A stellar cast of tax luminaries was let loose last month in Chartered Accountants’ Hall to discuss whether tax simplification was achievable. The conclusion of the majority of the audience, both before and after the symposium, was that it is not.
As a great advocate of the ‘Keep it Simple, Stupid’ principle, I guess I should be depressed by that conclusion, but whilst I might be depressed I am not surprised. I have after all gone on record as saying that whenever a Chancellor says he has simplified the tax system, it has invariably just got more complicated. So what are the reasons for the symposium’s conclusions?
I think these were neatly summed up as fourfold by Robert Maas, veteran tax lecturer and practitioner:
- 1. Chancellors like to introduce legislation
Sad but apparently true. All of the Finance Acts of the 1950s (I am guessing 10 in number) came to 625 pages in total. This year’s Finance Act alone is 687 pages. All of the Finance Acts of the 1960s came to 1,262 pages (which covered the introduction of three whole new taxes in corporation tax, capital gains tax and capital transfer tax). The current government has produced 1,219 pages in two and a bit Finance Acts to date.
- 2. It is cheaper and easier to introduce new legislation than to enforce the old
If the IR35 legislation worked as intended, we would have no need for the proposed personal service company legislation.
- 3. Provisions are rarely removed once on the statute book
- 4. Parliament patches poor legislation rather than withdrawing and replacing it with effective provisions
And it thus becomes disjointed and hard to follow.
Robert Maas also made the point that Chancellors use the tax system to influence taxpayer behaviour by introducing deductions and reliefs, which again makes it more complicated. I think I would have made the more general point that Chancellors ‘play politics’ with the tax system, which means that many ‘temporary’ changes are introduced over time, which are subsequently replaced by further, slightly different legislation.
Another curse of the modern world is the desire to be seen to be innovative, or put more simply, to be seen to be doing something, almost regardless of what that is. Thus we see constant government initiatives, not least in the area of tax, which require legislation to put them into effect. They grab headlines and suggest dynamic action, but they do not simplify the tax system.
Finally, Robert suggested that the Office for Tax Simplification (see below) should address more strategic issues such as the structure of the law in particular areas to see whether the objectives of the current law could be met in a simpler way. At the moment it concentrates on looking at reliefs that might be removed from statute.
Appropriately in view of this reference, Robert was followed by John Whiting, technical director of the Office for Tax Simplification (OTS). Presumably we would have considered that we were indeed in trouble if John did not think that tax simplification was possible in view of his role! However, he did say that he did not think a simple tax system was possible, and regarded his Office’s role as making it simpler. He approached this task on two bases, that of technical simplification and practical administrative simplification, the latter being arguably the more important. Simplicity to deal with is perhaps the key feature of a tax system.
The constraints on the work of the OTS were scarce government resources, Treasury nervousness about fundamental changes to the tax system and unintended consequences thereof (I would agree in passing that the Treasury is not good at anticipating such consequences) and the current state of the economy, with no money to compensate ‘losers’ from such changes.
There were big questions about how the OTS should operate, as follows:
- Should it go for relative tinkering, or take a more profound look at a particular part of the system? The latter for me.
- Is the current way of making tax legislation sustainable, with its aim of precision, or should we opt for principles based legislation instead? I would say no to the first part of the question and yes to the second. Our current method of making tax legislation is flawed, both because the Treasury is so bad at identifying unintended consequences (which is an invitation to aggressive tax avoidance) and because Parliament devotes shockingly little time to scrutiny of the legislation, mainly presumably because there is so damn much of it. Our tax system badly needs guiding principles, which are a feature of a number of other first world tax systems. The advent of the General Anti-Abuse Rule is a first hopeful sign that this may be happening.
The final speaker was David Heaton, another luminary of the tax lecture circuit. He had a simple message, which was that constant change is a bad thing, and that his manifesto was “stop it”. Stop making endless changes to the existing tax system, so that people get used to the rules and can comply with them. Never introduce a law with which taxpayers cannot comply – witness the high income child benefit tax charge. Always consult fully on tax changes in advance – witness the proposed changes on granny, pasty and caravan taxes, all highly controversial, two of them withdrawn, and none of them subject to consultation.
So there you have it. We will never have a simple tax system, but we need a period of stability in tax, to use the expertise of the tax profession to identify in advance those unintended consequences that the Treasury can never predict and to direct the attention of the OTS sequentially to tidying up the legislation in a variety of complex areas of taxation. Do those three things and we might get somewhere in making the tax system simpler, even if never simple.