Should the UK Tax system be simplified?

A good indication of how complicated the present tax system in the UK is, is learnt from the size of the most authoritative guide to the subject. Tolley’s Yellow Tax Handbook, which is being published every year since 1983 is getting bigger each subsequent year. To give an example, it totalled close to 6,000 pages in its 2001 edition and has nearly doubled this number in its most recent edition. This is a clear indication that the tax system in the country is becoming cumbersome and complicated with each passing year. Henceforth, there is a strong case to be made for simplifying the prevailing system.

One of the reasons why the system has remained complicated is the half-hearted measures undertaken by policy-makers in reforming/simplifying the system. While Chartered Accountants have thrived in this climate, their clients, including common people, have often ended up with confusion. Furthermore, the complexities inherent in the current tax system can be attributed to the functioning of the political system.

“No Government can continually tinker with the system, adding bits here and there, without getting things wrong. And everyone knows what the Chancellor announces in the annual Budget is only scraping the surface. The devil, as they say, is in the detail – and the detail only emerges after accountants have waded through the “red book”, and worked out the implications. Sometimes, even then, it can take months before people realise the impact. No wonder when it comes to taxing non-domiciled residents, changes to capital gains tax or “income-shifting” between husband and wife, the full effects can only be guessed at.” (The Birmingham Post, July, 8 2008)

It is in acknowledgement of the deficiencies in the existing system that noted politicians such as former Conservative Party Chancellor Lord Howe have supported an overhaul of the system. Lord Howe also proposed the setting up of an Office of Tax Simplification. By simplification, the former Chancellor also meant announcing tax changes in advance, so that the community of Chartered Accountants in the UK can understand and assimilate the changes, while also giving opportunity for the latter to make constructive suggestions. In this regard, setting up a Parliamentary committee makes sense, for

“as taxpayers, we need to know where we stand, what we have to pay, and we need to be assured the rules aren’t about to change again so what was tax-efficient today won’t become tax-disastrous tomorrow. And confidence is an essential element in taxation. Businesses need security over how much tax they pay. We need a clear and effective tax system, as well as an inexpensive one, to remain internationally competitive. If that doesn’t happen our clients will disappear abroad. Because the more the tax system changes the less confidence businesses have”. (The Birmingham Post, July, 8 2008)

And following on the advice of Lord Howe, Her Majesty’s Treasury has inaugurated the Office of Tax Simplification (OTS) last month. In the official website of the said office, it is stated that the Office is independent of political affiliation and is meant to attract inputs from professionals in the field of taxation, accounts, business and law. Rt. Hon. Michael Jack and John Whiting will head this Office till a long-term successor is found. The key objectives of the Office are three fold. Firstly, it will offer apolitical, independent advice to the Chancellor on the process of simplifying the tax system, thereby making the process of tax filing easy for both businesses and individuals. Secondly, the Office will help identify areas of complexity in the present system that is easy to simplify. Finally, the Office will carry out studies into areas of tax system that are less amenable to simplification so that the government can think of reform alternatives. Beyond these three objectives, the Office will

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