Roundtable on tax simplification

The context for the discussion was the statement in the Conservative manifesto at the recent election that:

The creation of the Office of Tax Simplification in 2010 has resulted in many improvements to the UK tax system. We will establish the OTS on a permanent basis and expand its role and capacity.

Andrew Tyrie explained that he has already written to the Chancellor of the Exchequer setting out his suggestions for accomplishing the manifesto commitment . He thinks that the aim of the OTS should be to improve the efficiency of the tax system by simplification. The three principles of certainty, stability and coherence are crucial to this.

He wanted to seek the views of tax professionals on the future role of the OTS before a final decision is taken in next week’s Budget statement. His view is that the OTS needs ‘demonstrable independence’, and should act as a counterweight to politicians’ ‘natural urge to complicate’.

Overall he thinks the OTS has struggled as a creature of HM Treasury (HMT) because it has had a limited role, a low public profile and lacks a core function

The Government has committed to keeping the OTS and one key question is whether it should be on a statutory footing or not.

He suggested that the OTS might need some additional resources such as more secondments from both HMRC and the private sector.

In terms of the benefits from future work of the OTS, he said that we should not expect dramatic changes, because of the many pressures on the Chancellor particularly the deficit which leaves very little fiscal wriggle room.

The consensus from those present was that the OTS should continue and be put on a statutory footing but it must be independent.

It was recognised that it had produced some very good reviews which had produced tangible results. The recent review of expenses and benefits was a good example. However, it must be frustrating for the OTS when sensible suggestions are ignored.

An independent OTS does therefore need to be involved in implementation and should be able to hold HMT and HMRC to account if recommendations are not taken forward and to require a well-reasoned explanation of why not.

The ‘cash basis’ is a prime example of a proposal that started off in the OTS as simplification but the OTS was not able to carry it through as it got hijacked by HMRC.

The Discussion

Discussion took place under the Chatham House rule, so comments are unattributed.

There was broad support around the table for the work done so far by the OTS, though some participants felt it should be bolder in its ambitions in the years ahead. One attendee commented that the OTS had started looking at SMEs but the work had got ‘lost in the system’.

A number of participants wanted the OTS to have greater ‘teeth’, to enable it to follow through on its proposals and ideas.

References were made to the length of tax legislation being still too high. For example, the OTS might remove 100 pages but 400 are added by the next Finance Act! The Better Regulation Executive has a ‘one in, two out’ rule for business regulations. Could this approach be transferable to tax legislation, asked one participant?

However, others were more interested in the assumed equating of simplification with efficiency. What exactly is simplification? Is it merely counting sections or is there more to it than that?

There was some discussion around the idea of an annual assessment of tax simplification, though the view was expressed that this could become bureaucratic if not defined properly. An annual review might however provide a tool to increase accountability.

Many attendees thought the OTS should be able to look at proposed law not just current law. But this view was not shared by everyone. It was also pointed out that there is a distinction between complicated legislation and complicated policy.

It was suggested by one participant that the OTS could have a role in formulating tax policy but this sparked disagreement, with another attendee arguing that tax policy has to remain in the hands of politicians, who have to remain accountable to the electorate on tax matters. Revolutions start when taxes go wrong!

There was also discussion on the GAAR, with agreement it had created uncertainty around it. One participant was unhappy about this and argued that the OTS needed to protect the system from uncertainties like this. Attendees noted that a brave Chancellor would rely on the GAAR and not need pages of anti-avoidance legislation.

Andrew Tyrie concluded by saying that, whatever the Government is going to do, the comments of this roundtable should be fed into the debate.

By Margaret Curran, CIOT Technical Officer.