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Don't cut corners!
Rushing through changes to the tax legislation is counter productive, warns The Chartered Institute of Taxation in a recent paper 'Tax legislation in the UK: complexity, avoidance and other issues'.
Using tax avoidance as a justification for detailed changes can make for ever more complicated legislation, going beyond the targeted abuse, e.g. the pre-owned asset legislation. The institute says that trying to identify the tax gap is 'beset with difficulties', as tax is 'not based on economic variables but on very detailed, complex, often unclear and fast-changing legislation'. It is therefore very hard to make a serious estimate of the tax gap and then ascribe it to avoidance or evasion.
The fact that the courts are interpreting tax legislation purposively causes the institute to ask if tax legislation needs to be as prescriptive as it is.
Moving on to consultation, the institute laments the fact that HMRC seems to take short cuts, i.e. by making announcements on changes to legislation, without having consulted on those changes. It points out that the Budget announcement on trusts did precisely this. Consultation could easily have taken place after Budget day, but none did, resulting in complex legislation.
The idea of a general anti-avoidance rule had been considered before, but was discarded because a clearance mechanism would be required. The institute reckons that we about as far from the conditions required for a GAAR to work 'as Mars is from Venus'. Without it such a rule would 'increase uncertainty for business and further undermine the UK's competitiveness'. The alternative to a GAAR was to simplify the legislation so that the 'intended consequences of commercial transactions are clearer from the outset'.
The institute is not especially impressed with the tax law rewrite project either. It says that it has helped increase the volume of legislation and the drafting is 'long winded and often imprecise'.
www.tax.org.uk
Not satisfied
79% of the UK's business leaders say that they have seen no improvement in their relationship with the taxman since the merger between the Inland Revenue and Customs to create HMRC in April 2005. Research from the Tenon Forum research shows that the tax man is still out of touch with the needs of Britain's entrepreneurs. 89% of the UK's small and medium sized enterprises owner-mangers say that HMRC should consult them before ploughing on with changes to the tax system. The bi-annual research, conducted by GfK NOP on Tenon's behalf, questioned managing directors, financial directors and senior directors of 500 small and medium-sized enterprises businesses.
Andrew Hubbard, Tenon's director of tax and the LexisNexis Butterworths Tax Writer of The Year, agrees that HMRC is out of touch with the UK workplace and has compiled a tax manifesto for the 21st century. He has made suggestions: first, HMRC's rigid division between the employed and self-employed should be revised. Second, HMRC should reassess childcare and consider making it a tax deductible expense. Third, HMRC should encourage people to work from home rather than making it unnecessarily complicated.
At present there are 'some antiquated, and often idiosyncratic, rigidities on business leaders' says Mr Hubbard, but he hopes that with targeted consultation HMRC will make some positive changes to benefit UK businesses in the years to come.
What do you know?
How do companies use their tax knowledge? This is what Professor Kevin Holland from the School of Management and Business at the University of Wales, Aberystwyth hopes to discover. Funded by the Association of Chartered Certified Accountants, he is to lead a new study into how companies develop and use tax knowledge. The aim of the project is to provide practical recommendations to improve the transmission of tax policy changes to appropriate decision makers within organisations without the creation of additional compliance costs. It is envisaged that such recommendations will have implications for both companies and Government agencies. The project will look in particular at how the frequent changes in tax legislation and practice are captured by companies and distributed internally among decision makers.
The researchers are keen to obtain the views of a wide range of companies including quoted firms and small and medium sized enterprises irrespective of industry classification. Further information about the study can be obtained from Kevin Holland at The University of Wales, Aberystwyth 01970 622200, e-mail: k.holland@aber.ac.uk or John Hasseldine, University of Nottingham 0115 9515279, e-mail: John.Hasseldine@nottingham.ac.uk.
15th birthday!
The Society of Trust and Estate Practitioners was 15 on 4 July 2006. From the original 60 professionals who met in London to create a body, STEP has now grown to nearly 12,000 members and is dedicated to training, networking, education and advocacy.
STEP will be celebrating in style with a gala dinner on 16 November 2006 at the Park Lane Hotel, London. The dinner will provide an opportunity to bring together the enormous range of people who contributed to the growth of STEP and its success over the last 15 years. For table bookings contact Hannah Maloney at STEP, tel: 020 7838 4868.
