Expert View: So many tax laws, but how many taxes get paid?

Avoidance won't go away if people think a tax burden is unfair
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The Independent Online

There is something of the swamp about tax. Take an unguarded step and you are suddenly up to your neck, as what looks like a firm path turns into a morass. For the guardians of the swamp, HM Revenue & Customs, the conditions are as treacherous as for the travellers they hope to trap.

The truth is that there is just too much tax law. The going rate of increase is around 500 pages each year. The main reason for this is that the UK system taxes in literal terms - it requires words, and lots of them. Business, particularly finance, has changed radically over the past couple of decades, becoming more complex and international. Yet new words have simply been added to old, layer upon layer, rather than the old being swept away and replaced by tax concepts relevant to the new world.

Compounding all this is the Government's obsession with tax avoidance. A loophole is found in existing legislation and whole chapters are written to block it. No sooner is the new law on the statute book than it's found to have created another loophole and the merry-go-round starts again.

Every fair-minded person would agree that avoidance should be stopped, so we all bear a fair share. But avoidance won't go away simply because the Government mounts a campaign, including home visits to major companies, to pass on the message that companies should treat the payment of the right amount of tax as a moral and social responsibility.

And it won't go away when large sections of the community think a tax burden is not fair. Take stamp duty. There was little avoidance by individual house-buyers until the rate went up from 1 per cent to 4 per cent - and, historically, not much by commercial players. But over the past few years, avoidance has become endemic. Why? Because people think 4 per cent is too much.

Another example is employers' national insurance. This is a 12.8 per cent tax for the privilege of giving someone a job, and businesses don't like it. If this were being introduced as a new tax, there would be riots. A whole new industry has grown up in recent times to mitigate its effects.

Nor do businesses like the increasingly harsh fiscal climate, as former Customs men try to squeeze more tax out of the system without their masters having to face unpopular headlines by raising rates.

While the mire created by new laws and anti-avoidance add-ons should have persuaded the Government to restrict tax law to raising revenue, hundreds of pages are still being spawned in the belief that tax can be used as an instrument for social policy. Watch this space as the new taxes intended to free up land for development suffer from the law of unintended consequences and are, in time, discarded.

The recent deluge of tax legislation from the European Court has meant that the Government is drowning in uncertainty. European law says the UK taxman has to treat a French company in the same way as an English one, so the foundations that underpin our territorial-based tax system no longer work. Everyone saw it coming, but the Government just hoped for the best. The best did not happen and belatedly our rulers have committed themselves to exploring a wider package of reforms for taxation of foreign profits.

That's not nearly enough. The Government should seize the opportunity to drain the swamp - even if that reveals alligators - and create a new system for businesses that is simple and fair.

The task would be a mighty one, but if someone had the vision to make the UK the best tax jurisdiction in the world for businesses, the goal would be more than worth it.

Alasdair Douglas is senior partner and head of corporate tax at City law firm Travers Smith alasdair.douglas@traverssmith.com

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