A review of the 180+ pages included in the final report of the OTS Review of Tax Reliefs illustrates just how complex the UK tax system has become and how long it may take before real simplification is achieved. More than 1,000 reliefs were identified within the tax system but resource and time constraints meant they could only look at 155 of these in detail.
And although it is an area where there is undoubtedly scope for simplification, the VAT system was excluded because of the European dimension.
Typical examples of the type of reliefs recommended for abolition are the Business Premises Renovation Allowance and Flat Conversion Allowance, both somewhat obscure fiscal incentives introduced by the last government but generally ineffective in practice. Similarly Land Remediation Relief, another fiscal incentive that dates from 2001 that never influenced taxpayer behaviour in the way intended but led to substantial retrospective tax refund claims from volume house builders, is also recommended for abolition.
Other recommendations are, among others, that 11 employment-related and eight stamp duty reliefs are abolished.
Our perception is that these changes, while welcome, will only ‘tidy up’ rather than simplify tax legislation. And it will be a slow process. If the recommendations are accepted by the Chancellor, the new tax policy making approach means they will be included in Finance Bill 2012 at the earliest.
The stated goal of the OTS is to simplify the tax system. And in its report it acknowledges that to achieve this goal some taxes require an in-depth review and reform, citing in particular income tax and NIC, employee benefits, IHT, environmental taxes and capital gains for companies.
More fundamental changes such as these and the possible introduction of a GAAR and the removal of pages of anti-avoidance legislation are likely to be required before it can be claimed that the tax system has been simplified in any meaningful way.
The present government has demonstrated an appetite for simplification in other areas such as pensions and welfare benefits, although political considerations and finite resources are likely to slow the pace of reform of personal taxation, while concerns about the negative impact of tax uncertainty on the competitiveness of the UK system and the economy will do likewise for any business tax reforms not already shown on the ‘roadmap’.
Anyone expecting a ‘bonfire’ of tax legislation or a reduction in the number of pages in next year’s tax handbooks is likely to be disappointed.
Andrew Green, European Tax Advisory Services team, LECG Bourne
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