Launch of the ‘Office of Tax Simplification’

Good luck to them. The Coalition Government has announced the setting-up of an ‘Office for Tax Simplification’ to streamline the UK tax code, cut the burden on business and attract foreign investment. George Osborne says that his ‘dream’ is ‘that people might actually understand the tax laws which they are actually being asked to comply with’.

There is clearly a need for tax simplification; the UK tax code is one of the longest in the world. The 2009-10 set of the Red & Green Books are now over 12 inches thick on my desk and that doesn't include the:

• Corporation Tax Act 2010 (1,185 sections and 4 schedules)
• Taxation (International and Other Provisions) Act 2010 (382 schedules and 11 schedules)
• Finance Act 2010 (70 sections and 20 schedules)
• Finance (No 2) Bill 2010 (11 sections and 5 schedules)

I dread to think how thick next year's version will be! And they only give you the legislation. On top of that are the various tax cases (in more than 80 volumes) where the legislation is interpreted in the courts and the plethora of HMRC instruction manuals giving their particular view on how they would like you to deal with the rules. Once you have digested all that, you are finally in a position to start running a business. And heaven help you if you miss any of that out and make a mistake as the tax inspector will come down on you like a ton of bricks charging interest & penalties.

There have been previous drives towards tax simplification. There was the mammoth tax rewrite scheme attempting to translate the arcane tax laws into simpler English. This has simple made the tax code at least twice as long and introduced masses of algebraic formulae. So the track record is not great.

The difficult balance to strike is between simplification and fairness. You can have a simple tax code - but its guaranteed not to be fair. One size does not fit all comfortably. Or you can have a very fair system which will be inordinately long and complicated as it seeks to take account of every different nuance and circumstance.

The Office of Tax Simplification may just be embarking on the tax equivalent of painting the Forth Rail Bridge. Rather them than me!