How to simplify tax law and policy

Donald-Drysdale By Donald Drysdale for ICAS

15 January 2018

Tax simplification is old hat.  It hasn’t yet happened but is still badly needed.  Donald Drysdale finds that the ICAS Tax Board has much of interest to say about it.

Why simplify taxes?

As we enter 2018, one of the key tax policy positions of the ICAS Tax Board is to simplify tax law and policy.  Essential objectives of this are to:

  • achieve a high level of ease of use of the tax system at the point of contact between taxpayer and revenue authorities, allowing for both the digitally-aware and the digitally-challenged taxpayer;
  • embed procedures in tax policy-making to ensure that unnecessary complexity can be avoided;
  • make tax law more certain; and
  • ensure that obsolete tax legislation is removed or updated, in the light of the increasing pace of change in environmental circumstances and the business models that develop.

Tax law that is simpler, particularly at the point of delivery to the taxpayer, would encourage compliance and make avoidance more difficult.  It should help reduce taxpayers’ compliance costs, while also keeping HMRC’s collection costs to a minimum.

If UK tax laws (including devolved tax laws) were simplified, they would convey a greater degree of certainty, reducing disputes and thus avoiding negative use of resources.  Public perception of tax laws and the legislative process would be improved.  Business opinions of tax laws could be enhanced, and the UK might be seen as a more attractive place to do business.

What is meant by ‘tax simplification’?

UK tax laws (including devolved tax laws) should be based on clear, unambiguous and relevant drafting of the intentions of the appropriate parliament.  The legislation should clearly state its purpose, so that the intentions of the legislature are self-evident.

The politicians and civil servants who develop tax law should be constrained to do so in a way that delivers simplicity, certainty and ease of use to personal and business taxpayers. As a help in achieving this, fundamental changes to tax law should in all cases be subject to full parliamentary scrutiny as primary legislation rather than being delegated to secondary legislation.

Work to date on simplification has been directed largely at UK-wide taxes, but I would suggest that this is too narrow a perspective.  Instead, perhaps the UK Government and the devolved administrations should be required to issue a comprehensive joint statement setting out their agreed policy on simplification and tax law, the reasoning behind that policy, the level of perceived importance of simplification, and the methods and resources they would use to apply the policy.

Changes of tax policy and proposed revisions to tax legislation should be subject to effective public consultation.  While governments have committed to this, there are instances where they have failed to deliver.  In cases where consultation works well, it often succeeds in clarifying areas of doubt and allowing unnecessary complexity to be removed before enactment.

Benefits would flow from a ‘simplicity matrix’ being agreed and adopted by all UK taxing authorities and the tax profession.  Taxes would become simpler over time if no tax legislation were enacted unless it attained an acceptable rating against the accepted simplification criteria.  ICAS feels that part of the pre-enactment debate on new primary legislation, and changes to existing primary legislation, should be directed specifically at whether such agreed simplification criteria are met.

No tax system, however simple, will be respected by taxpayers unless they perceive it to be fair.  Why are small businesses and most individuals virtually unable to contact HMRC, while one-to-one support is provided to large corporates and wealthy individuals?  All taxpayers should be able to obtain appropriate help from the tax authorities.

Better guidance too would aid the smooth operation of the tax system.  Personal and business taxpayers should have access to clear explanations of tax law and related compliance obligations, with an assurance of their legitimate expectation to rely on such guidance.

The concept of materiality is anathema to the tax authorities. ICAS believes that the failure of current tax law to address materiality in any way causes unnecessary problems for taxpayers and cannot be justified on cost/benefit grounds.  ICAS strongly recommends that a debate on this issue be started at the earliest opportunity.

The Office of Tax Simplification (OTS)

ICAS believes the independence of the OTS to be a major strength, enabling it to provide an extremely valuable communication bridge between taxpayers and the UK Government’s tax agencies.

I would like to see this taken a stage further.  The OTS, with strengthened resources, should have an independent, proactive role in influencing new tax laws throughout the UK – in other words, UK-wide taxes and devolved taxes.  The OTS should also become involved earlier in the law-making process, and have a responsibility to influence new tax laws and changes to existing tax laws all the way from the drawing board.

The OTS has already done useful work on UK tax reliefs.  ICAS believes that an immediate decrease in complexity of UK tax law could be achieved by repealing outmoded tax reliefs in cases where the continuation of a relief cannot be justified on cost/benefit grounds. It is inevitable that there would be some winners and losers, and political courage would be needed to make such repeals.

Conclusion

The ICAS Tax Board’s tax policies were discussed here. They are aimed at addressing key issues, including the need for simplification of tax law and policy.  Full details of these policies can be found here, and you are welcome to contribute your views or volunteer to join any of the ICAS tax committees by contacting tax@icas.com.

2018 will be a momentous year for the UK, as Brexit negotiations come to a head.  ICAS believes that the UK Government should maintain a high profile for simplification of tax throughout this process.  Similarly, as devolution of taxes develops further and introduces potential new layers of complexity, it is vital that the need for tax simplification is considered UK-wide.

Article supplied by Taxing Words Ltd

Topics

  • Tax

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