Review of the Office of Tax Simplification Call for Evidence

Chartered Accountants Ireland is pleased to have the opportunity to briefly comment on this “Review of the Office of Tax Simplification Call for Evidence” which was launched in May 2021.

We welcome this five yearly review which is being carried out in accordance with Finance Act 2016. In particular, this review comes at a pivotal juncture for the UK tax system as the Government seeks to move forward with its “10 year Tax Administration Strategy”. As set out later, it is our view that the Office of Tax Simplification (“OTS”) can play a crucial role as this strategy begins to be implemented and the UK seeks to introduce further digitisation of the UK tax system.

Engagement with the Office of Tax Simplification (“OTS”)

Over the course of the last five years, this Institute and its Northern Ireland Tax Committee has had excellent formal and informal engagement with the OTS in the course of its work.

For example, the Northern Ireland Tax Committee of this Institute held a half-day tax complexity workshop with the OTS in November 2019 during which the following four position papers were directly discussed with the OTS:-

• Reporting and paying tax in the UK;
• Complexity of UK capital gains tax legislation;
• Complexity of income tax legislation in the UK; and
• Complexity of Stamp Duty Land Tax in England and Northern Ireland.

In November 2020, the NI Tax Committee also responded to the OTS “Capital Gains Tax review Call for Evidence and survey” and published an updated position paper “The complexities of UK capital gains tax legislation – updated”.

Chartered Accountants Ireland and the Northern Ireland Tax Committee has also met with the OTS, both on a one to one basis and as part of various HMRC stakeholder forum groups, on a number of occasions over the last five years and the important work of the OTS is regularly highlighted to our members in Chartered Accountants Tax News. Our members are also encouraged to directly respond to the various workstreams, surveys and projects of the OTS.

More recently, in June 2021, representatives of Chartered Accountants Ireland met virtually with the OTS to discuss its ongoing review of the potential for moving the end of the tax year and specifically discussed this in the context of the Irish experience of doing so in 2002.

Chartered Accountants Ireland and the Northern Ireland Tax Committee will continue to engage with the OTS in the coming years as we view the work of the OTS as being of particular importance as the independent tax advisers to Government on tax simplification.

The OTS, if provided with a wider remit in future, as set out later, can play an even more vital role than it has previously.

Tax complexity

There can be no doubt that complexity of the UK tax system has further deepened over the last five years with the publication of every successive Finance Act and regulation. A brief review of key submissions made by this Institute to key consultations and calls for evidence over the last five years shows that tax complexity features to some degree or other in almost every single submission.

For example our response to the consultation “Making Tax Digital Corporation Tax” refers to tax complexity in the context of this project on page 5 and the recent submission to the consultation “Raising Standards in the Tax Advice Market” sets out the impact of complexity on page 15.

Tax complexity continues to be a very serious issue which the UK Government must begin to take serious and sustained action on. Complexity not only threatens the ability of the Government to meet its 10 year tax administration strategy but is also a serious impediment to successful further and future digitisation of the UK tax system, starting with Making Tax Digital for income tax in 2023.

As set out in previous submissions by Chartered Accountants Ireland, a defined roadmap to tackle tax complexity in the UK, beginning with income tax first, must therefore be established by the Government as a matter of urgency. The OTS can play a crucial role in supporting the UK Government in both developing and implementing this roadmap.

The impact of the OTS

Over the course of the last five years, the OTS has conducted a wide range of important and much needed reviews and calls for evidence and it publishes a report on an annual basis detailing its work and achievements. As set out in the OTS’s “The 2021 Statutory Review of the Office of Tax Simplification: OTS evidence for the review”, there have been successes with several recommendations of the OTS having been subsequently implemented and actioned by the Government.

Although we recognise that once the OTS has completed a particular review, it is then a matter for the Government to consider its recommendations, and to proceed as it sees fit, it is disappointing that the Government has not initiated further action in key areas reviewed by the OTS in the last five years such as the 2017 report “Simplification of the Corporation Tax Computation.”

In its evidence for the 2021 review, the OTS does recognise “that other reports continue to be under active consideration from government and HMRC”. For example, the OTS sets out that “HMRC is continuing to explore simplifications to corporation tax for smaller companies”. However this is at odds with the recent March 2021 Budget announcement of a new more complex CT calculation regime for companies which will take effect from April 2023. In addition, no mention was made of the specific work on CT simplification by HMRC in the recent consultation “Making Tax Digital Corporation Tax”.

We understand that there are a range of reasons why recommendations from the OTS may not be implemented, however the UK Government needs to be more transparent, where it can be, in setting out what it is doing in response to the various reviews, workstreams and reports of the OTS.

Bigger picture issues

In respect of the bigger picture issues which the OTS has suggested in its evidence for the 2021 review, we would be supportive of all of these and would prioritise them as follows:-

1. Supporting small business;
2. Environmental taxes;
3. Technology, data and digitisation (some work has already been carried on in this area);
4. Growth of self-employment and working through companies; and
5. Pensions and savings.

In respect of number 4, any work by the OTS in this area should feed into the work conducted by the “Taylor Review of Modern Working Practices” in 2017 which should be picked up again by the UK Government and refreshed for more recent developments including the upsurge in homeworking/remote working and changes in working practices post the pandemic.

The future of the OTS

In our response to the consultation, “Raising Standards in the Tax Advice Market”, this Institute recommended that the effectiveness of the OTS could be improved by tasking this body with providing an independent and authoritative analysis of the UK tax system, including its complexity, akin to the role of the Office for Budget Responsibility in respect of the UK’s public finances.

In particular, this could task the OTS with reviewing, commenting, advising and reporting on proposed changes to UK tax before their announcement on Budget Day but also by discussing proposed changes subject to consultation with HMRC/HM Treasury before publication of the consultation via a confidential “sandbox” approach.

The work of the Tax Working Group in New Zealand3, and what can be achieved when a government is serious about reducing complexity, is a very good example of how the OTS could be used in the UK.

We recognise that the OTS is not currently involved in new policy through the Budget process because it is independent and must be seen to be see so. If the UK Government were to consider widening the OTS’s remit in future to become involved in the development of tax policy, it would be for the UK Government to decide how this could be achieved, whilst maintaining the independence of the OTS.

This potentially could necessitate the formation of a separate wing of the OTS specifically working in this area with appropriate “Chinese walls” being established so that the independence of the “reactive” arm of the OTS was not called into question. A second suggestion would be to formulate an entirely separate body for this purpose.

In the past, the OTS has also not been directly involved with policy implementation. In its evidence for the 2021 review, the OTS sets out the benefits and challenges if it were to have a more formal role in taking forward tax policy changes from its recommendations. We are in agreement with the benefits and challenges set out but would encourage the UK Government to consider further the potential for the OTS to be directly involved in policy implementation in future.

Conclusion

In conclusion, the following key points merit serious consideration in the context of this Call for Evidence:-

1. The UK Government should consider how it can widen the remit of the OTS in future, in the context of both development and implementation of tax policy, whilst maintaining its independent status;
2. The UK Government needs to urgently develop and begin implementing a defined roadmap to tackle tax complexity in the UK, beginning with income tax first. The OTS can play a crucial role in supporting the UK Government during the course of this work; and
3. In future, the UK Government needs to be more transparent, where it can be, in setting out what it is doing in response to the various reviews, workstreams and reports of the OTS.