AccountingWEB (amongst others) has reported that the Tories have issued a press release saying:
A report by a working group headed up by ex-chancellor Lord Howe has suggested the establishment an Office of Tax Simplification (OTS) to examine the existing tax code and make proposals for simplification. As well as being staffed by HMRC and academia, the OTS should also include individuals from the tax professions to provide expertise and a fresh perspective.
There are five reasons for taxation, all of which conveniently begin with an R:
1. Revenue raising
2. Repricing goods or services considered beneficial or harmful
3. Redistributing income and wealth within society
4. Representing the democratic social contract between the government and those governed
5. Reorganising the economy through fiscal policy.
I am not claiming that at present all these objectives are achieved: I do suggest that there is no democratically elected government in the western world which does not at present subscribe to this view, albeit with different emphasis given.
You cannot have this range of objectives and have a simple tax system. It is not possible. When compounded by the abuse that the tax profession heaps up on any arrangement created by government, the only appropriate responses to the suggestion that a person seeking political office wants to create an Office of Tax Simplification are threefold in number:
1. Admiration for their political guile, whilst doubting their sincerity. Simplification is not going to happen.
2. Presumption that they have no understanding of the issue they wish to tackle (and I doubt this).
3. Considerable concern that they might, like the flat taxers from whom they take inspiration, want to change the fundamental nature of our society with the aim of making it considerably more unjust.
None is attractive. I hope it's number 1: that is at least politics as normal.
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You should have heard Lord Howe at the launch Richard.
I seriously doubt that any of your 3 reasons apply in his case – and he conceived the proposition.
In a recent article I explained why I had given up giving tax advice. I identified a number of reasons, not least of these being the increasing complexity of our tax system. And I don’t accept that such complexities are a necessary consequence of any tax system – they are certainly not axiomatic as regards ther five reasons for taxation stated in your posting.
I had reached the limit as to the number of times I could explain to clients that:
• despite being law abiding citizens and in principle deserving of a widely available tax relief, their circumstances took them just outside the qualification criteria;
• there are apparently arbitrary distinctions in the tax code and inconsistencies in HMRC practice;
• there is a continued absence of tax rules to reflect the new working practices of the 21st century;
• we cannot appeal HMRC’s refusal to apply a concession or statement of practice (as we are ‘taxed by legislation, and often only untaxed by concession’);
• tax credit claims can only be backdated by 3 months. Thus if you unexpectedly make a loss in your business you can’t claim the tax credits to which you would have been entitled if you had wasted your time and made a claim (for no credits) at the start of the year, just in case you make a loss;
• there are different rules for computing income for income tax, NICs and tax credit purposes;
• bizarre arguments and distinctions are highlighted in tax cases — albeit I can sympathise with HMRC to a degree when it is evident that ‘clever tax advisers’ have encouraged their clients to ‘push the envelope’;
• we cannot rely on a consistent application of the principles set out in ESC A19 (writing off underpayments of tax due to Revenue error);
• entitlement to claim the small companies rate of corporation tax, is affected by the associated company rules as they apply for various family companies, even if there is no substantial trading interdependence as between them;
• the unrelenting pace of new tax legislation is extending our tax code such that it is possibly now the longest in the world.
Surely there are some simplifications that would eliminate opportunities to avoid tax. Treating capital gains as income (as you have suggested in the past) or abolishing tax breaks such as R & D credits would be simplifying.
I am not sure that you have wide agreement to those objectives. Right wing (e.g. US neo-con) thought seems to be increasingly opposed to 3. The argument is that people are rich because they deserve to be (through hard work etc.) and the poor should “get on their bikes”. This leads to their opposition to progressive taxes.
Personally I agree with you, with some reservations about 2.