Tax doesn't have to be taxing

I imagine that, after the recently reported 6 million tax calculation errors, Her Majesty’s Revenue and Customs are likely to drop the ‘tax doesn’t have to be taxing’ tagline. To be fair, the errors arose from a number of issues, not all of which can be blamed on HMRC no matter how much we like to denigrate them.

However, the recent publicity supports the view that the tax system is overly complicated and perhaps not fit for purpose.  It may not surprise you to hear that there are currently in excess of 11,000 pages of primary UK tax legislation as well as 400+ separate tax reliefs available. Navigating through this minefield is becoming more difficult rather than easier with each new finance bill. 

The new Chancellor of the Exchequer, in an attempt to reduce the confusion, has set up the Office of Tax Simplification (OTS). This was established as an independent office of the Treasury in July and will draw together expertise from across the tax and legal professions, the business community and other interested parties. The Office has been established to provide advice to the Chancellor on simplifying the UK tax system, with the objective of reducing compliance burdens on both businesses and individual taxpayers. Initially, the OTS has been asked to look at two reviews.

The first is to look at the raft of reliefs, allowances and exemptions available with a view to identifying those that can be simplified or repealed. The target for the interim report on this is late autumn 2010. The second review relates to small business taxation and is intended to identify areas of the tax system that cause the most day-to-day complexity and uncertainty for small businesses and aims to recommend priority areas for simplification with the interim report available prior to the 2011 Budget.

The consideration of options for alternatives to the IR35 legislation introduced in 2000 has been included within the parameters of the small business tax review. This legislation has caused significant uncertainty to many small limited companies and certainty in this area would be welcome.

Even if the initial reports are prepared on time, it will be a while before any recommendations feed through into legislation and it is unlikely that we see a significant reduction in the 11,000 pages of legislation in the short term. So when preparing your next Tax Return, please bear in mind the following:

• The fact that HMRC accept your Return online does not mean that they have agreed it; it merely means that they have processed it. HMRC usually have 12 months from the date the Return is filed to commence an enquiry.
• If you make an error that leads to an underpayment, you will be liable to a penalty if it is considered that you have not taken reasonable care when preparing your Return.
• If you do not claim a relief that you are entitled to, HMRC will not automatically inform you.
• If in doubt, seek professional advice.