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Industry expert question whether the Office of Tax Simplification, launched by the Government last week, is too ‘politically motivated’ to make a real difference to business.

Industry expert have voiced muted support for the Office of Tax Simplification, launched by the Government last week, although some believe that its agenda could be too ‘politically motivated’ to make a real difference to business.

The OTS has been set up to tackle the complexity of the UK’s tax system, reduce the burden of red tape on business and reverse what Chancellor George Osborne referred to as a “decade of meddling and intervening” in the tax affairs of millions of families and businesses.

The objective of the new body is to provide the Government with independent advice on simplifying the UK tax system. Established as an independent Office of the Treasury, the OTS will draw together expertise from across the tax and legal professions, the business community and other interested parties. Full details about the Office are set out in its framework document [2].

The body will be chaired by former Conservative MP and Financial Secretary to the Treasury, Rt Hon Michael Jack. During his time as Financial Secretary he was responsible for establishing the Tax Law Rewrite project, which was tasked with rewriting the UK’s direct tax legislation in clearer and simpler language.

John Whiting, tax director of the Chartered Institute of Taxation and a former tax partner at PricewaterhouseCoopers, has taken on a director role. Whiting was awarded the OBE in 2008 for services to the tax profession.

Both appointments have been made on a part time, voluntary basis. Permanent appointments will be made through open competition during 2011.

Speaking at the Office’s launch, Chancellor George Osborne said: “The previous Government took a complex tax system and made it even worse. A decade of meddling and intervening has made the tax affairs of millions of families and businesses across the UK extremely complicated. We need to sort out this mess.

The government says the tax system became a "hindrance" to business under Labour, and that by simplifying it and making it more competitive for small firms it would stimulate economic growth.

John Whiting said: "I've long argued that we need a simpler tax system in the UK, so I'm delighted to be given the opportunity to take forward the Government's commitment in that direction. In our complex world a truly simple tax system for all is probably impossible, but working towards a simpler system will help all who deal with it: taxpayers, especially the unrepresented, tax advisers and tax authorities."

The Chancellor has initially asked the Office to take forward two reviews, which cover tax reliefs and small business tax simplification, including IR35.
 
Andrew Hubbard, RSM Tenon's National Tax Policy Director, told Finance Week: “I think it’s for real – it’s not just spin and it’s something the Tories have been advocating for some time. And no one would deny that some of the UK’s tax rules are hideously complicated. But the question is, how will it achieve what it sets out to do?

“If you’re going to radically simplify the tax system it would be unfortunate to tinker around the edges. It needs to look at what can be achieved to make a difference and work with industry and Government to make sure things are followed through properly,” Hubbard added.

“I would judge its success in two ways – does it reduce the tax burden on industry and business, because there’s no doubt that some of the rules are hideously complicated. And will the proposals have a degree of permanence or will we see complexity creeping back in after two, three, five years.”

Hubbard warned that although mid-sized to large companies would see some impact in their capacity as employers, the OTS was unlikely to have much influence on corporation tax issues in the short term.

Chas Roy Chowdhury, head of taxation at institute ACCA, has called for the Coalition Government to "think small first" when creating new taxation policies for business. “It needs to create a foundation of principles that can apply to all businesses, based on the needs of the smallest, with additional layers added for larger, more complex companies."

“One of our main concerns is that the Office won’t be as hands off as the Office for Budget Responsibility, which could mean that the agenda is politically motivated. It needs to have a more independent remit, and we need a process where politicians can’t just refuse to address certain tax areas, but there’s a lot of good will.”

Geoff Goodyear, managing partner of Lubbock Fine and chairman and head of the International Tax Group at Russell Bedford International, a global network of independent firms of accountants, auditors, tax advisers and business consultants.

“Accounting rules have become much more prescriptive in terms of how your write off your assets in a business. Addressing that could assist businesses by allowing them not to do so much post accounting work,” Goodyear said.

“Fifteen years ago we have a review of the tax system which resulted in very few changes. However the coalition government does appear to be pro-business. That’s a big driver so this body may succeed where others failed.”

Andrew Noble, head of tax at Browne Jacobson LLP and regional chairman of the Chartered Institute of Taxation said:"Any initiative to simplify and reduce the bloated UK tax system must be welcome.   The situation can't be right where it can often cost as much if not more than the actual tax bill itself, for businesses and individuals to pay their professional advisers to tell them how much tax they need to pay.”
 
"A simplified tax code would surely help the overall tax take for the government, if the gamekeepers at the Treasury and HMRC could then work out more easily who the real poachers are out there -  and target them rather than businesses making honest mistakes as they try and pick their way through the labyrinth of UK tax legislation,” Noble added. “It won't be an overnight task, but if the political will is there to back it, it could help make the UK a better place for businesses to operate."