The Chancellor announces the establishment of the Office of Tax Simplification
On Tuesday 20 July 2010 George Osborne, Chancellor of the Exchequer, announced the establishment of the Office of Tax Simplification to provide independent advice on how to simplify the tax system. It will carry out independent reviews (inquiries) into parts of the tax system for which HMRC is responsible, with the exception of tax credits, and it will then present its findings to the Chancellor or the Exchequer Secretary which they, in turn, will put before Parliament.
The first two reviews – tax reliefs and small business tax simplification
The Chancellor announced the setting up of the first two Inquiries of which the terms of reference are set out below.
The tax relief reform terms of reference are to:
- 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
- identify those reliefs that should be repealed or simplified to support the Government’s objective for a simpler tax system.
The terms of reference of the small business tax simplification review are to:
- examines evidence and identifies the areas of the tax system that cause the most day-to-day complexity and uncertainty for small businesses;
- recommends priority areas for simplification; and
- considers the impact of any simplification in these areas on different business sectors, including large business.
This second review will also specifically review the IR35 legislation and see whether it is possible to replace it with simpler measures that prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self-employed or restrict labour market flexibility.
In particular this, IR35, part of the review will:
- identify and provide evidence of the complexity and uncertainty created by IR35;
- consider alternative legislative approaches that would be simpler and create certainty while ensuring that, where intermediaries are used to disguise employment, any income that is effectively employment income is taxed fairly; and
- consider the scope for tax avoidance and the extent to which alternatives to IR35 would affect it.
Reporting deadlines for these first two reviews
The first review into tax reliefs will present an initial report by late autumn this year and a final report with recommendations for the Chancellor before Budget 2011.
The second review will present its initial report by Budget 2011 and once the Government has considered that initial report the Office will be asked to produce specific recommendations on tax simplification for small businesses
The initial members of the Office of Tax Simplification
There will be a four person Board made up of a Chair and Tax Director plus a senior member from each of HMRC and HM Treasury.
The Board will be supported by a full time secretariat of 6 people or full time equivalents. These will be either civil servants from HMRC or HM Treasury or secondees from the private sector.
The initial Chair of the Office of Tax Simplification is Michael Jack who was a member of Parliament for 23 years until 2010. He was the Financial Secretary to the Treasury from 1995 to 1997 when the Tax Law Rewrite project was established. The Tax Director is John Whiting who will work one day a week for the Office of Tax Simplification and he will also continue 3 days a week in his existing role as Tax Policy Director at CIOT where he has been working for the past year since retiring as a partner at PwC.
Permanent appointments to these posts will be made next year and the Office of Tax Simplification is initially established for the life of the current Parliament i.e. until May 2015.
The Board will be supported by a Consultative Committee made up of about six to ten people drawn from the tax and legal professions, business and other interested parties. The Committee will be chaired by the Tax Director and officials from HMRC and HM Treasury will also attend the meetings. An initial decision will have to be made as to whether there is to be just one Consultative Committee or whether there should be a separate Committee for each Inquiry.
The working framework for the Office of Tax Simplication
The Government has published a framework document for the Office of Tax Simplification of which the main details are set out below.
The aim of the Office is to provide independent advice to the Chancellor on simplifying the UK tax system, with the objective of reducing compliance burdens on both businesses and individual taxpayers. To do this, the Office will:
- provide the Government with independent advice on where there are areas of complexity within the UK tax system with the potential for simplification; and
- conduct inquiries into complex areas of the tax system, to collect evidence and advise the Government on options for reform.
The Office will publish individual reports on its inquiries that will set out evidence it has collected, the views of interested parties, its analysis of potential options, and proposals for simplification. The Board members will meet the Chancellor or the Exchequer Secretary to the Treasury following publication of each report to discuss its findings.
The Chancellor will lay the Office’s reports before Parliament, and Board members may be required to give evidence before the relevant Parliamentary committees on the contents of these reports.