In his lecture at the RSA, former Tax Director of the OTS John Whiting CBE told an audience that although tax simplification comes at a price, the dividend for taxpayers and HMRC in the long run makes it well worth pursuing. Whiting had held the role at OTS since it was established in 2010 until stepping down in March and is currently a non-executive director of HMRC and Revenue Scotland. He was introduced to the audience by CIOT President John Preston, and Helen Miller of the IFS chaired this latest joint CIOT/IFS event.
John opened his lecture by explaining that tax simplification should make it easier for taxpayers to meet their obligations, lessen errors and increase the public’s confidence and trust in the tax system. Simplification has strong links to Adam Smith's four canons of taxation (certainty/convenience/efficiency/equity).
John, a former CIOT Tax Policy Director, cited the OTS’s complexity index, a tool for analysing and measuring the relative complexity of areas of the UK tax system which aims to help the OTS identify future projects. He said the mix of technical and administration factors in the index shows that both aspects are important to simplification and added that simplification must work for both HMRC and taxpayers.
A key was an evidence-based approach to simplification, not least to ensure the ideas are practical, and ensuring the ‘dividend’ of a simplification measure makes any upheaval worthwhile. John reiterated that altering procedures is ‘at least as powerful as simplification measures’. “Structural change takes a long time, so if you want to make progress you must think of both (the other being ‘quick wins’). We must be prepared to expose the issues and prompt debate”
The audience was told to be cautious of an ‘automatic idea’ that taxpayer choice is a good thing. Choice adds complexity not least because of the need to inform the public about the options.
John talked about some of the ‘rocks on the road’ he encountered at the OTS. Cost is an obvious one: but exchequer cost can include the political need for losers to be ‘compensated’. It is fair for HMRC to worry about the potential for tax avoidance from simplification measures, he said, but such changes can be ‘ring fenced’ to prevent avoidance; simplification is not about making to easier to avoid! he added. John suggested that the Treasury Select Committee should look at OTS reports more than it does because it will be ‘good to get more Parliamentary push’ behind its recommendations, ‘which they haven’t particularly’.
A good approach to avoiding complexity with taxation is to tackle it at the start when legislation is being introduced, ‘the flow as well as the stock’. Simplification should be inherent in policy development – ‘simplification on the TIIN’ (tax information and impact notes), he added.
He concluded his lecture by giving some advice on how simplification can be achieved. These included: get the message across of what simplification can and cannot do, be resilient and be prepared to return to recommendations, take ideas from taxpayers and all stakeholders, get HMRC on-side and work with the grain, take account of different taxpayers’ or departments’ capacity for change and accept that the OTS has to make a powerful case for a simplification because change itself can create complexity. But simplification is worth it: the cost of the OTS has been modest and admin savings from one measure (P11D reform) will have more than paid back.
To close, John said fairness and simplicity are often seen as working against each other, but challenged whether an over complex system can be considered fair?
Judith Knott, who was a civil servant for nearly 27 years at HMRC and the Treasury, and Jonathan Riley, Head of Tax at Grant Thornton, responded to Whiting’s lecture. Businesses want certainty but this is not the same as simplicity, Judith said. She said the amount of consultation on tax has actually added to the complexity of the tax code. She added that there is a need for a stronger voice to promote simplification, perhaps by having a minister who holds the brief for simplification. The Government focus will be on Brexit and surviving as a minority government. rather than the tax system, she said.
Jonathan said complexity is borne out of things that have happened since a particular tax regime was set up and this is inevitable given modern forms of employment, for example. “This will happen again and again, so let’s learn.” He said the tax profession speaks with ‘forked tongues’ on simplicity because complexity is where it gets its money from.
Members of the audience, which included tax professionals, academics, economists, civil servants and journalists, asked questions which ranged from whether Brexit is an opportunity to tackle tax simplification, the likelihood of greater alignment of income tax and national insurance and how the tax system would look if artificial intelligence amended it. Whiting suggested that a move to a ‘principles based approach’ could lead to tax being ‘done in a ‘different way’ to meet Jonathan’s concerns. Jonathan said June’s multilateral tax convention signed by 68 countries ‘shows where our energies will be centred’.
John picked up one of Judith’s themes, citing the Statutory Residence Test’s (SRT) ‘bells and whistles’ attached to it because there were so many examples and scenarios ‘put up’, which has led to complexity. Executive Chair and Permanent Secretary of HMRC, Edward Troup, said he was sure Making Tax Digital (MTD) will make taxpayers’ lives simpler. He said that there should not be ‘fatalism’ about simplification. Whiting closed the Q&A section by agreeing with Edward that technology has to be the way forward, which ‘fuses’ much of what the OTS has said in the past. His concern on MTD is the speed and ‘can it be done in the time?’
Opening by CIOT President John Preston and lecture by John Whiting, former OTS Tax Director
Responses by tax commentator Judith Knott and Grant Thornton's Head of Tax Jonathan Riley
Q&A session with the audience
(Left to right: Whiting, Miller, Knott and Riley)
Blog by Hamant Verma, External Relations Officer at CIOT