Links between tax avoidance and complexity workshop

On the 26 June, the OTS held a workshop involving a small but diverse group of renowned tax professionals and commentators. The aim was to discuss the links between tax complexity and tax avoidance, to help inform OTS thinking.

Going forwards, the OTS team will gather further views and data on avoidance and complexity, and present some emerging themes and proposals at a longer workshop in the autumn, and then publish a report by the end of the year.

A comprehensive readout of the discussion, which highlights a number of interesting points, can be accessed in PDF format by clicking on the following link: OTS avoidance and complexity workshop – 26 June 2014 

The group began by discussing how poorly designed legislation provides opportunities for tax avoidance, regardless of whether the legislation is simple or complex.

Attendees discussed how avoidance is born of out of uncertainty or a lack of clarity or understanding in legislation, and when provided with a set of rules, people will interpret them in the way that is most beneficial to their circumstances. However, it was explained that there is a thriving market for people that do not want to take risks when it comes to dealing with tax, and are willing to pay for as much ‘certainty’ as is possible.

It was also explained that opportunities for tax avoidance originate because of badly designed boundaries in the tax system, in particular, boundaries between different taxes that can be crossed too easily to create a more advantageous tax position.

The group went on to talk about whether expressing the intention behind legislation better would help tackle avoidance. But there were mixed views as to whether it would help to state the policy intention in legislation as an aid to the Courts.

The group felt that there had always been a market for tax avoidance, but opportunities ebbed and flowed over the years in the light of legislation and case law (and public opinion).

If you want to join in the debate we’d love to hear your thoughts – email them to ots@ots.gsi.gov.uk

 

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The PAC report on tax reliefs

The Public Accounts Committee (PAC) has today published a report on tax reliefs. We read it with interest, as we conducted a report into tax reliefs in 2011.

The OTS also contributed to the work that produced the PAC report, giving the National Audit Office an updated total of tax reliefs across the tax system. In our original report in 2011 we found there were 1,042 reliefs in the tax system; earlier this year we updated our list for intervening Finance Acts and came to a figure of 1,128. We’ll review the list further in the light of the current Finance Bill when that is passed by Parliament.

The OTS work on tax reliefs focussed on a sample of 155 reliefs. Our report recommended various abolitions and enhancements, but to us the main point we were making was that there was no systematic review and evaluation process of tax reliefs. The OTS report is referred to regularly in the PAC report, which is pleasing.

Our review went back to the original policy for each relief (which of course took some digging for some long-established provisions!); we looked at how the relief was operating today – and whether it seemed to be meeting those original aims. We were interested in the administrative costs – to taxpayers and HMRC – of its operation. Whether the relief was delivering value for money was something we tried to review but inevitably that gets more into policy judgments. We also recognised that some reliefs have been abused for tax avoidance, leading to complex anti-avoidance rules.

The PAC report picks up our theme of there needing to be more systematic review of the operation of reliefs, referring to a need for a ‘system of control’. We remain interested in the subject of reliefs and although we haven’t formally carried on our 2010/11 project, inevitably it’s a subject that crops up in all our projects (for example our current Competitiveness review has heard a lot about improving the operation of Research and Development tax relief). So we would welcome the chance to do further work in the area.

John Whiting

26 June 2014

 

OTS mentioned during the Finance Bill Committee

The Finance Bill Committee has been in full swing over the past few weeks. Now that parliament is in recess, it seems like a good time to look at what references the OTS has received in the midst of the debate so far.

On Partnerships, clause 68 and schedule 13 introduce changes to prevent tax avoidance through the use of certain partnership structures. The OTS review of the whole area of partnership taxation was noted twice, including the interim report published in January 2014. Partly, this was to bring to light the risk of “unnecessary complication while the results of the OTS review are still being considered”.

On share schemes, clause 49 and schedule 7 implement a number of recommendations made by the OTS to simplify the tax rules in relation to employment-related securities (ERS) such as employee shares or ERS options awarded to employees. The changes affect the tax treatment of internationally mobile employees and nil-paid and partly-paid ERS, and extend the corporation tax relief available to companies in relation to employee share acquisitions. It was noted that “This is just one of the provisions in the Bill that implements recommendations made by the OTS. It addresses issues indentified as priorities by the OTS and has been welcomed by consultation respondents as a valuable simplification of complex tax rules.”

OTS definitions project – Finance Bill 2014 measure

The OTS was delighted to see that Finance Bill 2014 contains a clause enabling the index of definitions included in an Act to be amended by secondary legislation (see clause 293 reproduced below). As a result of this clause, it should be possible for Parliamentary counsel to keep schedules of definitions up to date, without having to include legislation in future Finance Bills.

The OTS recommended something like this in its report “Definitions in tax legislation and their contribution to complexity” . This report referred to the schedules of definitions included in Acts produced by Tax law Rewrite Project being out of date (See ibid section 2.4.7) due to time pressure on parliamentary draftsmen. For example, Schedule 4 Corporation Tax Act 2010 does not contain the definition of “community amateur sports club” which was introduced in Finance Act 2012 (Finance Act 2012 s 52).

We are very pleased to see this welcome change.

293 Power to update indexes of defined terms
(1) The Treasury may by order amend any index of defined expressions contained in an Act relating to taxation, so as to make amendments consequential on any enactment.
(2) In this section—
“enactment” means any provision made by or under an Act (whether before or after the passing of this Act);
“index of defined expressions” means a provision contained in an Act relating to taxation which lists where expressions used in the Act, or in a particular part of the Act, are defined or otherwise explained.
(3) The power to make an order under this section is exercisable by statutory instrument.
(4) An order under this section is subject to annulment in pursuance of a resolution of the House of Commons.

The OTS & the Budget

John WhitingphoneAs Budget-watchers will have spotted, the Office of Tax Simplification (OTS) made a mark on this Budget and we have the opportunity to do more in the future with our Competitiveness project.

We published in January significant reports on Partnerships and Employee Benefits & Expenses and the Budget contained the Chancellor’s formal response to our various recommendations. It is pleasing that most of these are going to be taken forward and we had a fuller response from David Gauke, Exchequer Secretary to the Treasury (see https://www.gov.uk/government/publications/letter-from-exchequer-secretary-to-ots-response-to-partnerships-and-employee-benefits-reviews).

It’s not just these recent reports that are being taken forward. In last year’s Pensioners’ report, we recommended abolishing the 10% savings rate of income tax with a pragmatic increase in ISA amounts to compensate. The Chancellor’s announcement achieves most of the practical simplification we were after and there’s an ISA increase as well!

Our favourite topic of reforming NICs bore some fruit with the taking forward of collecting Class 2 NICs via self assessment. The OTS report on ‘unapproved’ share schemes has led to a number of measures in FB 2014. Two of our more radical proposals – on the timing of the tax charge and on an ‘employee shareholding vehicle’ – are to be taken forward by way of a discussion document.

As always, we need to do more and one of the documents published with the Budget is our paper on the Competitiveness project. Do have a look at our paper (see https://www.gov.uk/government/publications/competitiveness-of-uk-tax-administration-review). The Chancellor wants our ideas on improving the competitiveness of the UK’s tax administration and we welcome all input. What would make business taxes – corporation tax, PAYE/NIC, VAT and the rest – more efficient? If you could suggest one change to improve the competitiveness of the UK tax administration, what would it be? Let us know at competitiveness@ots.gsi.gov.uk.

John Whiting, OTS Tax Director

OTS visit to local businesses in Devon and the South West

The OTS visited Devon and the South West last week to ask local businesses for their views on improving the UK tax administration.T

We kicked off the tour in Newton Abbot with Westaways Sausages, where we met the MD, Charles Baughan, who accompanied the Prime Minister on a recent trade mission to China.  We went on to speak to the Una Group in Plymouth, a diversified business that embraces manufacturing, business services and property businesses.  We then travelled up the M4 to visit Thatcher’s Cider, and were given a tour of the very modern factory by the Chairman, John Thatcher.

We heard a lot about where the tax system is relatively easy (payroll taxes and VAT) and where it is more complicated (corporation tax).  We were really impressed with the drive and enthusiasm of everybody we met, and came away with some really practical ideas on how to improve the competitiveness of the UK tax administration.  We will set out some of these ideas in a paper shortly.

UCLAN students meet the Exchequer Secretary

WSOP1 014On Tuesday 11th February 2014, four students from the University of Central Lancashire (UCLAN), accompanied by course lecturer David Massey, visited HM Treasury on a programme organised by the OTS. The purpose of the visit was to reward these students – Dominic, Calum, Usamah and Henna – for their hard work on a project undertaken in November last year.

The project involved a class of third year undergraduate accountancy students working in groups to prepare a poster presentation about an issue relevant to the OTS’s employee benefits and expenses review. Dominic and Callum worked together to prepare a poster presentation about calculating the value of living accommodation, using examples to point out current problems, such as the difficulty in finding out the Gross Rateable Value. Usamah and Henna worked together to prepare a poster presentation about reliefs for uniform and travel expenses, drawing on their personal experiences of working part-time in care homes.

During the visit, the students met David Gauke MP, the Exchequer Secretary to the Treasury, and John Whiting, Tax Director of the OTS. This included an opportunity for the students to ask both David and John questions about UK taxation, and for both David and John to ask the students for their thoughts. The Minister presented the students with prizes which acknowledged the quality of their projects. Additionally, throughout the day the students spoke with civil servants working at the OTS and the Treasury’s personal tax team.

We hope the visit provided a useful insight into tax policy making, and wish the students all the best for their upcoming exams and future careers.