OTS revisits past work on tax complexity project
The Office of Tax Simplification (OTS) has been in existence since 2010 and since then has been carrying out sporadic work on its ongoing project that looks at the reasons why our tax system is complex. During its first five years, the OTS published a number of papers on the subject which they have now revisited and updated some of them.
1. Length of legislation (first published April 2012)
The UK tax code is considered the longest in the world leading people to conclude that it is also the most complex. Not an unfair assumption to make. However, this paper tests this thinking by asking:
- What really is the effective length of the legislation?
- Does length necessarily mean complexity?
Using 2011/12 Tolley tax handbooks as their basis of the study, which at the time contained 11,173 pages, analysis revealed that there were 6,102 pages of legislation, ie ‘actual’ tax code after ignoring notes, duplications etc. Nonetheless, the length has steadily increased and it remains the case that there is a lot of UK tax law.
Despite the volume of tax law, the OTS do not believe that this necessarily means complexity but it cannot be ignored that people have a different view. Nevertheless, the OTS have no plans to update this paper, as they are of the opinion that a new study of current law would reach a similar conclusion.
2. Tax thresholds (first published February 2013)
Thresholds have the potential make a significant contribution to tax simplification by excluding low-value transactions and some taxpayers from having to be considered by the tax system.
In October 2012, the OTS found 639 specific monetary values in tax legislation. Of these, 425 were thresholds and 214 related to penalties. Some had remained at constant figures for many years, with the oldest dating back to 1842!
Leaving thresholds unalterered makes them less effective, e.g penalties, or produces different effects.
At the time the paper was published, the OTS made the point that it would be unfeasible to tackle all 639 thresholds in one go which would include analysing whether they should be left undisturbed, updated or abolished. Whilst some have been addressed, e.g £8,500 ‘higher paid employees’ (now but all abolished) and 15p daily luncheon voucher exemption (now abolished), the issue of outdated amounts remains.
It should be possible to draw up a priority list of which thresholds should be looked at first, although revenue considerations will influence what can be done.
3. Layered legislation (first published September 2013)
A regular and valid complaint is that UK tax legislation is too complex. Could, therefore, tax law be written in a different way that would lead to simpler, more accessible rules?
Some countries use principles-based legislation and may be such an approach may be worth testing here. Another of way of writing the legislation would be to design it according to the user’s needs. Taxpayers would be able to use just a summary briefing, leaving businesses and general professionals to use a fuller system and experts would have further detail to make sense of. This is the concept of ‘layered’ or ‘tiered’ legislation.
The OTS are of the opinion that this approach is worth experimenting with and are inviting comments on the idea.
4. Definitions in tax legislation (first published October 2013)
This paper concluded that there is scope for policy makers and legislative draftsmen to focus more on definitions, particularly that they are consistent, not overused nor the same label used for different definitions.
One suggestion which would be of assistance would be to create a database of all definitions in tax legislation. This would provide a readily accessible reference point for policymakers, draftsmen and users of legislation alike. This however would be a most difficult task which, in turn, demonstrates how our tax system has become less manageable.
5. How to avoid complexity in the tax system (first published June 2015)
This paper summarised the lessons the OTS had learnt about tax complexity and set out four principles for avoiding complexity:
- Ensure the proposed tax measure meets the policy aim
- Focus the measure carefully
- Design the measure to meet the aim
- Maintain the measure properly
The paper, whilst still valid, is simply reissued with some minor revisions.
OTS complexity index
The aim of this index is to measure the complexity of areas of the tax system with a view to helping the OTS prioritise future projects. It is best used as a diagnostic tool and is valuable in identifying what areas of tax are most complex and why, with the OTS seeing it being used in two ways:
- To prioritise and target efforts to simplify the tax system; and
- To give policymakers a tool to track the relative complexity of their policy changes, i.e. to monitor changes to the system.
Avoidance and complexity
Work on avoidance started in 2014 but was focused on corporation tax. The aim was not to develop a solution to the ‘avoidance problem’ but rather to carry out a review of current anti-avoidance legislation with a view to identifying any link or catalyst between anti-avoidance legislation and complexity. This involved:
- Reviewing where the anti-avoidance legislation is concentrated;
- Analysing whether any specific anti-avoidance legislation can be removed either because it is no longer relevant or because it has become obsolete;
- Compiling and testing theories surrounding any potential links between anti-avoidance legislation and complexity; and
- Aiming to test the popular assumption that complexity in a particular area of tax will inevitably generate avoidance, which in turn generates more complexity.
Work in the general area of complexity is ongoing and continuous and the OTS want to look at specific issues and develop and promote tools and techniques that encourage ‘good practice’. All ideas and comments are welcomed by the OTS.
Doesn’t point 5 summarise the problem? Even those responsible for simplification seem to be prone to repetition here, since the first and third items are the same thing, as is arguably the second…..