Tax needs a total rethink
Wednesday 28 April 1999
Recently, tax rates have remained constant, yet more revenue has been collected, an apparently magical result that has been achieved by redefining the tax base.However, the devil is in the detail. In just two years, three Finance Acts have added nearly 1,000 pages to primary legislation, not to mention a plethora of statutory instruments providing supplementary regulations and detailed rules.
Where does this leave the taxpayer in an era of self-assessment? Confused, bemused and struggling to understand the basic principles on which the tax system is based. Professional advisers are also experiencing difficulty in keeping pace with all the changes. Increasing reliance has to be placed on software suppliers who are themselves invited to cope with significant changes without due notice.
The introduction of a 10 per cent tax rate just 27 days before it becomes effective is a case in point. Welcome as that policy change is to many members of our community, has full consideration been given to all the practicalities? Will payrolls be correctly calculated in the early months of the new tax year? How many software houses are already operating at full stretch coping with the millennium bug, euros and electronic commerce, not to mention a tax system that seems to change almost every day?
Rumour has it that the Revenue's systems supporting the instalment basis of payment of corporation tax will not be operational until December 1999. The first payments under the new system were due in February 1999. The policy was announced 12 months ago.
Company payroll departments are also about to feel the wind of change. The Government is committed to ensuring that work pays, and is restructuring the tax and benefits system to deliver a manifesto commitment. In future, many benefits that have traditionally fallen within the responsibility of the Department of Social Security will be administered by the Inland Revenue.Minimum wage policy and regulations are the responsibility of the Department of Trade and Industry, yet the Inland Revenue will provide the enforcement back-up through its extensive PAYE audit procedures.
Student loan repayments will also be recovered by deductions from salary once earnings pass the relevant trigger point.
The financial services industry has also had its fair share of attention. Individual savings accounts replace personal equity plans and tax exempt special savings accounts. Taper relief and new share identification rules completely redefine the record-keeping requirements for many providing private client services to investors. Reinvestment relief has been integrated within the Enterprise Investment Scheme but largely remains intact.
Few would doubt that the Government has set about its review of the UK tax system with a zeal and enthusiasm that is leaving many members of the tax profession gasping for breath. There is a genuine concern that the software industry is unable to cope with the rapid changes taking place.
The institute of which I am proud to be president has often called for a simplification of the tax system. Modern commercial life is itself a complicated subject. The complexity of the tax system simply reflects developments in legal, accounting and commercial thinking.
Modernisation is a concept with which the Government is familiar. We must modernise the tax system without delay. Collaboration between politicians, revenue authorities, tax advisers, businessmen and others interested in the smooth working of the tax system is essential if a meaningful reduction in compliance burdens is to be secured.
A fair tax system is one that can be understood by all taxpayers. We have a long way to go before that ideal can be attained in the UK.
The writer is the president of the Chartered Institute of Taxation, and a partner at KPMG
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