Government tinkering has made the tax system worse

In the four years since the general election the government’s tinkering with the tax system and failure to support the OTS (Office of Tax Simplification) has made tax more complicated for individuals and businesses, ACCA (the Association of Chartered Certified Accountants) says today (16 June).

In 2010 the coalition government published: The Coalition: our programme for government where they pledged to simplify the tax system, following years of previous governments making changes to various areas resulting in a complex system, full of loopholes which individuals and businesses have been able to exploit.

Jason Piper, ACCA technical manager, tax and business law said: “The coalition set up the Office of Tax Simplification to review the tax system and suggest to government ways to make things easier. It’s basic logic that the more complex a system is the more loopholes there are. ACCA had been calling for establishment of a body like the OTS for over ten years, but since founding the advisory body the government has not given them enough of the support they need or indeed the time to do their work.

“A recent example is changes to the taxation of partnerships. The government has implemented changes while the OTS is in the middle of reviewing partnerships more generally. It seems completely at odds with the reason for establishing them in the first place.”

Further examples of where the coalition has failed to simplify include:

• National Insurance Contributions – The historic principle of NICs funding different things to income tax is in practice all but dead. The two levies are both primarily revenue raisers but operate on different timescales, under different rules, a different assessment process and different definitions of taxable income. Even if a full merger would be impossible, the least government could do is try to reduce the administrative differences, instead of which they have increased them through eg the enhanced Personal Allowance for tax – NICs thresholds have totally failed to keep pace.
• Stamp Duty Land Tax – The cliff edge approach to stamp duty is prohibitive, especially to first time buyers. The government has had many opportunities to bring the application of stamp duty in line with other taxes but has failed to do so.
  Annual Investment Allowance – The principle is good, but consistent rate changes counteract the benefit.
• Withdrawal of personal allowance for those on incomes of over £100,000 – this results in a marginal rate of 60%on income between £100,000 and £120,000, when the rate drops back to 40% before going back up to 45% at £150,000.
  Transferable allowance for married partners – This has resulted in potentially infinite marginal tax rates.
• VAT – The government will be remembered for the pasty tax changes but other proposals that have gone under the radar have included self-storage and sports drinks were equally badly designed.
• Taxation of contractors and the employment industry supply chain – While there is a coherent and comprehensive strategy discernible in the range of measures, including the inherited minefield of IR35, the implementation and interaction of individual elements such as the onshore intermediaries rules have imposed additional burdens and complication
• The UK fiscal year – Most countries use the calendar year, or indeed quarters but at least everyone else aligns to the end of a month (even if in Afghanistan’s case their month doesn’t align with anyone else’s).It may be a historic accident, but the UK is unique in running its tax year six days in to a month.

Jason Piper concluded: “This is just a snap shot of continuing problems with the UK tax system, that the coalition could have made better, and indeed some areas where they have made them worse. The Queen’s speech gave a few indications about the government’s intentions for the coming year. Pensions in particular holds the promise of simplification, with the abolition of punitive tax charges on pensioners, but yet again the devil will be in the detail. With less than a year to go until the next election the government is limited to the time they have to make things easier but they can give the OTS more support in the time that remains in this parliament and set a precedent for future governments.”