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The Office of Tax Simplification is here at last, but is their idea of simplification the same as the profession’s, asks Simon Sweetman.

The Office of Tax Simplification was launched this week, headed by Michael Jack, who retired from Parliament this year, with John Whiting, tax policy director of the CIOT as director. The CIOT will release Whiting for one a day a week and, while the press release suggested that John will do this on his own, it would appear that he will be assisted by seconded staff from HMRC and the Treasury, and that there will be consultative committees set up to help. There is no doubt that if this is to be done, John is the man to do it - despite his background with PWC, he has his feet on the ground. The new Office has initially been given two projects to work on – a review of tax reliefs and also of small business taxation.

Tax reliefs
According to official statements, the Office will:

Review a list of all reliefs, allowances and exemptions, applying to both businesses and individuals, within the taxes and duties administered by HM Revenue and Customs (HMRC) and identifying those reliefs that should be repealed or simplified to support the government’s objective for a simpler tax system.

There is certainly room for a warning here. It has always been a problem for simplifiers (and most of us would like to be simplifiers) that the easier simplifications tend to reduce the fairness in the system. Cutting “reliefs, allowances and exemptions” is certainly likely to do that, since most of them have been introduced for some reason. We might surmise from some of their other actions that this government has no great regard for – or even an understanding of – fairness. In this case there has to be an interim report by the autumn and firm recommendations for Budget 2011. Getting together a consultative committee to report by the Autumn may not be easy – it is unlikely to meet in August even if members have been invited by then, and that might give it two months.

Frankly, that is not time to do the job properly. From its actions so far this government seems alarmingly keen on solutions worked out on the back of an envelope in five minutes. In the tax field that usually means repenting at leisure and having to write lots more legislation to sort out the loopholes.

The CIOT has pointed out that the way in which tax law is made in the UK is what needs to be looked at: most complexity is not deliberate but is due to perceived avoidance and rushed and unexamined legislation. As we have found with administrative burdens, you cut one back only to find another has sprung up behind you.

Small businesses
On the small business side, the Office said it would:

Make recommendations on how to simplify the tax system, ease administration and reduce uncertainty for small businesses, examining evidence and identifying the areas of the tax system that cause the most day-to-day complexity and uncertainty for small businesses; recommending priority areas for simplification; and considering the impact of any simplification in these areas on different business sectors, including large business.

This is of course the review which will look inter alia at IR35. Of course, what causes problems for small business is not generally income tax and corporation tax - which are fairly straightforward except for ancient and arcane rules about what is or is not allowable expenditure. In these cases, a review to see what is appropriate for the 21st century rather than the 19th might be in order, but would certainly not be quick and easy. To this end, the Office has been given until Budget 2011 to start making suggestions.

Complexity problems for small business are of course more likely to arise from the operation of PAYE and NIC, and even these are part of a more general problem of payroll operation.

However, a quote from Taxand (a grouping of multinational accountants) says "multinationals across the world will welcome steps towards tax simplification". It is less than obvious that these two initial projects will benefit multinationals, but perhaps they are confident of the way this government is thinking - you can bet your boots that their idea of simplification is different from mine.