- The OTS has made more than 450 recommendations since its inception in 2010.
- Simplification has to considered in light of other costs and consequences.
- Employing people from the public and private sectors gives the OTS a unique outlook.
- Latest work includes reviews of VAT, the corporation tax computation and the gig economy.
After seven years, more than 450 recommendations and much building of trust in government, business and practitioner circles, the Office of Tax Simplification (OTS) has arrived as a statutory body (FA 2016, s 184) with the publication of its first annual report.
Set up initially on a temporary, informal basis in July 2010, the OTS has made such an impact that the government has accepted half its recommendations and a further quarter are being considered by HMRC.
In their foreword to the report, published on 26 June 2017, OTS chair Angela Knight and tax director Paul Morton state that the body is believed to be the first in the world to bring a systematic and thoroughly researched approach to tax simplification.
They add that the OTS is staffed with independent advisers connected with government, tax practitioners and business representatives, which gives it a ‘unique position from which to highlight structural or apparently intractable issues’. These include areas where change could be controversial and the OTS can expose issues for debate, highlighting options and implications. It cites as examples the two reports on the closer alignment of income tax and National Insurance contributions. Although to do so would be a simplification, the second report showed the substantial associated costs and consequences involved.
They mention that some of the OTS’s work includes reviewing areas of the tax system at the request of the chancellor, such as simplifying the corporation tax computation. The chancellor is obliged to respond to these reviews.
Other projects are initiated internally, such as the focus paper on the gig economy. These are shorter papers and projects, responses to consultations and involvement in tax policy making.
Between 2010 and 2016, the OTS conducted 14 major projects and produced 40 reports and papers.
The report cites some of the key successes:
- Identifying 1,042 tax reliefs in the UK tax system. The OTS reviewed 155 of these, paving the way for the abolition of more than 40 and improvements to others. It also showed the value of regular systematic review of reliefs and exemptions, a subject that has since been of interest to the House of Commons’ Public Accounts Committee (HMRC Performance in 2015-16, 28 November 2016).
- Adoption of the cash basis for calculating tax, rather than accruals accounts, for the smallest businesses, and now used by more than one million entities. HMRC is extending and applying the method more widely in its Making Tax Digital plans.
- Setting up a series of reforms to eliminate P11Ds, including handling tax on employee benefits through the payroll and a trivial benefits exemption.
- The abolition of class 2 National Insurance contributions.
- Streamlining reporting of share schemes and harmonising definitions and rules.
The report states that, as well as developing evidence-based, practical recommendations, the OTS’s way of working with its wide-ranging evidence gathering and talking to and obtaining input from a representative stakeholder group has been welcomed as a model of how to consult. It says the office aims to show it values input and, as a result, has developed a strong reputation with, and the trust of, government, individuals, businesses, professional advisers and representative bodies. Further, the OTS has developed a ‘particularly close relationship with Administrative Burdens Advisory Board (ABAB)’ and has relationships with the Department for Work and Pensions and Department for Business, Energy and Industrial Strategy.
The report cites the OTS’s staffing model as another success. It mixes civil servants drawn from HMRC and the Treasury with private sector staff on secondment or direct hire. It believes this combination has delivered value and attracted high-quality input and contributions.
The report states that the OTS consistently consults on how it is doing and on the future work programme. This included a stakeholder event 12 months ago attended by 80 people, a structured survey of key stakeholders towards the end of 2016 and a stakeholder round table discussion last February.
As a result, the OTS is pursuing a wider range of projects over the next three years and identifying areas that should be developed over the longer term.
The report states the office will focus on measures that will benefit most people most often. But it will not ignore an opportunity for a ‘quick win’ that benefits fewer taxpayers. It will also consider areas where simplification is necessary even if the numbers affected are small on the basis that it is ‘the right thing to do’.
The report notes that the OTS has always focused as much on tax administration as on the legislative framework and will continue to do this. It states that perceptions are important because they may determine whether a feature of the tax system works as intended: ‘For businesses, it is vital that tax administration does not unnecessarily inhibit productivity and efficiency.’
In essence, the administrative burden of dealing with the tax system should be easier for everyone. On its current work, the OTS is interested in hearing from taxpayers about practical challenges they face in dealing with their tax affairs.
In the next year the OTS intends to deliver final reports on VAT and on ‘paper’ stamp duty. The review on the corporation tax computation was published a few days after the annual report. It also plans to continue its work on Making Tax Digital, employment status and the gig economy. It has also ‘reflected’ on the effect of a range of its earlier recommendations, to provide lessons for the future.
In the one-to-three-year time horizon, the OTS aims to consider whether more should be done on issues arising from the corporation tax report, owner-managed businesses and measures designed to support investment and the raising of capital. Other areas for consideration include savings and tax reliefs.
In the longer term, the body expects to look at the challenges presented by the digital economy and how technology can be used to simplify using the tax system.