a newborn to get a National Insurance number automatically issued to the child when he or she reaches 15 years and 9 months.
Registration is also needed to get the mother/carer the relevant pension credit on their NICs record. But if one of the parents earns over £50,000 there is a tax charge which clawbacks the benefit, so people logically don't bother to claim it at all.
“Aha”, says the OTS, but if it was explained properly to them that they should register for the money but not claim it then all would be well.
Accidental employers
The OTS accurately identifies that there are issues for people who are accidental employers – of nannies, carers and the like – and identifies useful tools that already exist to help them. It then meekly recommends HMRC should signpost them better.
Why is the OTS not recommending some real tax simplification? They are the Office of Tax Simplification after all.
Here are my suggestions:
- Make registering the birth of a child result in the issue of its NINO.
- Make the child benefit the income of the child rather than the carer.
- Allow an accidental employer to open some kind of "tax paid" bank account or purchase "tax paid" cheques?
Off the wall suggestions like these may turn out to be neither practical nor desirable, but at least if the OTS were to explore the full range of possibilities the Overton Window of thinkable solutions might widen a little.
Payment day issues
Problems can arise in the interaction of pay and universal credit. If the normal payday is a non-banking day (eg Saturday) and the employer understandably reports wages paid on the day they are paid (most likely Friday) rather than the day they were due to be paid, the universal credit system may categorise it as a double payment in one UC award month rather than two payments falling into consecutive months.
This can have dire consequences for the worker if their universal credit award is cut, as Kate Upcraft explained in response to the Johnson and others v DWP case.
The OTS suggests HMRC should get employers to tweak their systems to tell DWP the due date and not the paid date (this is actually the correct procedure).
This might work – but wouldn't it be better if the DWP system were reprogrammed to recognise a non-banking day and adjust automatically? Or, and this is obviously well outside of the OTS' remit, if the minimum wage were increased so that people who were working didn't actually need to be on benefits as well?
"Designing out" problem areas from the system must surely be the answer, whether to the complexities of pensioners' tax codes, to recognising Lasting Powers of Attorney or to the other areas mentioned. Only after other radical solutions have been explored should "and educate people better" be a reasonable response.
More bite less squeak
What I want from the OTS is an end to its defeatist tone. For example:
- 6.2 In an ideal world, any tax system would be simple and transparent…
- 6.4 Of course, that ideal world does not exist. (page 74)
The OTS is an apologetic mouse nibbling at the margins, when what we really need is a roaring lion saying: Why not think differently?
Replies (16)
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HICBC was about raising more revenue from higher earners without putting up the headline rate.
I agree with the suggestions in the article. It does not require a planet-sized brain to reduce the complexities of many of HMRC's requirements and the penalties that ensue upon failure to negotiate these. I have felt that, for some years now, HMRC have relied upon penalties to increase their tax take. Please tell me that I am mistaken!
I'll not countenance a word said against the OTS and the sterling simplification work they do.
Don't forget they did recommend and get abolished the 15p per day tax free luncheon vouchers.
15p ? I pay my staff 2/6d
3/- got two eggs and chips or a full vegetarian meal in the West End, and was a life-saver for someone in a bedsit pre decimalisation. Many companies ran their own staff lunch room so this was the best the small companies could achieve to attract staff. This approach to staff welfare quietly disappeared as the value of the tax-free perk diminished. So the various governments in between are responsible for us grabbing a lunch time sandwich at our desks, not talking to colleagues, taking a good screen break, etc. Did OTS do the right thing?
When the OTS was first set up my colleague and I went to see the OTS to talk about getting rid of National Insurance. We pointed out that it caused considerable costs for business (besides the tax itself) and created huge costs within HMRC itself which could be eliminated (salaries, NI (again), pensions, IT, estate, etc.). The response was that any changes had to be "cost neutral". They did not want to understand that by merging NI and Income Tax the whole matter of IR35 would go straight out of the window. We did talk about the elimination of CGT and IHT (and bringing everything into Income Tax) but they just did not want to know. We need a bold Chancellor to sort them out!
It seems that appointment to the OTS which, I expect, is in the gift of the Treasury (notwithstanding that the OTS is supposed to be an independent quango) is very much a penultimate stage between leaving a well-paid, highly regarded post somewhere and going into retirement with perhaps a few non-exec directorships. They should invite some of us in practice to the board, if only to hear some home truths.
Honestly, would we or our clients feel the difference if the OTS did not exist?
For further reading, see https://www.gov.uk/government/organisations/office-of-tax-simplification...
HICBC is a terrible charge, as it flies in the face of independent taxation- and also causes arguments amongst couples who are hit with not only the charge but also a penalty!!!
And of course when you're completing returns the client never tells you about it as the other spouse is claiming it and they don't know - and sometimes even if they ask the other spouse doesn't tell them...
Paying a living or ethical hourly wage does not equate to a full time living wage when so many low paid people are on zero hours or part time working contracts. So benefits (via UC) will still be needed, unless employers are obliged to employ staff full time (and all staff are willing to work full time).
OTS are, imho, a waste of space.
They merely suggest to HMRC how to better to sell the utter shambles engendered by HMRC's 'advice' to our dullard Parliamentarians which ends up as 'tax law'.
Thuswise Parliament collaborates, necessarily unwittingly, given their 'talents', to the opportunistic mendacity of HMRC - and creates the likes of OTS in a vain hope they will 'find a way out' so that Parliamentarians don't have to think.
Words fail me when I consider the disconnect between Parliament, HMRC and the reality that I live in.
Whilst they are best simplify the odd thing, with the other hand HMRC are hugely increasing complexity from Making Tax Difficult, through to trying to collect fines from landlords for not registering sales with HMRC within 30 days.
What happened to the "two out, one in" plan for red tape?
Dave Hartnett when at HMRC said it was impossible for any one person to understand the whole of the UK Tax legislation so is it not time to go back to square one and devise a system suitable for the 21st Century. MTS (Make Tax Simple) so we can all understand the obligations.
Micheal Grove suggested that on Brexit VAT be abolished and replaced with a form of sales/turnover tax thus getting rid of all the complex rules and regulations associated with VAT and possibly stamp duty etc.
They tried that, back in the late 90s. Before they realised it wasn't simple, self-assessment was originally dubbed simplified assessment.
Yes I remember that well, in the early days of Hector the tax inspector!
I would go further, I would look at how a turnover tax might also replace CT and IT.
So RPI wold go up as the "cost" of the tax would be incorporated into the sales price (retail organisations have significant turnovers compared to profits). Somehow I don't think this is the answer.