Clearing up the clutter – the ICAEW suggests a new broom for tax simplification

The ICAEW has published its manifesto, ‘Resilience and Renewal – ICAEW’S vision for the future of the UK https://www.icaew.com/-/media/corporate/files/technical/economy/icaew-manifesto.ashx

HMRC

Whilst the report spans a number of areas, this is of course a blog dealing with HMRC issues, so we focus on these. Under the heading ‘Productive’ the ICAEW states:

‘Make the UK the best place to start, run and grow a business Entrepreneurs are the lifeblood of the economy. The UK has a strong entrepreneurial track record. Our members help advise future businesses from the first spark of an idea, nurturing growth and supporting professionalisation to gain investment and scale. But our members tell us that starting to trade is not as easy as it should be. Vital finance doesn’t always flow to where it is needed.

While forming a company is straightforward, fledgling businesses are held back from launch by HMRC delays to VAT registration and problems opening a bank account.
Vital funding for the UK’s growth and renewal is not always deployed to where it can be most productively used.
The tax system, which should encourage productivity, is too complex, and creates disincentives to growth and investment (our emphasis).
Exceeding 3% investment of GDP in R&D would power more innovation and improve the UK’s opportunity for productivity gains.
Regulation is important but needs to be proportionate and better targeted……’

Tax strategy

The next government should publish an overarching tax strategy, establishing the route to simplify taxes and digitalise tax collection, transform the tax system and to provide certainty and make it fit for the future. The UK’s tax rates, thresholds and allowances create cliff edges which act as a structural block to growth, inhibiting job creation and economic activity which would otherwise generate tax receipts for the Exchequer. Meaningful tax simplification requires a clear plan, focused resource, accountability and investment. Complexity is a key issue for our business and charity members, especially when combined with the challenges they face in getting help from and engaging with HMRC customer services and systems. ICAEW calls on the next government to endorse a tax simplification roadmap explaining how it will be embedded into HMT and HMRC policymaking following the abolition of the OTS. The UK has one of the longest tax codes in the world. The recent removal of the pension lifetime allowance generating almost 100 pages of legislation is a topical example of policy changes complicating, not simplifying the tax system. Any tax policy changes should adopt a “digital first” position (ie, ensure that they can be implemented digitally), in order to reduce administrative burdens and consequent time costs placed on HMRC and taxpayers. However, the design of Making Tax Digital (MTD) needs improvement and ICAEW strongly opposes quarterly reporting for MTD Income Tax Self Assessment (ITSA). A thorough review into HMRC’s resources and capabilities should be undertaken and increased investment in HMRC is almost certain to be needed to develop better digital services. Agents often have to resort to using the phone or writing to HMRC only because they are unable to resolve their clients’ issues digitally. We think that there may be scope to refocus HMRC resources onto the development of digital services that will reduce phone and post demand in the short to medium term. This is particularly the case for digital services for agents. ICAEW has previously shared with HMRC a list of improvements to digital services that would reduce demand on phone and post services, including:

Having a single sign-on portal for agents;
Greater access to client data for agents so they can fully understand a client’s tax issues;
A secure email facility to send documents to HMRC that is safe and allows documents to be sent in both directions by HMRC and agents; and
Improvement in the interaction of existing HMRC digital systems.

Regrettably, ICAEW receives evidence of unacceptable HMRC service performance from members almost daily. The evidence covers both long waits for helpline calls to be answered and letters and other correspondence left unanswered, with some correspondence delays of well over a year. HMRC’s service standards need to be addressed urgently to ensure the tax system remains resilient and HMRC’s performance is not a barrier to growth and productivity. HMRC needs to be incentivised to be more efficient and effective. The government should hold HMRC to account for poor service standards and missing deadlines. There should be appropriate redress for taxpayers who suffer because of poor HMRC service standards. This could include, for example, a more straightforward process to reclaim extra costs incurred due to HMRC delays and incorrect processing.’

We’ve been here before alas

Alas, this is not the first call for ‘tax simplification’ by hard pressed tax advisers and their clients. The author of this blog is sufficiently ‘long in the tooth’ to remember earlier simplification projects. The length and complexity of our tax code has, nonetheless, grown exponentially and we agree with the ICAEW that this cannot be good for business. But we have doubts that anything will change frankly.