A tax equivalent for Room 101

I can’t see TV channels clamouring to show a tax adviser throwing away tax legislation. But how about binning the most hated bits of tax rules?

This thought spins out of work the CIOT is doing on ‘quick wins’. This is a series of papers highlighting easy changes to the tax system, which would produce useful administrative savings at no real tax cost. The Quick Wins remit excludes tax-raising provisions that just seem unfair or unreasonable.

My nomination would be s144A of the Taxes Act. This creates a further benefit where an employer pays over PAYE due on a benefit but the employee doesn’t make good within 30 days. Its origin is part of the attack on NIC-avoidance schemes; its main catchment now is unapproved share schemes.

If the employee exercises options and makes a gain, PAYE/NIC is due on the gain. That can be deducted from salary. If there isn’t enough salary to cover the bill, the employee has to write a cheque. Not reimbursing within the 30 days means s144A turns the outstanding balance into a taxable benefit – not as a beneficial loan, which might not be unreasonable, but as a pure benefit.

Problems I’ve met in practice include the client whose employees exercised just before Christmas; the December payroll was done mid-month and the January payroll was 33 days after the exercise. Too late! Another client got caught because ex-employees converted options. Perhaps unsurprisingly, the systems didn’t pick this up and the client is faced with a s144A bill as well as the PAYE. Surely s144A wasn’t intended to apply to ex-employees.

We are still arguing on both cases, but the Revenue is clear it can use s144A to catch such situations.

To me s144A is a worthy candidate for fiscal oblivion, to be replaced by a provision that has an appropriate punishment for the crime. In Ancient Greece, Athenian citizens could nominate someone for exile by writing his name on an ostrakon – a pottery shard. The person with the most nominations each year was thrown out of the city.

Perhaps Gordon Brown could commit to agree to ostracise a tax rule each year, based on popular demand?

  • John Whiting is president of the CIOT and a partner at PwC

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