News

July 23, 2010

Business groups welcome Office of Tax Simplification

A new tax body set up by the Government to unravel the “spaghetti bowl” of complex tax laws has been broadly welcomed by business groups.

The Office of Tax Simplification (OTS) task force, made up of a board of senior tax experts, is expected to deliver two reviews before the Budget next year.

The first will look at all 400 tax reliefs, allowances and exemptions to see how they can be streamlined, while the second will focus on ways to simplify the tax system for small businesses, including finding a simpler alternative to IR35 legislation. IR35 was brought in ten years ago to tax “disguised employment” among contractors and freelancers.

According to the British Chambers of Commerce (BCC), the establishment of the OTS was a “necessary and long overdue response to the relentless chop and change” of British tax law.

Small firms which are currently struggling with over-complicated tax rules would particularly benefit from the drive towards a simpler system, the BCC said.

“Complying with an ever expanding and complicated tax code only succeeds in taking resources away from core business activity, and subsequently growth and wealth creation,” said BCC director general, David Frost. “The Government needs to continue with measures that foster entrepreneurship in order to secure a sustainable economic recovery.”

The Institute of Directors (IoD) also welcomed the new body but said it would only succeed “if it has teeth.” The IoD declared in a statement that the OTS needed to be genuinely independent from the Government and not be afraid to publicly report its findings.

“Its recommendations must not end up stamped ‘too difficult’ or ‘maybe in the longer term’,” said IoD head of taxation, Richard Baron.

According to HM Treasury, the aim of the IR35 review would be to replace the current, highly complex system with a more straightforward approach, as well as prevent tax avoidance. Efforts would be made to prevent “unnecessary” administrative burdens on business, an HM Treasury spokesman said.

While UK taxes administered by HM Revenue and Customs, such as PAYE and corporation tax, will be included in the OTS review, the body will not be responsible for dealing with tax credits or have any influence in setting tax rates.

Launching the OTS, Chancellor George Osborne said that Britain had suffered a “decade of meddling and intervening” that had resulted in a complicated tax system for businesses.