Tax law: basic arithmetic

According to a recent National Audit Office report, tax forms need to be
simpler and easier to fill in. Well, yes – that’s fine as a statement of the
obvious, but it somewhat misses the point.

The more important question is – why is it that the tax forms are so complex?
Why is it that, according to the NAO, some of the HMRC guidance requires a
reading age so high that it is incomprehensible to more than half the adult

The answer is that tax law itself is now far too complicated. The new Income
Tax Act 2007 completes the much-vaunted ‘plain language’ re-write of tax
legislation. But the cumulative result of all that simplification has been to
replace the 800 or so sections of the old tax law with something over 2,500
sections of new tax acts.

Much of the problem is caused because over recent years, in particular, the
government approach to tax legislation has become fixated on the dual aims of
countering perceived tax avoidance and concealing tax rises. Both of these
militate against simple legislation.

It’s got to the point where demanding that HMRC provides the taxpaying public
with simple, straightforward guidance on tax law is like asking a nuclear
physicist to explain Einstein’s general theory of relativity to a ten-year old.

The time has come for a radical rethink of tax law. The fact is that a huge
amount of tax law is drafted to deal with ‘special cases’ and exploiters of
loopholes. The majority of the taxpaying public aren’t special cases and aren’t
avoiders – and even if they were, the amount of tax ‘at risk’ is relatively
small compared with the costs of complex tax rules.

There is a good case for arguing that for the majority of taxpayers there
should be a simple, straightforward and easily comprehensible ‘tax regime lite’
stripped of the complexity of special rules and anti-avoidance provisions.

If you insist on having the most complex tax code in Europe, at least reserve
it only for the biggest and most sophisticated of tax planners: that’s where the
biggest tax revenue is at risk.

Only then is there any chance of producing for the general public the sort of
simple-to-understand-guidance that NAO is quite rightly demanding.

David Whiscombe is a tax partner at Berg Kaprow Lewis
and a member of the UK200Group Tax Panel

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