The strange Kafkaesque world of UK tax
By common consent, the UK tax system is no longer fit for purpose.
There is unfortunately less unanimity on how the system should be reformed.
In 2010 the chancellor established the office for Tax Simplification (OTS) in recognition that the UK tax code had become far too complex.
But by the end of the last parliament, not only had the OTS managed to achieve little of substance – and its one big initiative (the merger of income tax and national insurance contributions) has been put on hold for the time being – but the volume of legislation has increased year by year in a remorseless manner, without being accompanied by an improvement of quality.
In his Budget this week, the chancellor has the opportunity to bring tax simplification back to the top of the agenda.
Avoidance
It is therefore a matter of considerable concern that the chancellor may focus much of his attention on avoidance.
Avoidance is one of those concepts that is perhaps easier to identify than to define. But that is because avoidance lies in the eye of the beholder.
What one person regards as a perfectly acceptable means to arrange their affairs so as to minimise the burden of tax may not be seen in the same light by others.
But avoidance is a response to complexity and flourishes when there are a myriad of rules which do not fit together in a coherent whole.
The solution to avoidance is not to castigate taxpayers into paying their ‘fair’ share of tax (whatever that might mean) but to take an axe to the forestry of tax legislation and to introduce simpler and more straightforward laws.
No one is against cracking down on evasion – which is of course illegal.
But the continued legislative programme against avoidance is like pulling on a shoe lace that becomes ever tighter. The last government introduced a general anti-abuse law that was supposed to put an end to avoidance but, of course, it has done no such thing.
Unhelpful language
In any radical simplification of the tax system there will be winners and losers but that is precisely why it is primarily a job for politicians and not for a body such as the OTS.
A simpler tax system should also be a fairer one, but language about taxpayers paying the ‘right’ amount of tax is unhelpful.
It is unhelpful to taxpayers as it can lead to multinationals in the public eye arranging their affairs to pay more tax than they need to do so (the case of Starbucks making a ‘voluntary’ payment to the Exchequer) but without any guidance as to how much.
It is also unhelpful to HMRC because it prevents them from entering into negotiated settlement with taxpayers for fear that they will be criticised for making ‘sweetheart’ deals, when HMRC cannot (for reasons of taxpayer confidentiality) explain why they have reached the deal that they have.
Kafkaesque world
The result is a strange Kafkaesque world.
It is a world in which a taxpayer can be criticised for its failure to pay enough tax, but without any clarity on how much it should pay beyond that prescribed by law.
It is also a world in which a taxpayer may wish to reach a settlement of its outstanding liabilities with HMRC but find that HMRC is unwilling or unable to enter into negotiations.
These problems cannot and will not be resolved without a radical simplification of the UK tax code.
