Tax complexity: Budget smorgasbord could be hard to digest 

CIOT President Nichola Ross Martin commented: 

“Rachel Reeves’ smorgasbord of tax changes could give HMRC indigestion. It will mean more taxpayers, more tax returns and more work for tax collectors, as well as taxpayers and their advisers. 

“According to the OBR the extension of the freezing of income tax thresholds for another three years announced today will mean 780,000 more people being brought into paying income tax and 920,000 more paying the higher rate¹. Freezing of other allowances and thresholds will also mean those taxes affect more taxpayers. 

“There is a new tax on owners of high value properties and a new charge for driving electric vehicles. Increasing income tax rates for dividend, property and savings income above those for other forms of income will also add complexity to the system. 

“The Budget also confirms that the government will go ahead with the limitation of agricultural and business reliefs for inheritance tax, which will expand the scope of that tax, meaning many more valuations of estates will be required.  

“HMRC is getting extra resources to reduce the ‘tax gap’, which is welcome, but it needs additional funding to keep the system running too, supporting the higher numbers of taxpayers, especially those with complex tax affairs. 

“Whilst recent investment has led to some improvement in HMRC customer service, delays still continue to have a detrimental impact on the tax system as a whole, the ability to do business and the wider economy.   

“The first step of tax compliance is to make it as easy as possible for those who want to be compliant to be so, through registering and paying their taxes on time, and claiming the reliefs or repayments to which they are entitled. We believe that poor customer service from HMRC, coupled with other factors such as inadequate guidance, are contributors to the high levels of mistake which form nearly half of the tax gap.” 

Notes 

1. OBR states: “The previously announced freezes and the extensions at this Budget are now expected to mean that between 2022-23 and 2030-31, 5.2 million additional individuals will have been brought into paying income tax, 4.8 million more will have moved to the higher rate, and 600,000 more onto the additional rate. Compared to our March forecast, where freezes were due to end from April 2028, we estimate that these numbers are 780,000, 920,000, and 4,000 higher, respectively, in 2029-30, largely as a result of the extensions announced in the Budget. Overall, the freezes have led to the forecast proportion of taxpayers being at either the higher or additional rate increasing from 15 per cent in 2021-22 to 24 per cent in 2030-31.” EFO, page 71