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Is the Office for Tax Simplification a success?

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The Treasury is conducting a five year-review of the Office of Tax Simplification, as it is required to do by law. Will anything change, asks Wendy Bradley

15th Jun 2021
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The Office of Tax Simplification (OTS) was established in 2010 to advise HMRC on ways it could make the tax system more efficient. The tax think tank was put on a statutory basis in Finance Act 2016 and became an office within the Treasury. As part of that transition it has come up for its first official review, with a 6 July deadline for responses to the government’s call for evidence.

The pattern of five yearly reviews was specified in the legislation, as were its functions. These are to advise the Chancellor, either on request or as OTS considers appropriate, on the simplification of the tax system, covering both legislation and the administration.

There are 12 questions in the call for evidence but they boil down to four areas, discussed below.

Do we need an OTS?

We need to ask ourselves whether tax simplification is really a priority for this government, or indeed for any government at all.

As Einstein may have said, “Everything should be as simple as possible but no simpler.” A government’s priority must surely be to maximise its tax take with the minimum of administrative and political costs. If the money comes in and the complaints aren’t too onerous, why change?

A rambling tax system that gets the job done is preferable in a political sense to an aesthetically perfect system of simple legislation and administrative machinery that causes too much trouble to set up. What government feels secure enough to use up political capital dealing with noisy losers from any tax change? Where, in realpolitik, is the payback?

Verdict: The government might decide to abolish the OTS, but a more likely outcome is to let it rumble on in the background.

What do we mean by tax simplification?

The deepest failure of the OTS is its inability to develop a clear consensus of what “tax simplification” actually means.

There have been projects to improve the tax system for years:

  • Legislation expressed in simpler language? (Tax law rewrite project)
  • Reform tax administration process? (Red tape challenge, Admin burden reduction project)
  • Fewer reliefs?
  • Better guidance?
  • Make tax digital?

Pick your hobby horse and ride it, but is the tax system simpler as a result?

At one point I had a meeting with OTS about whether you could incorporate a simplification metric into the tax impact and information notices (TIINs) for new tax measures. Well of course you could: the TIIN is a construct of HMRC, not an immutable tablet of stone. The question is, what metric could you possibly use?  No answers were agreed.

Verdict: Unless and until there is a clear consensus of what we mean by “tax simplification” and a clear benefit for the government in driving it, the OTS will be a car mascot rather than a crankshaft.

Who needs to do the job?

Several of the review questions are groping towards this question:

  • Do you think the OTS has the right breadth of expertise on its board? If not, what sectors need additional representation and why?
  • Given its role as the Chancellor’s independent adviser on tax simplification, do you think the OTS is sufficiently independent from government?
  • Does the OTS engage with, and consider the views of, an appropriate number and variety of stakeholders when conducting a review?

This is the heart of the problem: not that the OTS is insufficiently expert, or insufficiently independent from the government, but that it is insufficiently independent from the tax profession.

If you want simplicity, don’t ask an expert!

If the OTS and the government really wanted tax simplification they wouldn’t play around with “quick wins” and 10-man think tanks drawn from the civil service and the tax profession.

A better way

My view is the OTS should be independent of the government. It should be given a budget and a clear mandate, and left to get on with the job.

A fundamental requirement would be to ensure every review the OTS conducts includes a citizen jury or equivalent. Don’t ask people who will argue over how many angels can dance on the head of a pin, but people who will ask why they don’t have a dance floor in the first place.

Verdict: Time to rearrange the deck chairs by moving a few people on or off the OTS board, but no real appetite for change.

How will we recognise it when it’s done?

Most of the Call for Evidence questions ask for specifics – examples of OTS successes and failures, suggestions of areas they might have missed or what could make their work better, whether they need to look at other impacts and priorities as well as simplification.

Essentially, the question remains: what do we mean by tax simplification and how will we recognise it when it’s done?

Verdict: There will be warm words, but no change.

Conclusion

You may feel I’m unnecessarily cynical. My personal feelings towards the OTS are similar to Winston Churchill’s towards democracy: it is the worst of all possible ways of progressing towards its objective, except for all the others.

Replies (13)

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By Hugo Fair
15th Jun 2021 20:53

An excellent overview of the current status and core questions for the Review to tackle (even though no doubt it will duck most of them as usual).

FWIW:
* fishing from a wider of pool of 'interested parties' is essential - but a lot more could be achieved in this area simply by paying for research that incorporated the breadth of people/businesses affected (not just informal groups - which I enjoy but cannot be comprehensive); and

* reviewing the metrics (and control) of TIINs is more than just a missed opportunity, they are grossly abused by HMRC (akin to the 'value justifications' used for the old PFI projects). At the very least it should be mandatory that all financially-related assumptions are stated transparently, so that whole chunks of costs can't be swept under the carpet as anecdotal assumptions.

I am by nature a pragmatist, but making OTS an office within the Treasury was either a big mistake or a cynical manoeuvre worthy of Yes, Minister. It needs teeth or claws, which will only happen if it regains independence from government. Not necessarily full independence, it could for instance be directed by Parliament via PAC (or some new select committee) - and be answerable to it?

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Replying to Hugo Fair:
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By Red1960
17th Jun 2021 09:43

If the PAC, and by extension parliament, can't hold HMRC to account then what meaningful contribution can the OST make regardless of its composition or its independence?

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By Rgab1947
16th Jun 2021 09:53

Being the ever cynic, there is no incentive for HMRC to simplify the tax system. Ambiguity and penalties are just too lucrative.

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By Platta
16th Jun 2021 10:29

As a tax practitioner my knee-jerk reaction would be "you must be joking. From my perspective the system and rules becomes increasingly complex every year !"

However - I think the article is great in that it steps back and asks the right questions - what do we mean by success, and how will we recognise it ? How do we give the OTS the power to be more effective ? (I am sure they shudder at each budget announcement !)

Good article and food for thought !

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By johnjenkins
16th Jun 2021 11:13

The OTS said get rid of IR35. HMRC said no etc. etc. etc.
It's there as a publicity stunt just like "agent Strategy" and "working together".

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By Duggimon
16th Jun 2021 11:37

In the five years under review tax has gotten more complicated.

Either the OTS has failed or the OTS does not have the power to enact meaningful change. Whichever it is, the OTS we have currently is pointless, so I suppose a better focus for the review would be which recommendations from the OTS have been followed and which ignored.

If there's more being ignored than followed then give it some power, if more followed than ignored then it's useless. Either way some change is required, because we definitely need tax simplification, just not this Office of Tax Simplification.

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By North East Accountant
16th Jun 2021 13:49

I'll not tolerate a bad word against the OTS..........I mean they have saved Accountancy students from learning about the 15p exemption for luncheon vouchers.

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Replying to North East Accountant:
Richard Sergeant
By Richard Sergeant
16th Jun 2021 14:55

North East Accountant wrote:

I'll not tolerate a bad word against the OTS..........I mean they have saved Accountancy students from learning about the 15p exemption for luncheon vouchers.

Genius

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Replying to rsergeant:
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By North East Accountant
16th Jun 2021 16:34

I'm blushing........ but thanks.

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By ireallyshouldknowthisbut
16th Jun 2021 15:22

The OTS has been either (a) ignored when it comes out with anything sensible, or (b) used by politicians to drive through their hobby horses. Its genuine successes are few and far between.

The tax system has become considerable more complex in the past 5-10 years.

We now have:
1. Daft nil rate bands and cliff edge taxes for dividend and savings incomes
2. Round sum allowance for expenses for property and sole traders (so you often have to work out out both ways)
3. Cash and accruals accounting to be computed for sole traders/property tax (again doing it twice)
4. Ridiculous CGT reporting in year which is a huge time drain
5. Transferrable married couples allowance for a pittance, along with repayable child benefit
6. Class 2 NI abolished then not abolished leaving a broken system
7. Agents being actively excluded
8. Different bands of student loans which never work properly at the end of the loan
9. HMRC replacing front line staff with call centres and referrals rather than just "doing stuff" there and then. See Corporation Tax rebates as a prime example
10. Tax payers being forced to increasingly engage with the hated personal tax accounts which not everyone can set up

And coming over the horizon, the bonkers thing of all - MTD for income tax.

The OTS seems to have done virtually nothing to really influence any of this, or reverse the flow.

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By Mr J Andrews
16th Jun 2021 15:23

It's not rocket science but the formula OTS +HMRC - MTD should solve all problems.

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Replying to Mr J Andrews:
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By Red1960
17th Jun 2021 09:38

Irony... such a wonderful thing.

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By Red1960
17th Jun 2021 09:37

In a word... no.

It's an abject failure. Is HMRC is now so powerful that it is effectively unaccountable to anyone let alone an elected government?

How else could an organisation as dysfunctional as HMRC continue to exist, in the form in which it does, were it not so?

What other government body affects the lives of British subjects so significantly and yet regards itself as being above and beyond criticism despite the track record?

Who, with any awareness of the significance of HMRC in the daily life of every British subject, could disagree?

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