Another OTS Review of tax simplification

The Office of Tax Simplification (OTS) has published a new policy paper ‘OTS Review of tax simplification’ setting out what drives tax complexity and how officials making tax policy can work to prevent or mitigate that complexity.

This is the latest in a long line of reviews by the OTS and has just one recommendation, that the principle of tax simplification should be better embedded in the general tax policy-making process. 

The OTS is clear that whilst tax simplification is not a policy in its own right, it should be a core consideration for government as:

• Lack of clarity can impact productivity, growth and investment decisions.
  • This can be caused by something as simple as having too many defined terms to cover broadly similar subjects.
• Undue administrative burdens and unclear obligations create costs for taxpayers, intermediaries, advisors and government.
  • Tax administration should be effective, intelligible, and proportionate with good guidance and appropriate use of technology.
• Policies intended to change behaviours can create unintended effects and distort decision-making away from a course that could have led to a better outcome for taxpayers, their business or family, and the wider economy.
  • This was highlighted in the OTS’ Inheritance Tax report and Capital Gains Tax report in relation to passing on assets when someone dies.
  • The policy intent and core legislation need to be clear.
• New policies do not always consider the added complexities they bring to existing rules, for example, reliefs and allowances on savings income for individuals, where the interaction of the rules makes it hard to easily understand the outcome.

The paper provides a framework of questions (not intended to be a checklist) that government may wish to consider when developing new tax policy and considering existing policies, in a bid to reduce the level of complexity:

• Are the rules, their purpose, and their consequences easy to understand and predict?
  • Are they logical, is their purpose understood, do they add complexity when added to existing rules?
• Are the rules and their administration taking advantage of modern developments, including technology?
  • Can available and accessible technology help manage complexity without undermining informed choice?
• Is it easy enough to comply with the rules?
  • Can taxpayers understand the processes and obligations?
• Can taxpayers be better supported?
  • Are advisors empowered to help their clients manage their tax affairs, including through access to taxpayer data and HMRC systems?

The OTS does however note that they themselves are not policymakers, saying that it is for the government to consider their recommendations and their potential impact, to determine whether the existing complexity in the tax rules is necessary to achieve other policy objectives.

Useful guides on this topic

Finance Act 2022: tax update and rolling planner 2022-23
This rolling planner tracks the key tax announcements that impact the 2022-23 tax year and beyond. This planner is updated on an ongoing basis.

External link

Policy paper: ‘OTS Review of tax simplification’