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Office of Tax Simplification report is just the start…

Andrew Watt takes a closer look at this weeks report from the OTS and considers the likely outcome.

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The OTS began its work only in September and comprises a number of permanent staff working alongside various secondees from business and the professions.

It has wasted no time in identifying over 1000 tax reliefs which help to make the UK’s tax code one of the most complex and impenetrable of any tax jurisdiction in the world. The first fruit of the group’s labours is a comprehensive list of tax reliefs ranging from Aggregate Levy to VAT on works of art. It includes such high profile relief as the remittance basis for those who are not domiciled in the UK. Alongside that is the income tax exemption for non- residents helping to deliver the 2012 Olympics.

Readers should be aware that the OTS’s brief is to produce a report ahead of the next Budget, set for 23 March 2011, identifying those reliefs which can be repealed or simplified.

The Chancellor is particularly interested in identifying those reliefs which –

  • are largely historic and the rationale for which has weakened over time
  • are not frequently used
  • benefit a small number of taxpayers but may distort the tax system
  • are widely used but are complex for business and/or HMRC to administer

Vulnerable to attack

Unfortunately the first report does not identify the numbers of reliefs falling in to each of the above categories and which may therefore be the most vulnerable to ‘attack’. Readers will be aware of their own particular favourite(s) and should, if they feel sufficiently strongly, make written representations directly to the ONS at ots@ots.gsi.gov.uk or, if more appropriate, to their professional body.

It would seem reasonable to assume that a relief which is popular and widely used should not be culled solely because it is complex for HMRC to administer. Presumably the complexity is of no great concern to the claimant if the relief is significant. It would be no great surprise if some of the reliefs identified have been used for artificial tax avoidance, sometimes bordering on criminal behaviour and may be first on the list to be struck down.

It is to be hoped that the Chancellor does not see this report as paving the way to a General Anti-avoidance Rule. However, readers should not hold their breath. Initiatives such as these often spawn voluminous reports which proceed to gather dust on a shelf in a far corner of some forgotten Government store-room.

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