Think tank says reforms will increase tax complexity

DESPITE establishing a unit to simplify UK taxes, the government has been told that its planned reforms will lower taxes while at the same time adding more complexity to the system, according to a think tank.

The conclusions are drawn by Institute for Fiscal Studies (IFS) in its Green Budget report.

The report examined the coming cuts in corporation tax, the reduction in tax on income from patents, the taxing of controlled foreign companies and intellectual property, as well as reforms to the taxing of research and development.

The IFS concludes: “If all these reforms are enacted, the UK will have a corporation tax rate lower than most European countries currently have, but a system with significant additional complexity and which provides an expensive and distortionary tax break to a handful of firms, largely for activity that would have occurred in the absence of the policy.”

The IFS’s comments come in stark contrast to one of chancellor George Osborne’s first policies when he took over the Treasury, which was to create the Office for Tax Simplification under former PwC partner John Whiting. The OTS has been focused on assembling a catalogue of UK tax reliefs and working on recommendations for some of them ahead of the Budget in March.

From April this year small business tax is cut to 20% but the IFS said: “There is little justification for taxing firms that earn low profits differently from those that earn high profits or from unincorporated businesses.”

The IFS also criticised a proposal to cut the tax on income from patents – known as the Patent Box – to 10%. The IFS said it was “poorly targeted” and would add “unnecessary complexity to the tax system”. It also added that by the government’s own estimates the policy would lead to a significant cut in tax revenues.

Tax credits for research and development also came under fire from the IFS which said the policy would see a “narrowing” of the costs eligible for the credit and provide no increase to what is available to small companies.


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