More simplification required

In this week’s issue (online from Wednesday), I report on a roundtable event on the future of the Office of Tax Simplification.

If you ever need convincing of the case for simplification, the recent decision in Alistair Norman (TC 4495) should do the trick.

It should have been a straightforward case on whether a share option was charged to income tax or capital gains tax – but the judge needed 45 pages of microscopic analysis of complex legislation to arrive at an answer.

He was clearly exasperated by the drafting.

At one point, he found himself in a loop caused by a circular definition, and elsewhere he was astonished to learn that the legislation works only because taxpayer is deemed to be an associated person of himself.

The provisions were introduced as FA 2003, sch 22. They amended legislation introduced only days earlier as part of the tax law rewrite; so, they were always problematical.

The legislation was enacted to tackle avoidance of tax though special purpose shares. Unfortunately, the drafts-people looked at everything through the prism of avoidance, creating unbelievably difficult–to-understand rules for the taxation of straightforward share incentives.

The irony is that sch 22 did not prevent avoidance. If anything, it opened up further opportunities and was made to work only by the later insertion of anti-avoidance overrides into key provisions.

We are left with rules that border on the incomprehensible for normal transactions and which can be overridden in avoidance cases.

Let’s hope a reformed and strengthened Office of Tax Simplification can help prevent this from happening again.

Unless you want to drive yourself mad, do not read the full judgment in the Norman case. Take a break in the sunshine.

Energy must be conserved for the flood of consultation documents that come out of Wednesday’s Budget.