UK tax law changes should lead to a simpler and more transparent system, experts claim

The Chartered Institute of Taxation has welcomed the announcement by the UK Chancellor that he will be making a number of changes to simplify the tax system and crack down on tax avoidance.

CIOT President Vincent Oratore said that the commitment to consult on integrating the operation of NICs and income tax, the commitment to review the taxation of small business and the elimination of 43 reliefs are all be welcomed.

‘Simpler tax laws mean an easing of the administrative burden on business, individual taxpayers, especially the unrepresented and HMRC. They make the tax system more transparent and more comprehensible, and therefore more likely to command public and business confidence. They also mean fewer loopholes and distortions, leading to fewer unintended consequences and fewer opportunities for tax avoidance,’ he explained.

‘While the OTS is carrying out excellent work, there is also a pressing need for improvements in the parliamentary process for scrutinising new and existing tax laws. The CIOT will be continuing to press for improvements in this area, including the setting up of a Joint Committee on Taxation,’ he added.

The results will be a greater certainty in the tax system, he believes. ‘We are pleased to note that the Government has listened to our concerns about retrospective tax changes, which can lead to an impression of an unpredictable tax system,’ he said.

The new Protocol on unscheduled announcement of changes to tax law, setting out the criteria that Ministers will observe when deciding whether to announce a change to tax law, explicitly recognises that retrospective changes to tax legislation will be wholly exceptional, although that will not prevent such announcements if their effect is solely to reduce tax liabilities.

The CIOT has also welcomed the commitment to publishing for consultation draft clauses on such provisions. While occasionally this may mean that provisions are introduced with effect from the date when published for comment, this is an inevitable part of a more transparent consultation process.

But the institute is calling on the Government to reconsider their approach to tackling attempts to avoid tax through disguised remuneration. ‘We are disappointed that the Government has not heeded calls to reconsider the approach adopted. As things stand the proposals remain a very blunt instrument and even though changes are promised we fear they are still very likely to impact employers and employees in ways that are not intended.  We urge further reflection before the final legislation is introduced,’ said Colin Ben-Nathan, Chairman of the CIOT's Employment Taxes Sub-Committee.

‘The proposals are moving to taxing the form (involvement of a third party) rather than the substance (reward or loan in connection with the employment) of the arrangement. There are many hard edges which will mean that the legislation will have to be read very carefully to determine whether, in all likelihood inadvertently, the new PAYE/NICs triggers have been activated,’ he explained.

‘Ploughing through detailed legislation is inevitably going to take a lot of time and effort for agents, employers and HMRC alike, particularly for the large number of smaller, owner-managed or family businesses with relatively few other employees. Indeed, we foresee that many employers will need to approach HMRC to determine whether or not their current arrangements are affected.

‘We welcome the intention of excluding, where possible, third party arrangements that  do not constitute tax avoidance, e.g. arrangements involving group companies. However, we remain concerned that if discretion is left to HMRC to decide what arrangements are the right side of the line and which are not then the position will always be uncertain and subject to a change of HMRC view,’ he added.