Simpler taxes will raise more, experts tell MPsby
VAT exemptions, zero ratings and reduced rates are currently costing the government a lot of money just when it needs revenue most, leading tax professionals told the Treasury Committee.
CIOT technical director John Cullinane, ICAS director of tax Charlotte Barbour and ICAEW tax manager Anita Monteith all spoke out about the need for simplification in a virtual evidence session last week.
The 15 September hearing was part of the committee’s continuing investigation into tax after coronavirus, with particular emphasis on how to help Chancellor Rishi Sunak set government finances back on track after the virus-related tribulations of 2020.
For years accountants and tax advisers have berated the supine attitude of their professional bodies when it came to speaking truth unto power, but the recent health and economic crisis appears to have loosened a few tongues, as the technical experts pitched radical suggestions for reform to the MPs.
VAT - ripe for simplification
VAT is one of the biggest potential contributors to the refunding drive, but the complexity built into the system will hamper efforts to raise more cash, Cullinane explained. “If you look at VAT, the whole area of exemptions, zero ratings and reduced ratings costs a great deal of money and, at the same time, is a source of complexity, compliance issues in the system and ongoing disputes,” he said.
Anita Monteith of ICAEW told the committee that the whole idea of exceptions should be reconsidered: “If we were to do away with exemption and make more use of different rates of VAT, we could get rid of partial exemption, which causes a huge hindrance to the smooth running of MTD (Making Tax Digital) for VAT.”
When committee chair Mel Stride confessed that getting rid of big VAT concessions on things like food and travel was “probably going to be politically undeliverable”, Cullinane shot back: “With respect, by saying they are politically undeliverable, you kind of illustrate the difficulties with any proposals for simplification. We should look at the evidence and see whether those exemptions and zero ratings are justified, or whether their objectives could be met in a simpler and cheaper way.”
VAT could very well see changes post-Brexit because, as Charlotte Barbour of ICAS pointed out, it will be out of European hands.
“Post-Brexit, there is going to be a huge clamour with everybody wanting everything done to VAT. It is a tax that raises an awful lot of money, so you need to be cautious that you are not going to lose a huge amount… Changing VAT is a bit like a game of spillikins.”
The National Insurance conundrum
The discussion inevitabley turned to the reduced tax rates the self-employed pay compared to regularly employed people, prompted by the Chancellor’s suggestion in March that he may increase National Insurance contributions for the self-employed in line with rates paid by employees.
Barbour urged the Chancellor to grasp the NI nettle. “We have all discussed the unfairness of how people have or have not been supported through the coronavirus”, urging that National Insurance be next.
“There does not seem to be a logical reason in terms of fairness as to why those different people should pay different amounts of tax.”
Monteith suggested that self-employed people “might be happier to pay more if they received better benefits or entitlements to benefits in exchange”.
Further on in the hearing, Monteith questioned the practicality of wealth and asset taxes, particularly on property and voiced scepticism about a one-time windfall tax on high-performing companies. Instead, she advised that looking “at the taxes we already have is a better and more sustainable way of increasing our tax take, if that is what we want to do, than inventing new ones”.
More consultation needed
Even before the Chancellor pulled the rug from under his anticipated autumn Budget, all three experts urged the government to take a more consultative approach to tax reform, instead of the “pantomime performance” of annual Budgets, as Cullinane called them.
Barbour advocated a return to the 2011 tax consultation framework put forward by the coalition government, so tax experts are consulted earlier on implementation, rather than just advising on tax reform.