ICAEW hosts Treasury Committee Chair Harriett Baldwin MP for a discussion on tax simplification following the demise of the Office for Tax Simplification.
ICAEW Director of Public Sector and Taxation Alison Ring OBE FCA welcomed Treasury Committee Chair Harriett Baldwin MP and representatives from across the tax profession to Chartered Accountant’s Hall on Wednesday 21 June 2023 for a vibrant discussion on tax simplification.
The event followed a recent report on tax simplification published by the House of Commons Treasury Committee, which expressed disappointment with Chancellor of the Exchequer Jeremy Hunt’s decision to proceed with the abolition of the Office of Tax Simplification (OTS), the body established in 2010 to advise on simplifying the UK tax system.
According to the report: “Disbanding the independent body responsible for advising him on, and championing, tax simplification risks signalling that it is not a priority for the Government.” It goes on to say: “The tax system is overcomplicated. This overcomplication creates compliance burdens, confusion and disincentives to work or grow a business. It is an obstacle to economic dynamism.”
Harriett Baldwin MP was able to reveal at the start of proceedings that the Government had accepted the Committee’s recommendation that HM Treasury (HMT) write each year to the Committee detailing how simplification was being embedded and the practical steps being taken to simplify the tax system.
Closure of the OTS
Dinner attendees stressed the difficulty of doing cost-benefit analysis of the impact of tax policy on individuals, something that the OTS had done incredibly well. There was a worry that closure of the OTS would lead to a loss of government understanding of the impact of its policies.
It was further emphasised that tax policy couldn’t just be built around data. Lived experience and empirical evidence was also required, and the Government needed to make sure it had access to this source of crucial information.
Opinions were voiced that simplification needs to be assessed at a tax’s inception, with proper consultation, and one of the things that the OTS was best at was working with taxpayers to understand the true impact, rather than tax advisers.
There was scepticism expressed of the Treasury’s commitment to tax simplification, with a worry that the Financial Secretary to the Treasury would simply direct HMT officials to trim taxes that were no longer used, rather than attempt to simplify more impactful taxes.
Tax reliefs and investment
Members explained that most countries – including the US – had legislative sunset clauses on tax reliefs, which aided simplification. Taxes are also much harder to pass in the US, keeping the tax code slightly slimmer. Ultimately, simplification had to be a political issue, not an operational one to ensure commitment from government ministers.
The belief that tweaking the tax system, including tax reliefs, had any meaningful impact on investment decisions was debated with several voices believing that the entire research and development tax relief system needed a redesign.
There was a common view that stability was much more important, with a two-year commitment to a relief insufficient. Sunset clauses, despite limiting the reliefs, did provide a sense of certainty. However, five-year terms mean government ministers only look to the end of their perceived term in office, limiting opportunities for consistency.
In response to a question from Harriett Baldwin MP about whether tax reliefs promote economic growth, the view was that they didn’t. In countries where they had had impact, there had also been other significant factors at play. Instead of over-complicating the tax system, subsidies could instead just be given to businesses directly.
There was a common view that entrepreneurs were incredibly aware of the VAT threshold, even if they didn’t fully understand it, and would ensure they remained under it where they could.
HMRC and Making Tax Digital
It was agreed that many of HMRC’s issues arose from inconsistencies in funding. For HMRC to better achieve its goals, there needed to be greater consistency in training and recruitment to avoid the risk of a generational cultural divide arising within the body. A common belief among tax-paying individuals was that HMRC is attempting to catch them out, rather than helping them to pay the right amount of tax.
Unfortunately, digitisation would be insufficient to address some of HMRC’s biggest problems, with the tax system just being too complicated. Poor HMRC service standards were found to be the number one barrier to success for many practice members. Tax systems have not kept pace with modern ways of working.
Overall long-term investment plans for HMRC and DWP are needed for digitalisation to be a success, in particular more investment in PAYE, given its greater returns on investment.
Baldwin was pleased to hear from such a diverse range of perspectives, but remained concerned about the closure of the OTS and what that means for tax simplification.
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