Why the Chancellor should take some simple steps to making our lives easier

A chancellor has his pledges, policies and whims. The parliamentary draftsmen have to turn them into law, often at speed. Result: misery. Sheena Sullivan suggests way of making life simpler for those using the tax system.

Tax simplification is like peace on earth and goodwill to all men: everyone sees it as a good thing but achieving it seems to be an unattainable objective.

In the UK we have a history of complex tax legislation. The 1918 Income Tax Act consisted of 239 sections and seven schedules and contained all of the main provisions relating to the taxation of income. The 1996 Finance Act had almost as many sections, 41 schedules and more than twice as many pages. The '93, '94 and '95 acts were each of similar length. In fact, in the last three years alone, there has been more than 1,000 pages of new tax legislation. Certainly, anyone who has tried to struggle with a personal tax return for 1996/7 will testify that tax legislation could be much clearer and more precise.

The complexity and volume of tax legislation does not lust result in onerous administration, it also leads to uncertainty which in turn inhibits the smooth operation of the country's economy. Even professional advisers are sometimes unable to identify the exact tax implications of a particular proposed transaction. Tax simplification would enable decision makers to predict the tax implications of their decisions with greater certainty and would remove some of the current restraints on business decision making.

Complex tax legislation is driven by a number of factors. The increasing complexity of today's business world, combined with the changing landscape of our daily lives and the impact of the political process, have all played a part in creating complicated and extensive tax legislation.

Parliamentary draftsmen do not set out to produce ambiguous and complicated legislation however. More often than not, the resulting legislation is complex because it is produced under tremendous time pressure, and in secret and suffers from an absence of adequate parliamentary procedures for review and amendment of enacted legislation.

The Inland Revenue has concluded that the only practical way of achieving simplification is by ordering the tax legislation more logically and expressing it in a clearer style. Arrangements for the progressive rewriting of the entire body of direct tax legislation have now been specified, preliminary work completed and rewriting begun.

Rewriting the tax law is clearly a huge project as there are more than 6,000 pages of direct tax legislation. My concern however is that it can only have a limited effect. Without policy simplification there cannot be a simple tax system. Our tax legislation could be better drafted but it could not be made simple without changing the underlying policy.

In his pre-Budget report on 25 November, the Chancellor spoke of the Government's commitment to a national debate on creating a fairer tax system. A fairer system requires a simpler, more straightforward tax regime. Certain areas are crying out for reform. As first steps we should look at

simplifying the bewildering combination of restricted tax allowances, personal tax allowances for the elderly and multiple tax rates such as the tax rate on dividends faced by the lower-paid sections of the population who cannot afford professional advice;

integrating the tax and NIC systems involving administration by a single agency which would save public money, eliminate the burden of double accountability and interference for employers and reduce the time spent on employee taxation;

abolishing capital gains tax which is a complex system raising relatively little tax;

simplifying inheritance tax.

Whilst I welcome the move to a national debate and will seize the opportunity to contribute, I issue a word of caution. It is vital that any proposed changes to the tax system arising out of the wide range of tax reviews currently in progress do not further complicate a system which is fast becoming unintelligible and unworkable. None of us expects to see peace on earth and goodwill to all men in our lifetime, but surely we could aspire to tax simplification

Sheena Sullivan is tax partner at the accountants Pannell Kerr Forster.

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