HM Treasury published its Call for Evidence: Review of the Office of Tax Simplification (OTS) in May, inviting stakeholders to submit feedback on its role as the Chancellor’s independent adviser on making the tax system simpler for taxpayers, as part of its first five-year review of the OTS. To enhance the effectiveness of the OTS, the Institute of Financial Accountants (IFA) has pushed for reforms to give it a more prominent role, reports its Director of Professional Standards, Anne Davis. These reforms include power, transparency and independence to the department, which would better aid the Government in offering recommendations and advice about how to make the UK tax system simpler for individuals and smaller businesses.
Simpler implementation to “aid compliance and ease complexity”
Among the key recommendations, the IFA requests that the OTS is given a formal role in the tax consultation process for all proposed changes in tax policy and changes in tax compliance mechanisms. While it stresses that “the OTS cannot change tax policy – that is the role of government ministers”, it points out that a simpler implementation of tax policy could lessen complication and aid compliance for stakeholders. It also refers to the implementation mistakes relating to the High-Income Child Benefit Charge (HICBC), stating that if the OTS was to be consulted during the formation of tax policy, it may be able to avoid similar errors from occurring in future.
Revised structure required
While the OTS is a valuable source of advice to HM Treasury, it also creates tax research which could be used by regional governments and for other academic tax researchers. The IFA has called for the OTS to be independent of HM Treasury and HMRC to avoid any perceived bias in its recommendations made by the OTS. In addition, a revised structure would enable more independence.
Also recommended by the IFA is for all OTS board and staff appointments to be made independently of government through an open recruitment process. Currently the Chancellor of the Exchequer is responsible for the appointment of the OTS Chair and Tax Director and for appointing senior HM Treasury and HMRC executives to the OTS Board.
It also noted that “the close integration of the OTS staff and board with HM Treasury and Ministers means that the staff and board may come under pressure to change or modify parts of its reports which are likely to be unpalatable to Treasury ministers”. In response, the IFA has recommended OTS staff be employed independently by the OTS and not be part of the Treasury structure. In addition, it also suggests a review of the OTS staffing model and to take more people on secondment from the private sector as well as from non-tax disciplines such as economics, technology and behavioural scientists.
More access to data
Data collection for purposes of research by the OTS includes research groups, surveys, and formal consultations. The IFA argues that “tax policy that achieves its aims through simple and effective compliance mechanisms” is only possible with a firm foundation of reliable and detailed data.
This can only be achieved if the OTS has open access to all relevant government data held within all government departments, which is presently controlled by The Knowledge, Analysis and Intelligence Directorate (KAI). Presently, access to data for the purpose of tax research can only be accessed by HM Treasury and HMRC staff, who have to facilitate the process on behalf of the OTS. However, this somewhat restricts the OTS in completing an independent report on the scope of a particular tax issue and in costing suggested changes to policy or procedures.
The IFA has urged for the OTS to be given more powers in this area, suggesting that it “should be given access to government data without having to justify its need for that data, or to rely on assistance being provided by HMRC or HMT for access.”
Transparency is essential
There is a general perception by the public, and those accounting professionals who are not closely associated with the OTS, that the OTS’ role is to simplify the tax system. In actual fact, the role of the OTS is to advise HM Treasury and Ministers on aspects of the existing tax system which could be simplified. In its response, the IFA has suggested to rename the OTS: “Advisory board on tax simplification”, so as to more accurately reflect its true role. The OTS is not armed to make those suggested simplifications happen nor is it officially responsible for shaping new tax policy to make it simple.
There is a tendency for some ordinary taxpayers to believe that tax and the administration of it is becoming progressively more complex and difficult to navigate. This is leading to the misconception that the OTS has failed in its role as a simplifier of the tax system. In reality, the OTS has made small and significant changes to the tax system, such as implementation of the cash basis for self-employed businesses, but new complexities added to tax policy and processes by each new Finance Act have almost overridden these.
The OTS has also produced reports on large and complex problems in the tax system such as the closer alignment of income tax and national insurance contributions, the corporation tax computation, and capital gains tax. It publishes an index of all the reports it has produced since its inception, including links to the government responses to each report. While this index of reports is a useful resource, it does not give the end user an understanding of how much of each report has been actioned or rejected. Along with a recommendation to highlight the work of the OTS to the wider public, the IFA also suggests indicating “the changes it has achieved alongside the recommendations which have been left on the shelf” and for the “Treasury ministers to respond publicly to every OTS report in a timely manner.”
Click here for the IFA’s full response. Further information on the OTS’s work and governance can be found at: https://www.gov.uk/government/organisations/office-of-tax-simplification.