The People Bulletin

The chancellor George Osborne and Exchequer secretary David Gauke established the Office of Tax Simplification (OTS) on 20 July 2010.

The tax system needs to work better for the taxpayer, according to the coalition government, which has committed to reduce its complexity. Over the past decade, the tax code doubled to more than 11,000 pages and the UK has slipped from 7^th to 13^th in the World Economic Forum’s Global Competitiveness Index between 1997 and 2009/10.

Osborne said he has a ‘distant dream that people might actually understand tax laws that they are being asked to comply with’ and described the current system as ‘a spaghetti bowl of tax exemptions and reliefs.’

The body has been tasked with writing two reports in the next year on tax relief and business taxes (including IR35), reviewing some 400 existing reliefs to see where streamlining is possible. An unpaid, two-man board has been appointed to oversee the reforms in the form of the Rt Hon Michael Jack (former financial secretary to the Treasury in John Major’s government) and former PricewaterhouseCoopers tax partner John Whiting. They will lead the OTS on an interim basis for the first year and permanent appointments will be made during 2011.

This second review will also specifically review the IR35 legislation and see whether it is possible to replace it with simpler measures that prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self-employed or restrict labour market flexibility.  The IR35 element of the review will:

• identify and provide evidence of the complexity and uncertainty created by IR35;
• consider alternative legislative approaches that would be simpler and create certainty while ensuring that, where intermediaries are used to disguise employment, any income that is effectively employment income is taxed fairly; and
• consider the scope for tax avoidance and the extent to which alternatives to IR35 would affect it.

The first review into tax reliefs will present an initial report by late autumn this year and a final report with recommendations for the chancellor before the 2011 Budget.

The second review will present its initial report by the 2011 Budget and once the government has considered that initial report the OTS will be asked to produce specific recommendations on tax simplification for small businesses.

www.hm-treasury.gov.uk/ots.htm