Recent changes to the rules on directors’ loan accounts send out a warning shot, says Nigel May
A little over three years ago, on 10 July 2010, George Osborne created the Office of Tax Simplification (OTS) as a new bastion against complexity in the UK tax system. Many tax professionals will have read the Chancellor’s words at the time and wholeheartedly agreed with the sentiments:
Recent changes to the rules on directors' loan accounts send out a warning shot, says Nigel May
A little over three years ago, on 10 July 2010, George Osborne created the Office of Tax Simplification (OTS) as a new bastion against complexity in the UK tax system. Many tax professionals will have read the Chancellor's words at the time and wholeheartedly agreed with the sentiments:
'The previous government took a complex tax system and made it even worse. A decade of meddling and intervening has made the tax affairs of millions of families and businesses across the UK extremely complicated. We need to sort out this mess.'
Three years on, where have we got to? In the aftermath of the 2006 Budget, Osborne was minded to criticise the then-incumbent chancellor, Gordon Brown, for the length of the 2006 Finance Bill: 'In just nine years [Brown] has managed to double the size of the tax law bequeathed to him by all his predecessors since Pitt the Younger. Take the Finance Bill currently passing through the House of Commons. It is 481 pages long – three times the length of Finance Bills in the 1980s.'
The 2013 Finance Act, passed into law in July contains 236 separate sections, 51 schedules and these are contained in 648 pages – over a third greater in length than the Finance Bill that the Chancellor had referred to back in 2006 or taking the mathematics from his 2006 speech, four times the length of the Finance Bills in the 1980s. It is not any particular consolation; however, at least this latest Act does not extend to the 703 pages of the 2012 Finance Act.
Has this copious legislation contributed to tax simplification? Good taxation policy, according to parliament's Treasury Committee, has as key the need for stability and coherence. It may be unfair to take individual policy measures out of the particular acts, however, it is hardly possible to see how the high income child benefit charge contained within FA 2012 will have assisted in making the tax affairs of millions of families more straightforward or how the much-vaunted General Anti-Abuse Rule (GAAR) in FA 2013 will provide anything other than profound uncertainty rather than stability and coherence.
Is it perhaps that the two last Finance Acts can be seen as the products of legislative zeal and that we can look forward to a period of calm, during which the vast quantity of legislation can 'bed in' and be absorbed by tax officials and practitioners alike? Unfortunately, it would seem not. The consultation papers on partnership tax, loans to participators, transfers of assets abroad and raising the stakes on tax avoidance (a list that is by no means exhaustive) seems indicative that there is no light at the end of the tunnel.
Highs and lows
What then of the OTS? Its latest pronouncement is an interim report into reviewing employee benefits and expenses, a 115-page document. It is pleasing that 43 quick wins are identified of which only 13 require legislative change to bring into effect. Also, the report highlights the absurdity of the current accommodation.
benefit charge and the need for a complete review of the policy objectives concerning termination payments.
The report also hints at a general review leading to an entirely new system for dealing with benefits and expenses. The current system is clearly creaking, however, experience over recent years leads one to be careful what one wishes for: can there be any assurance that radical change creates simplification and has scepticism moved to cynicism in voicing the fear that such radical change would simply contribute further to the legislative spread once transformed into legislation, probably with one or two tweaks to raise a little bit of extra revenue here and there?
It would seem that our tax system is further away than ever from Adam Smith's principles of good taxation: a system that is transparent, simple, efficient and fair. Notwithstanding the best efforts of the OTS, there seems to be no particular grounds for optimism. One is left with a picture redolent of King Canute: the waves of tax legislation seem to come crashing in regardless of whomsoever commands them to stop.
Nigel May is a partner at MHA MacIntyre Hudson
