Misunderstandings remain about UK taxation of savings income, but a personal tax roadmap would help address its significant complexities, the Office of Tax Simplification said last month.
A range of tax reliefs to encourage saving works well for most taxpayers, and 95 percent of people pay no tax on savings income, the OTS said. But the interaction between rates and allowances is so complex that HMRC’s self-assessment computer software has sometimes “failed to get it right,” the OTS pointed out in a 50-page report titled Savings Income: Routes to Simplification.
My news story of May 29 for Tax Notes (paywall) is now reproduced in full with permission: U.K. Office of Tax Simplification Calls for Personal Tax Roadmap (pdf).
Experts have warned that the complexity of U.K. tax law poses a threat to lawyers’ and judges’ ability to apply it consistently, a House of Lords committee reported, a day after a government minister praised lawmakers’ rapid progress in examining the current, 665-page finance bill.
Experts have warned that the complexity of UK tax law poses a threat to lawyers’ and judges’ ability to apply it consistently, a House of Lords committee reported, a day after a government minister praised lawmakers’ rapid progress in examining the current, 665-page finance bill. The House of Lords Constitution Committee called for changes to the way legislation is developed to enable thorough parliamentary scrutiny and improve the quality of law. Legislation should be made more accessible and easier to understand for both practitioners and the public, the committee said in an October 25 release …
… Members of a public bill committee “rocketed through” the current finance bill efficiently and “in near-record time,” Financial Secretary to the Treasury Mel Stride remarked as the committee completed its examination of the bill ahead of schedule on October 24. Read more:
My news story for Tax Analysts, October 27 (paywall)
Preparing better legislation: Lords call for changes to law-making
Uncertainty regarding the scope of capital allowances rules that occupy 500 pages of UK tax legislation is a major source of complexity, the Office of Tax Simplification (OTS) said as it issued a call for evidence on tax relief for the cost of tangible business assets.
Capital allowances were flagged as an area of complexity in “almost every meeting” the OTS held with businesses and advisers in its recent review of issues relating to the corporation tax computation. The OTS is now examining whether the use of accounts depreciation to provide tax relief for capital expenditure on tangible assets would simplify tax return preparation for both incorporated and unincorporated businesses …
The OTS noted that the current capital allowances regime has timing incentives for capital expenditure, such as the annual investment allowance that accelerates tax relief … Stephen Herring, head of taxation at the Institute of Directors, told Tax Analysts that the annual investment allowance enables entrepreneurial companies to “accelerate capital investment and improve their productivity which, quite rightly, the government has set as a priority.” Tax simplification is needed, he said, but “not at the price of having an uncompetitive economy.” Read more:
My news story for Tax Analysts, October 4 (paywall)
A tax relief intended to help owners of smaller companies revert to self-employment will not be available for transfers after March 2018 unless action is taken, the Office of Tax Simplification has pointed out. Take-up of the relief has been lower than expected.
Disincorporation relief, introduced in Finance Act 2013, provides relief from corporation tax when a company transfers qualifying business assets to its shareholders. No claim can be made if the value of the assets exceeds £100,000, however, and the OTS believes that this limit is one of a number of possible reasons for the low take-up.
The OTS is seeking to establish whether there is an “untapped appetite” among businesses to disincorporate in order to reduce the burden of administration. A focus paper invites readers to suggest, by September 15, what improvements are needed for the relief to be more effective.
Facilitating disincorporation would “appear to fit well with any moves to reduce the extent of tax motivated incorporations,” the OTS said. HM Treasury indicated that about 610,000 companies would be eligible for the relief, but fewer than 50 claims had been made by March 2016.
HM Revenue & Customs has come under increased pressure to reset the timetable for its Making Tax Digital (MTD) project, with tax professionals warning that small businesses will struggle with what accountants call the most far-reaching reform of the UK tax system for generations.
Last week the Chartered Institute of Taxation warned that the spirit of voluntary compliance is at stake if the government continues to pursue an unrealistic timetable for implementing compulsory digital record keeping.
“Tax systems exist for the benefit of society, not vice versa, and the business case for any change to the tax system should be based on the total economic impact, not just [aspects affecting HMRC],” the UK tax committee of the Association of Chartered Certified Accountants said as six MTD consultations closed on November 7.
Read more: My news story for Tax Analysts, 9 Novmember (paywall).
The UK’s Office of Tax Simplification should focus on preventing rather than curing complexity, according to tax professionals responding to the office’s “high-level strategy” consultation. The OTS says that while its mandate does not extend to a “formal say” on future policy, its goals include embedding simplification into the policy-making process. One expert told Tax Analysts that given the right focus and resources, the OTS could “hold the key to wholesale reform.”
Read more: My news story for Tax Analysts October 15 (paywall).
A proposed new tax system for small companies would increase uncertainty and confusion among small business owners and increase the scope for errors, UK tax experts said in response to consultation on the merits of a “look-through” model.
The UK already has two complicated systems, one for unincorporated businesses and one for corporate bodies, the ICAEW Tax Faculty noted a submission to the Office of Tax Simplification. “Rather than introduce a new model we would support simplification in each area,” the Faculty said. The Chartered Institute of Taxation said a key effect of a mandatory look-through system appeared to be to generate an increased tax yield from small business.
Read more: My news story for Tax Analysts, 8 October (paywall).
And there’s an interesting discussion on Twitter, in response to this tweet:
Senior appointments to the Office of Tax Simplification are to be put to a vote of members of Parliament, the UK government announced as it rejected a proposal to give the cross-party House of Commons Treasury Committee a power of veto.
During a Finance Bill debate on September 6, MPs considered an amendment, proposed by Labour MPs, that would have prevented the chancellor from appointing the OTS chair or tax director without the committee’s consent …
Financial Secretary to the Treasury Jane Ellison told the debate that the government will ensure that the Treasury Committee can hold hearings with future OTS chair candidates before their appointments are formalized, and that appointments are put to a vote in the House of Commons.
Read more: My news story for Tax Notes 8 September (paywall) published by Tax Analysts.
The increased use of roadmaps setting out the direction of U.K. tax policy would increase confidence and trust in the tax system and help to reduce uncertainty arising from the Brexit vote, the Office of Tax Simplification has said in response to a joint project to improve tax policymaking.
The experience from the Business Tax Roadmap first published in 2010 and updated in March 2016 was positive, but the government’s intentions in other areas are unclear, according to a July 2016 paper setting out the initial findings of the project, conducted by the Chartered Institute of Taxation, the Institute for Fiscal Studies, and the Institute for Government.
Read more: My news story for Tax Notes, 3 September (paywall) published by Tax Analysts.
Leading tax commentators have welcomed the appointment of three new non-executive directors to the board of the UK’s Office of Tax Simplification (OTS). The appointments were announced as MPs were set to debate a finance bill amendment intended to ensure that the OTS is seen to be independent of the government.
OTS Chair Angela Knight said the new directors’ skills and experience will increase the office’s ability to provide “excellent advice on how to take forward the strategy and simplify the tax system for business and for individuals”.
Read more: My news story for Tax Notes 29 August (paywall) published by Tax Analysts.
UK tax professionals welcomed proposed measures to ease the transition to digital tax reporting but one leading expert told Tax Analysts that the government failed to take account of the Brexit vote’s impact on the UK economy. The publication of six long-awaited consultation papers was delayed for several months because of the EU referendum and subsequent change of government.
HM Revenue & Customs released the consultation papers on the Making Tax Digital (MTD) project on August 15, saying that more than a million small businesses will be able to benefit from MTD without updating HMRC quarterly or keeping digital records.
Read more: My news story for Tax Notes 16 August (paywall) published by Tax Analysts.
Budget 2016 announced changes to the taxation of termination payments, following a consultation launched in summer 2015. The government noted that “certain forms of termination payments are exempt from employee and employer national insurance contributions (NICs) and the first £30,000 is income tax free”.
It added: “The rules are complex and the exemptions incentivise employers to manipulate the rules, structuring arrangements to include payments that are ordinarily taxable such as notice and bonuses to minimise the tax and NICs due.” From April 2018, the government would “tighten the scope of the exemption to prevent manipulation and align the rules so employer NICs are due on those payments above £30,000 that are already subject to income tax”.
The government said it would “continue to support those individuals who lose their job”. The first £30,000 would remain exempt from income tax and the full payment would be outside the scope of employee NICs.
A note of the outcome of this consultation was posted on 10 August, and a second consultation inviting comments by 5 October includes draft income tax legislation for Finance Bill 2017. Draft NICs legislation is expected in autumn 2016. Continue reading Simplifying the tax and NIC treatment of termination payments