Tax needs to be simplified

Tax needs to be simplified.

The Office of Tax Simplification (OTS) was set up in 2010 as an independent body to advise the Chancellor and provide feedback from consultations with industry, taxpayers, professional bodies and accountants. It came after a major Parliamentary report in 1995 which promoted a major drive to rewrite and simplify most of the then current tax legislation.

Fast forward to September 2022 and Kwasi Kwarteng’s ill-fated mini-Budget which abolished the OTS with its mandate instead delegated to the Treasury and HMRC. However, most accountants and business owners believe it should be reinstated to tackle an ever-increasing paperwork burden both for individuals and businessmen and women.

Tax Simplification For All: Is Mr Messy in charge?

Tax can be hideously byzantine at times, even for tax experts and although the OTS has had some success, the tax system has become ever more complicated in the last 25 years. For example, the tax code has gone from 5,000 pages in the 1990s to more than 25,000 pages today. This is not the OTS’s fault. It tried its best but never had the power to overrule politicians. The HMRC and government say they remain committed to tax simplification, yet abolishing the only body that had a mandate to achieve this appears, to say the least, ill-conceived and counter-intuitive.

I believe the OTS should be reinstated as a matter of urgency, with a clear remit to get to grips with tax simplification in a meaningful and productive way. The new body should be beefed up and given greater powers, similar to the Office for Budget Responsibility (OBR).

Our over-complex tax rules, dramatically changed for the worse in the decade from 1997, earning Gordon Brown the nickname of Mr Messy. Their sheer complexity has long acted as a barrier to business and economic growth. A new, beefed-up OTS’s first remit should be to redesign a simpler version of the tax system, especially for small businesses and individual taxpayers.

Tax Simplification For All: Change the make-up of a new OTS

Appointing one or two successful individuals, who have built successful business from scratch to the OTS panel to sit alongside the usual figures from the tax profession would be a huge leap forward. The present system of leaving tax simplification to officials from the Treasury and HMRC will fail, largely because they are subject to the political bias of whichever party is in charge of the government.

Meanwhile small businesses will continue drowning in the increasingly complex sea of red tape. There are 5.5m of them in the UK with a combined turnover of £2.3trillion and whilst I welcome the changes announced in the Chancellor’s recent Spring Budget to simplify the tax system for smaller businesses, he must go further.

Tax Simplification For All: A new OTS

Assuming a new OTS is created with muscle, it could simplify tax for businesses and individuals, by just a handful of commonsense changes:

• Stop constantly changing the rules Frequent changes to tax rules creates uncertainty and instability. Small or medium-sized enterprises (SMEs) need stability and predictability to make informed decisions about their operations, investments and growth plans. Frequent changes to tax rules make it difficult for them to plan ahead, which undermines confidence and curbs investing.
• Simplify the rules for small taxpayers Compliance with complex tax regulations can be time-consuming, costly and confusing, diverting resources and attention away from core business activities. Simplifying tax for small businesses would create a fairer and more efficient tax system.
• One in, one out A sensible start would be for every new tax law brought in, at least one old tax rule must be repealed. This would help to reduce the complexity of the tax system. This would also ensure that the tax system remains up-to-date and relevant.
• Introduce tax into the school curriculum Many students leave school without any understanding of how the tax system works. This leaves them vulnerable to making costly mistakes when it comes to managing their own finances. Understanding the impact of taxes can help students to make more informed decisions about spending, saving and investing.
• The Chancellor should take the lead Starting with the next budget, Jeremy Hunt should make a statement for every element of any proposed tax legislation stating that it is “consistent with our aim to make tax simpler”.

Tax Accountant’s view

The tax system clearly needs greater transparency and accountability. By providing a clear and concise statement of the government’s intentions with respect to tax simplification, taxpayers can have greater confidence that any new tax legislation introduced is both fair and relevant.