AS ALWAYS, there was a lot in the Budget with plenty of detail to keep Budget aficionados going for a good while. But for all the detail and undoubted complexity of some of the measures, I’d argue that there was a seam – even theme – of simplification. The Office of Tax Simplification (OTS) made a mark on this Budget and plans to do more in future ones with our competitiveness project.
We published in January significant reports on partnerships and employee benefits & expenses and were awaiting the chancellor’s formal response to our various recommendations. It is pleasing that these are indeed going to be taken forward (see paras 2.212-217 in the Red Book) and we had a fuller response from David Gauke, exchequer secretary to the Treasury.
Some of the highlights included employee benefits – voluntary payrolling of benefits will be brought in; £8,500 limit (the old ‘higher paid’) – consultations on abolishing this outdated limit and the effects of so doing; employee expenses – consultation on an exemption for qualifying business expenses; partnerships – lots of our ‘short-term fixes’ are being taken forward, including better guidance and we are being invited to do more work on our longer-term ideas.
It’s not just these recent reports that are being taken forward. In last year’s pensioners’ report, we recommended abolishing the 10% savings rate of income tax as being complex and ineffective. To compensate, we recommended a pragmatic increase in ISA limits. The difficulty with our proposal – which we always acknowledged – was that there wouldn’t be a precise match between winners and losers. The announcement in the Budget does not formally abolish the savings rate but by increasing the band and reducing the rate to zero achieves most of the practical simplification we were after.
Our continuing efforts to make the case for significant reforms to NICs (see our Employee Benefits & Expenses report) have borne some fruit with the taking forward of collecting Class 2 NICs via self assessment.
The OTS report on ‘unapproved’ share schemes has led to a number of measures in the Finance Bill 2014. Two of our more radical proposals – on the timing of the tax charge and for an ‘employee shareholding vehicle’ – are to be taken forward by way of a discussion document. It has taken some effort to make the case for what we think are potentially valuable reforms so it is pleasing to see those efforts bearing fruit.
One potential downside of all this reform that I have to acknowledge is that changing the tax system always adds to complexity in the short term. We have to be sure that OTS recommendations pass the ‘worth it’ hurdle. I think these do: for example, our programme of reforms in the employee benefits & expenses area could, we believe, largely eliminate the 4.4 million P11Ds completed annually.
As always, we need to do more and one of the documents published with the Budget is our paper on the competitiveness project. Our brief is to look for ways of improving the competitiveness of the UK tax administration, with particular reference to the World Bank’s ‘Paying Taxes’ report.
The chancellor wants our ideas on improving competitiveness – and that means we want your ideas. What would make business taxes – corporation tax, PAYE/NIC, VAT and the rest – more efficient? If you could suggest one change to improve the competitiveness of the UK tax administration, what would it be? Let us know at firstname.lastname@example.org.
John Whiting is tax director at the Office of Tax Simplification
The ATT had previously expressed concern that the legislation was overly complex and created unnecessary complications within the practical working of the new allowances
Introduced in 2013 to encourage R&D investment, the scheme allows UK businesses to pay only 10% corporation tax on profits derived from any UK or certain EU patents
Yet, KPMG’s annual survey shows that the UK is still an attractive place to do business, despite falling in rankings in tax competitiveness and FDI appeal
Following recent issues with HMRC’s personal tax computation software, Brian Palmer of the AAT questions whether the government’s implementation timeframe for Making Tax Digital is realistic