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Tax bodies disappointed by closure of OTS

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Chancellor Kwasi Kwarteng disbanded the Office of Tax Simplification during his mini-Budget last Friday, but the move has been criticised by some within the tax profession for being a “retrograde step”. 

 

27th Sep 2022
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A theme flowing throughout Kwasi Kwarteng’s tax-cutting mini-Budget was how a “simplified tax system can boost growth”. It came as a surprise then to the tax profession that one of Kwarteng’s measures to simplify the tax system was to abolish the Office of Tax Simplification (OTS).  

Instead of having a “single arm’s length body” focusing on simplifying tax, Kwarteng instead delegated this responsibility to the Treasury and HMRC to “embed tax simplification into the institutions of government”. 

The OTS will now shut its doors when the next Finance Bill receives Royal Assent, with its final acts being the publication of a report on the taxation of property income in October and the gathering of evidence on its hybrid and distance working review.

First OTS tax director ‘disappointed’ 

Speaking on BBC MoneyBox over the weekend, John Whiting, the first director of the OTS,  expressed his disappointment on the closure of the independent body he set up and ran for years. 

“I’m also surprised because the OTS was something that worked. It made sure in a small way simplification was on the agenda, came up with practical ideas such as cash basis for small business tax, and it was cost effective.” 

Whiting also raised his concerns with the Radio 4 programme about the future of tax simplification. “Knowing something of HMRC staffing pressures, I can’t see them focusing on simplification. [There’s] too many new things and existing things to do.”

He added, “The point of having an arm’s length body is that they can constantly say here’s an idea. You should be looking at that then making sure that there is some focus on simplification.” 

The OTS was set up in 2010 because the tax system was perceived as getting more and more complex. Speaking to AccountingWEB in 2015, Whiting described the main achievement of the body as “getting it accepted that it is worth investing in trying to simplify the system”. 

Retrograde step

With the UK tax system being at least four times as long as the complete works of Shakespeare, the tax professional bodies also shared Whiting’s concerns. 

The Association of Taxation Technicians (ATT) called the axing of the independent OTS a “retrograde step” and went on to say HMRC and the Treasury are “potentially conflicted” where simplifications could “come at the cost of tax revenues, or an increase in departmental costs”. 

Senga Prior, chair of ATT’s technical steering group, also said the tax body was worried the closure of the OTS may lead to the views of those working in tax outside HMRC and the Treasury getting “heard less and even potentially sidelined”. 

“The OTS was accessible and easy for professional bodies and other stakeholders to liaise with because of its many focus groups and keenness for views of those working in tax outside of government,” she said. 

‘A political plaything’

On hearing the news of OTS’s demise, AccountingWEB readers acknowledged the independent body’s efforts, but said by the end it “became a think tank” and “a political plaything”. 

Hugo Fair said, “They weren’t even allowed to choose areas to investigate (they could propose but needed approval) and, as is obvious from the results, were often ignored or ‘used’ to justify cherry-picked parts that suited the government.”

AccountingWEB contributor Jason Croke recognised the work of the OTS in producing reports on whether the VAT threshold should be decreased or increased and thresholds for partial exemption, but none of these came to pass because the government didn’t act on the recommendations. 

And that was ultimately what stopped the OTS from really simplifying the tax system. “If the organisation cannot enforce its agenda because it has no power, then it becomes nothing more than a talking shop full of ideas and what ifs, but if nothing actually happens, then what’s the point?” said Croke. 

And with the work embedded in the government departments, Croke fears any changes will be “more politically driven rather than logically driven”.

Ignored by government

While the OTS board was populated with renowned tax brains – like current chair Kathryn Cearns, tax director Bill Dodwell, Paul Aplin, John Cullinane, Judith Freedman and Kathleen Russ – the body was still coming up against unbudgeable political obstacles.  

The Chartered Institute of Taxation (CIOT) somewhat echoed the AccountingWEB readers’ epitaph of the OTS.  

John Barnett, chair of the CIOT’s technical policy said the OTS had done “superb work since it was set up 12 years ago” but its impact has been “limited to simplifying administration and technical processes, rather than more radical reforms”.

The reason for this, Barnett continued, was because its “most ambitious suggestions have been ignored – or, at worst, that Chancellors have used the OTS as a parking-lot for the too-difficult-to-implement.” 

“Bluntly, the challenge the OTS has had is that, while ministers buy in to the principle of simplification, whenever it has come up against political or revenue obstacles ministers have shied away from taking difficult decisions,” said Barnett.  

“If a significant reform costs the Exchequer money the government has rejected it. If a significant reform produces losers who would make a fuss it has been rejected as well.”

A revised watchdog role?

The OTS only has a few weeks left before it officially closes, but the CIOT has suggested that maybe there could still be another important role for the independent body. “If tax simplification is to be truly embedded across government, the OTS should be given a revised watchdog role: scrutinising new proposals, and considering whether they introduce unnecessary complexities into the tax system. 

“The OTS could also have taken on post-enactment review of new legislation, examining the actual impact of measures a few years on compared to that envisaged, and identifying ‘lessons to learn’ for future policy development.”

But as Barnett ultimately concluded about the government’s decision: “If you are serious about simplification, abolishing the one body with responsibility for it is a very strange first step.”

Replies (2)

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By Paul Crowley
28th Sep 2022 00:01

HMRC and HM Gov ignored all recommendations, therefore it was serving no purpose.

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By Winnie Wiggleroom
28th Sep 2022 08:47

As I said last week, has it generally simplified the tax system? No. It has therefore been nothing but a think tank that had noble intentions but ultimately failed.

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