19 Jun 2015 11:49am

Red tape bonfire will not ignite without fuel of tax simplification

Earlier this week ICAEW published its Budget submission. It urges the government to produce a Budget that will have a clear focus on supporting businesses of all sizes, from start-up to scale-up, enabling them to reach their full potential.

There are many areas that the government could focus on in the short-term, such as a review of business rates, and reviving the growth vouchers scheme. However without a strong approach to tackling red tape, our start-ups could be swimming against the tide of regulation as they try to establish themselves.

The newly-appointed business secretary Sajid Javid has promised to cut at least £10bn of red tape over the next five years, as part of plans to boost business growth and improve exports. This follows on from the “one in, two out” campaign in the last Parliament to try and improve deregulation.

However our members tell us that the vast majority of regulation comes from the sprawling tax code, which has so far been immune from attempts to limit the stream of regulation that has impacted on businesses. And if the government is to achieve its target, tax complexity simply must be looked at.

In our Budget submission we strongly urge the chancellor to take the same ‘one in, two out’ principle for regulation and apply it to tax law. In the UK we have one of the longest and most complex tax systems in the world, and two of the three longest Finance Acts ever were enacted in the last Parliament.

Although our tax code is complex, working to simplify it needn’t be. As part of our submission ICAEW’s Tax Faculty has identified a number of solutions that could ease the burden on our businesses. These include exempting businesses from National Insurance Contributions for apprentices of all ages, sparing micro employers from the auto-enrolment process, and allowing small businesses to make all RTI reports just once a month. Simple measures that can be easily adopted and would at a stroke release the choke around potentially dynamic companies.

Streamlining our ever-growing tax code will not just help UK plc, but it will also benefit HMRC, who has not been protected from the raft of cuts to our public services. This has meant that service standards have deteriorated, and HMRC often doesn’t get things right first time. If the government is unlikely to boost resource for HMRC, then it simply has to eliminate spurious content from our tax code, which will help collectors and payers alike.

George Osborne started the last parliament with good intentions with regards to tax, creating the Office of Tax Simplification (OTS). Given that our tax code has grown significantly, it is imperative that the OTS is given some teeth, and placed on a permanent footing. We have already seen the success of the Office for Budget Responsibility has had operating independently within Whitehall. The OTS needs to have the resource to carry out a role in tax policy, with an obvious focus on simplification and deregulation.

It is hard to underestimate the extent to which the complexity of our current tax code undermines confidence. It acts as a burden on business, suppresses entrepreneurs, and inhibits economic growth, at a time when we are seeking ways to progress the economy in the medium term. The government simply will not achieve its objective figure of a £10bn reduction unless the tax code is attacked with vigour. Businesses want to spend time growing their company free from burdens, and doing this will help achieve the sustainable long term economic growth we desire.

Stephen Ibbotson is director of business at ICAEW.




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