Office of Tax Simplification established by the Chancellor of the Exchequer

Karin Wasteson in Stockholm and London

10th September 2010

Over the last decade the tax code has doubled to more than 11,000 pages and the UK has slipped from 7th to 13th in the World Economic Forum’s Global Competitiveness Index. According to Osborne “simpler, more competitive taxes will help us show the world that Britain is open for business.”

To further this aim the Office of Tax Simplification was established by Chancellor George Osborne and Exchequer Secretary David Gauke on 20 July 2010. “With its independent, expert advice it will be a permanent force for a simpler tax system.” Osborne declared. He has appointed a board of tax experts to lead the OTS next year. Board members include Michael Jack (Chairman) and John Whiting (Tax director). The body has been established as an independent Office of the Treasury and will draw together expertise from across the tax and legal professions, the business community and other interested parties.

The government has commissioned the OTS to review a list of all reliefs, allowances and exemptions, applying to both businesses and individuals, within the taxes and duties administered by HM revenue and Customs (HMRC); and to identify those reliefs that should be repealed or simplified to support the Government’s objective for a simpler tax system.

The Office will produce an interim report in late autumn 2010 and a final report with recommendations to the Chancellor ahead of Budget 2011. The review should consider the impact of removing or simplifying individual reliefs, both for individual taxpayers and the wider economy; as well as the Government’s wider objectives for the tax system including the need for it to be internationally competitive, support fairness and provide sustainable revenue. There is a particular interest in identifying those reliefs that are ‘largely historic or have a policy rationale that has weakened over time; are not frequently used; benefit a small number of taxpayers but may create distortions in the tax system; or are used by larger a number of tax payers but that are complex for business and/or HMRC to administer.’

The IR35 legislation is a priority. It was introduced to counter avoidance of tax on employment income where workers receive payments from a client via an intermediary (usually a personal service company). Simpler measures are sought which prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self- employed or restricts labour market flexibility, while ensuring that any income that is effectively employment income is taxed fairly. This might affect wider issues such as employment status.

Jack stresses that the initial focus is on simplifying the day-to-day complexity and uncertainty for small businesses, so as not to stifle entrepreneurship and the economy’s ability to grow. It is in line with Osborne’s stated aim of a “strong enterprise-led recovery.” Depending on the findings and outcome of this first stage of the review, there might be further tax reliefs in the future.

Source: The HM Treasury Official Website