Whatever happened to tax simplification?

Posted 7 March 2017

You might think it is very unusual for a practice accountant to be making this point – after all lots of our business is helping individuals, partnerships and companies to complete their tax returns. A lot of this work would disappear if the government was successful in their stated intentions to simplify tax.

But is it getting ridiculous?

Tax in Britain is one of the most complex in the world. The complete tax code is around 21,000 pages long, and ten times longer than the Bible!

We have many classes of tax that you as an individual suffer every year. They may include Income tax, National Insurance contributions, VAT, Insurance Premium Tax, Fuel Duties, Gambling Dues, Capital Gains Tax and Inheritance tax – but there are more.

Some of these taxes you pay out of your already taxed income – so there is a tax on already taxed income to boot.

So, what happened to tax simplification?

Nigel Lawson was a fan – when he was Chancellor he made it policy to abolish one tax in each budget – and he did so six times. George Osborne was also committed to tax simplification on paper. In 2010, he called Britain’s tax system,

“One of the most complex and opaque tax codes...”

He promised radical simplification setting up the Office of Tax Simplification (OTS) – but under George Osborne, the tax code grew more complex, not simpler.

So, was it political? Had you heard of the Office of Tax Simplification? They were established to “give independent advice to the government on simplifying the UK tax system” and are part of HM Treasury. But, with only six staff, not many people have heard of them and their advice seems to be ignored (e.g. the proposal to merge national insurance with income tax).

Similarly, in 2012, the Tax Reform Commission published a report suggesting eight taxes were abolished, and consolidating all income tax, national insurance, capital gains tax, transaction taxes and corporation tax into a single income tax with an annual £10,000 exemption, and maximum 30% rate. The report and the Commission were ignored.

So why can’t the government tackle tax simplification right? How come Nigel Lawson was more successful than George Osborne?

A significant change would create winners and losers. Losers have votes. Is the government afraid to make the kind of large changes needed to simplify tax without any political pressure – of course.

That’s where IQ Business Consulting come in – but it is a complex subject. Any simplification would be welcome, and a pragmatic approach is needed by government over a longer term to achieve this. It would help if the OTS was given independence similar to the Office for Budget Responsibility, and the ability to work in the long term in a bi-partisan way across parliamentary terms.

The electorate should also make more noise about this – while a complex system inevitably favours tax consultants and accountants, it also favours the wealthy who can afford to exploit the complexity and game the system.

Sources: Matt Ridley, The Rational Optimist - “The need for tax simplification”