It is a sign of the times when the UK government created the Office for Tax Simplification (OTS). It was an admission that business taxes were becoming more complicated. The OTS was set up in 2010 and made a permanent independent office of HM Treasury on 21 July 2015. It is being placed on a statutory basis in the Finance Bill 2016.
Complexity of taxes is not a problem for large businesses. They have the resources to understand the complexities of the tax system and to make them work to their advantage. The concern is about small businesses, which do not have the resources or the knowledge to investigate the UK tax law.
Two recent changes illustrate the problem of increasing complexity. Firstly the UK government changed the law regarding the payment of dividends. From 2016/17 the treatment of dividends previously regarded as having a notional 10% tax paid has been abolished. Furthermore in the hands of the recipient dividends now become taxable at 7.5% (basic rate taxpayers), 32.5% in higher rate band (40%) and 38.1% in the additional rate band. Furthermore, the first £5,000 of dividend income is tax free. This has introduced major uncertainties into the taxation of smaller companies.
The second change is the proposed requirement for businesses to file quarterly tax returns digitally. HMRC have recently released not one but six consultations on the proposals. ICAEW concerns focus on the businesses which at present do not currently keep digital records and what the effect on them will be of a forced move to digital.
The Business Advice Service has provided a number of guides on the topic of taxation – such as Tax and the Sole Trader and Tax and the Limited Company – to explain the basic tenets of each tax and to help smaller business understand the decisions they must make regarding business format as well as their ongoing liabilities to tax.
On the lobbying front the ICAEW Tax Faculty, the ICAEW centre of technical expertise on taxation, has lobbied successive Chancellors of the Exchequer to simplify taxes. It has developed the Ten Tenets for a Better Tax System. In addition it has been responding to OTS consultations on tax simplification.
Below is an infographic reflecting some of the evolution and some of the complexities of UK tax law.