Ongoing mission to simplify tax

OTS six years on

It is nearly six years since the Office of Tax Simplification (OTS) came into being and since then it has made 402 recommendations to improve our tax system of which over half have been accepted and another quarter still being considered.

To date their main contributions have been:

• reports on 10 formal projects, covering reliefs, small business, pensioners, share schemes, partnerships, employee benefits and expenses, complexity, penalties, competitiveness, and employment status; and
• two reports published in March 2016 on small company taxation and closer alignment of income tax and NIC

There have been some significant successes in simplifying the tax system such as a cash basis for the smallest businesses and a series of reforms to largely eliminate P11Ds.

Despite this, the OTS has still not helped deliver a noticeably simpler system for the average taxpayer but then again Rome was not built in a day and this remains a tall order.

The OTS was initially established as a temporary non-statutory office of the Treasury in July 2010 but this year’s Finance Bill saw it become a permanent, statutory office, specifically requiring:

“The OTS must provide advice to the Chancellor of the Exchequer on request, or as the OTS considers appropriate, on the simplification of the tax system.”

Although it is independent of the Treasury it is part of the civil service and seeks to operate in line with Treasury values. During its brief existence, the OTS has developed an open ‘critical friend’ relationship with both the Treasury and HMRC.

In its ongoing mission to simplify the tax system, the OTS want to gain a wide range of views and perspectives on their thinking so far and are always open to ideas and will be seeking views and opinions from individuals, businesses, tax advisers, academics, representative bodies and others and also from Government. With this in mind, the OTS has recently launched its high level strategy consultation document, ‘Simplifying Tax for the future’  The document sets out how the OTS should develop and operate but they also want to hear from as many people as possible in response to six questions; this is to ensure that the tax body makes the most of their new remit to help create a simpler tax system.

Defining simplification of the tax system

This includes:

• simplification of the law and administration of HMRC taxes (including direct and indirect taxes, duties and NIC); and
• improving the efficiency of their administration.

In developing their recommendations thus far, the OTS have always aimed for a mix of:

• Short term changes, sometimes referred to as ‘quick wins’. These are often administrative improvements that can be taken forward easily, usually by HMRC without any need for legislative change;
• Technical changes. These will deliver a simpler system and can either be narrow or wide in scope; and
• Structural proposals. These are more significant ideas that may change the tax system and take time to effect.

A rapidly changing world

The OTS recognise that the UK and world economies are changing as well as traditional working patterns so they will examine these and set out the new trends and changes in business, employment and other areas that will have an impact on our tax system. The aim will be to highlight the main changes that need to be considered, be clear about the downsides, indicate the timescales that will allow change to take place with minimum disruption and to be understood by the non-specialist.

There is a significant role for the OTS to play in ensuring digital opportunities for simplification are grasped and that new ideas take proper account of how businesses really operate.

What next?

This year there are a number of specific work areas that the OTS will be looking at including:

• Taking forward aspects of their Small Companies and Income Tax/NIC closer alignment reports;
• Beginning a new review concerned with aspects of corporation tax;
• Reviewing what has happened to their 402 recommendations to ascertain to what extent their earlier work has borne fruit or not as the case may be, and the lessons that can be learned from that; and
• Engaging with HMRC on its Making Tax Digital programme.

They have a business and challenging year ahead.