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Counting out coins to pay AccountingWEB What are tax reliefs actually worth
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What are tax reliefs actually worth?

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For the sixth time in thirteen years the government has been asked to quantify the costs of the numerous tax reliefs and allowances which clutter-up the UK tax system.

16th Aug 2023
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HMRC is keen to report how much tax it collects each year, as that is its mission – to collect “the right amount of tax” from each taxpayer.

But HMRC is seemingly less keen on measuring how much tax it forgoes each year in the form of tax reliefs and allowances and whether those tax reliefs are working effectively or are being abused. 

This is a never-ending story.

OTS grasps the nettle

One of the first tasks of the Office of Tax Simplification (OTS) in 2010 was to list all of the tax reliefs allowances and exemptions then in existence (it counted 1,042) and identify those reliefs which should be repealed or simplified, in order to move towards a simpler tax system.

It was not possible for the OTS to examine every one of those tax 1,042 reliefs, so it concentrated on 155 to review in detail. In its final report on tax reliefs the OTS suggested that 47 reliefs should be abolished, 37 be looked at in more detail, 54 should remain unchanged and 17 should be simplified. Those in the latter category included the enterprise investment scheme (EIS) and venture capital trusts (VCT) which are the subject of a separate Treasury committee report in 2023. 

Incidentally, the OTS revisited the list of tax reliefs in 2014 when it found the number of reliefs had grown to 1,140.

NAO report

In 2014 the National Audit Office published The effective management of tax reliefs report. This found that “HM Treasury and HMRC have not identified which tax reliefs are intended to change behaviour in order to deliver targeted policy objectives. They also do not monitor or report their costs and benefits in a way that would allow wider government, Parliament or the public to know if such reliefs are working as intended.”

So black marks all round.

PAC reports

House of Commons Public Accounts Committee (PAC) has examined the management and effectiveness of tax reliefs on at least three previous occasions in 2014, 2015 and 2020.  

In its 2014 Tax reliefs and their administration report the PAC concluded that there is a lack of transparency and accountability for tax reliefs and no adequate system of control, following their introduction. One of its recommendations was that HMRC should “provide proportionate feedback, and analysis to Parliament, on the costs of principal tax reliefs each year, including significant changes in costs”.

In 2015 the PAC looked at the effective management of tax reliefs and noted: “HMRC publishes a list of current tax reliefs each year, showing an estimated cost, but the list is poorly defined, incomplete and inaccurate”.

It recommended that “HMRC should publish and maintain an up to date list of tax reliefs using a definition agreed with the Office of Tax Simplification that sets out each relief's purpose and its cost to the Exchequer”.

By 2020 the PAC was clearly frustrated by the lack of action and in the Management of tax reliefs report, it referred back to the 2015 review saying: “In the five years since then, HMRC has not evaluated any of the ten largest tax reliefs supporting government’s economic and social objectives.”

Treasury committee report

In July 2023 the Parliamentary Treasury Committee issued a report on the operation of tax reliefs in the UK tax system, giving the government two months to respond. 

One of its key recommendations is that HMRC should “publish cost data for all tax reliefs from the 2025/26 tax year onwards”.

It also called for government to “reclassify tax reliefs as government expenditure. This would subject reliefs to established value for money assessment, leading to improved scrutiny and ultimately better policy.”

Will the government take any action?

The forces of simplicity and fairness pull in opposite directions across the field of tax reliefs – a simple flat tax is easy to administrate, but it may be unfair to certain taxpayers, so a relief is added in order to ease the burden of those who shout the loudest.

No one checks the cost or assesses the benefits, and the tax system becomes more complex year by year.   

As the Treasury Committee said: “Tax reliefs make the system more complex for taxpayers and open up opportunities for abuse. Governments tend to introduce new reliefs, but rarely remove those which are redundant, making these problems progressively worse. This works against the Government’s stated aim, which we support, of simplifying the tax system.”

Replies (16)

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Morph
By kevinringer
16th Aug 2023 10:15

Despite the OTS actions from 2010 onwards, and the NAO report of 2014, the Government introduced Marriage Allowance in 2015. This demonstrates how little attention politicians take of OTS, NAO etc. The SA system has always struggled with Marriage Allowance and even today 8 years after it started and 10 years after it was announced, HMRC still relies on manual worklists for Marriage Allowance in SA. We’re forever progress chasing HMRC for failing to process SA MA claims. This is an example of where the costs of MA erode much of the value of MA. And by calling it Marriage Allowance, it causes confusion with Married Couples Allowance. It’s a bit like the confusion 20 years ago between Childrens Tax Credit (a tax allowance) and Child Tax Credit (a state benefit). Goerge Osbourne announced MA (and MTD), but had long since gone by the time it actually started, leaving the rest of us to pick up the pieces. Politicians should be banned from fiddling with tax because all they do is cause chaos. Let’s face it, they’re amateurs with little/no experience at what they’re doing. What other line of work would give inexperienced people so much power?

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Replying to kevinringer:
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By Justin Bryant
16th Aug 2023 10:48

Yes; but unless you're rich enough to live in a tax haven the only alternative to elected politicians re a jurisdiction's tax decisions/rules is a dictatorship, so it's the lesser of two evils and there's basically no point arguing for any change as it ain't gonna happen, ever, as politics is inextricably intertwined with tax. That's why everyone is suddenly getting a bit worried about Angela Rayner et al, as things like 45% CGT would then be pretty much inevitable to satisfy the usual far left suspects.

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Replying to Justin Bryant:
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By Justin Bryant
22nd Aug 2023 13:12
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Replying to Justin Bryant:
By Ruddles
22nd Aug 2023 16:47

I don't have an objection, in principle, to raising the rates of CGT. Provided that they were to re-introduce indexation to ensure that tax is being charged only on real gains. I wouldn't be holding my breath, though ...

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Replying to kevinringer:
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By richards1
16th Aug 2023 10:49

I agree with the lack of capability of politicians. I have always thought that:
1. MP's should take an approved qualification in Economics, Ethics and Maths
2. MP's should have worked in the real world for at least 10 years.
3. MP's should not be career politicians ie always worked in the "system"

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Replying to richards1:
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By flightdeck
16th Aug 2023 11:30

The should have run a company - had to sweat over making payroll, had to go out and win new business, and keep it etc. That's why they have f-all competence. They have no prudence and no foresight due to having no fear of the consequences of bad decisions. You and I make a bad decision and our company might fold but for them? A workshop titled "Lessons learned'. Over Teams. For oh, a good hour.

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Replying to richards1:
By Nick Graves
16th Aug 2023 16:54

richards1 wrote:

I agree with the lack of capability of politicians. I have always thought that:
1. MP's should take an approved qualification in Economics, Ethics and Maths
2. MP's should have worked in the real world for at least 10 years.
3. MP's should not be career politicians ie always worked in the "system"

Trouble is, that'd be Keynesian snake-oil economics, not managing to destroy Daddy's bank for said decade, Maffs is raycis and Ethics is near Thuffolk.

If we had direct democracy like Switzerland, at least it would be our own stupid fault and save £££££££s in grift by eliminating layers of Deep State.

But I can see why that might cause objection from the Status Quo...

Might as well Have Richi Parfitt as PM and the late Frank Rossi as chancellor.

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Replying to Nick Graves:
paddle steamer
By DJKL
16th Aug 2023 17:21

Nick Graves wrote:

richards1 wrote:

I agree with the lack of capability of politicians. I have always thought that:
1. MP's should take an approved qualification in Economics, Ethics and Maths
2. MP's should have worked in the real world for at least 10 years.
3. MP's should not be career politicians ie always worked in the "system"

Trouble is, that'd be Keynesian snake-oil economics, not managing to destroy Daddy's bank for said decade, Maffs is raycis and Ethics is near Thuffolk.

If we had direct democracy like Switzerland, at least it would be our own stupid fault and save £££££££s in grift by eliminating layers of Deep State.

But I can see why that might cause objection from the Status Quo...

Might as well Have Richi Parfitt as PM and the late Frank Rossi as chancellor.

Late- are you sure or have you placed him within your surname prematurely?

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Replying to richards1:
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By Rgab1947
17th Aug 2023 10:38

Especially ethics.

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By Hugo Fair
16th Aug 2023 12:57

Great article.

I DO like the the Parliamentary Treasury Committee's call for government to “reclassify tax reliefs as government expenditure ... (subjecting) reliefs to established value for money assessment, leading to improved scrutiny and ultimately better policy.”

Whether this would 'solve' *all* the idiocies is highly unlikely, but at least it has the benefit of using the existing system to 'control' the system - which makes it understandable (and less immediately threatening to all those vested interests who fight tooth & nail for 'no change' to the process).

.
BTW “HMRC publishes a list of current tax reliefs each year, showing an estimated cost, but the list is poorly defined, incomplete and inaccurate” ... could of course have been written about almost any aspect of the current HMRC - which should be seen as a staggering condemnation of its fitness for purpose!

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By moneymanager
16th Aug 2023 16:11

"This found that “HM Treasury and HMRC have not identified which tax reliefs are intended to change behaviour in order to deliver targeted policy objectives.

Although some tax reliefs and incentives, or alternatively, distortative gerrymandering, are aimed at boosting a particular productivity, all too often they are really social engineering to which then accretes "restrictions" when they prove too popular or the "wrong", most commonly the wealthy, have the temerity to think that all should be equal before the law and so....

how about abolishing ALL such interfences, return HMRC to what it should be, namely, a receiving house for revenue at a determined rate on the overall net product of a taxable entity, no more IR35, no more disallowance of unincorporated lettings finance costs, aggregation of all self-employed streams etc etc

The only problem that I can think of would be the dejure unemployment of the already defacto uselessly engaged.

"So black marks all round."

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Replying to moneymanager:
paddle steamer
By DJKL
16th Aug 2023 16:46

"how about abolishing ALL such interfences, return HMRC to what it should be, namely, a receiving house for revenue at a determined rate on the overall net product of a taxable entity"

Providing no reliefs needed for capital spend, no reliefs when selling and replacing fixed assets, no reliefs to stop entities falling into the hands of ever larger entities (without BPR re IHT how many family business entities would survive), no reliefs re business reorganisation, HMRC gearing up staffing to get tax data from thousands of extra taxpayers with small dividends etc, then fine, simple works, but with all business decision making one surely balances benefit with cost and in a lot of cases accept that chasing something because you can is often not a great use of time and resources.

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By Mr J Andrews
17th Aug 2023 10:25

Anyone old enough to remember PAYE codings for the likes of { the restricted } Life Insurance relief , Marginal Small Income Relief , Family Allowance & Family Allowance Deduction etc etc , not to mention the whims over a glass of port, will understand how ineffective and abusive this ''system'' always has been.

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By Mr J Andrews
17th Aug 2023 10:25

Anyone old enough to remember PAYE codings for the likes of { the restricted } Life Insurance relief , Marginal Small Income Relief , Family Allowance & Family Allowance Deduction etc etc , not to mention the whims over a glass of port, will understand how ineffective and abusive this ''system'' always has been.

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By Agutter Accounts
19th Aug 2023 12:12

Our whole tax system is a mess of contradictions. However, trying to unpick the accumulation of years of chancellors' rabbits out of the hat will be teh work of years.

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By AndrewV12
21st Aug 2023 09:56

'NAO report
In 2014 the National Audit Office published The effective management of tax reliefs report. This found that “HM Treasury and HMRC have not identified which tax reliefs are intended to change behaviour in order to deliver targeted policy objectives. They also do not monitor or report their costs and benefits in a way that would allow wider government, Parliament or the public to know if such reliefs are working as intended.”

So black marks all round.'

Its a big old game of cat and mouse, the trouble is trying to work out who are cats and who are the mouses.

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