Turning up the tax heat in the UK

Turning up the tax heat in the UK

In the past seven days, when Ben Stokes batted his way into the nation’s hearts and tensions escalated between the UK and China over Hong Kong, MPs have concentrated their attention on unravelling the UK's complicated tax system.

There have been many calls for tax simplification for many years - it is the reason the Office for Tax Simplification was set up in the first place. 

But the OTS clearly has not been doing enough, quickly enough, as last week the Treasury committee inquiry into Tax Reform was launched. 

Its remit will be to look at business taxation, focusing on the disparity in taxation structures between employees, the self-employed and business owners; to explore the implications of coronavirus, the resulting recessionary environment and job prospects for young people; and to question whether the various tax reliefs that people currently enjoy are ‘fit for purpose’.

There have been no major tax reforms since the 1980s, yet every time there is a budget or statement, pundits predict sweeping changes to taxation - the current rate of inheritance tax being a case in point. However, in reality, very little has actually changed. 

So why now? As Gill Philpott, tax and trust specialist at Ascot Lloyd, suggested, tax reform “has been considered over the decades, but it has proved very difficult to get any traction and support”. 

However, she said: “The current pandemic has elevated the need for a wide-reaching tax review. This, together with the ever-widening gap between the nations’ income from tax take and expenditure on social and health care now makes a review an imperative. 

“With little scope or appetite to make large cutbacks in public spending, to begin the process of putting the UK's public finances back on a more sustainable footing will need a raid on the tax system.”

So those who have enjoyed tax reliefs might need to hold their breath to see what the CITR will have in store; while individual rates might not be touched this time, there will need to be sweeping changes in order for the government to raise the money it needs in order to pay the Covid-19 bill.

As the financial services advice industry was considering the potential implications for its clients, and even for themselves as small business owners, another tax review was promoted by MPs over the past few days.

On Monday 20, as reported by FTAdviser, the Public Accounts Committee called on HM Revenue and Customs and HM Treasury to reassess tax reliefs, pointing in particular to pension reliefs which it said would cost £38bn in the 2018/19 financial year. 

The PAC claimed the government knows "too little" about whether the current system offers value for money or encourages saving for retirement, and warned data published by HMRC on who received pension reliefs was "limited". It also said some groups were not benefiting from tax relief on their pension when they should.

As for IHT? The OTS’s 2019 summer report led many to speculate that IHT will finally get a revamp in the budget later this year. We will see whether this actually transpires. But what is clear is the political appetite for some big tax reforms - and that will result in a bigger tax take for the public coffers.