Tinkering with tax won’t solve the problem, says LSCA President

Despite parliament launching three inquiries into various aspects of the UK tax system, LSCA President Malcolm Bacchus fears that wider issues will be neglected and loopholes will be exploited until parliament stops putting them there.

May 2018

At the end of March parliament announced three new Select Committee inquiries on tax. The Treasury Committee has launched one on VAT and the Treasury Sub-Committee, (not to be out-done by its parent, one assumes) has launched two: one into tax avoidance and evasion, and a second into the conduct of tax enquiries and their resolution.

I was pleased to see that the VAT inquiry is not only looking at the tax gap but also into the complexities of VAT, noting that the tax is notoriously complex and burdensome. It will also explore more generally how VAT policy making could be improved.

On announcing the broad scope of the review, The Rt. Hon. Nicky Morgan MP, chair of the Treasury Committee, said that, with Brexit, the government could either stay with something similar to the present, modify it or even consider abolishing it completely. Although given that VAT currently amounts to 18% of the government’s tax receipts, the last of these options seems somewhat unlikely.

Compared to this, the scope of the inquiry into tax evasion and avoidance is considerably more pedestrian, uninspiring and unlikely to do much more than make an already complex tax system more complex. It is concentrating, rather predictably, on the actions of those (arguably) gaming the system and on HMRC’s ability (or not) to pursue them and the tax advisers’ role in all this. I would suggest that, instead, parliament would do better looking at the complexities of the tax system and asking whether it is fit for purpose.

More specifically, it needs to look at the legislative processes behind the creation of our tax laws. It is, after all, parliament itself that proposes tax legislation, it is parliamentary drafters who draft it, and it is parliament again that scrutinises and passes it. If there are loopholes in the legislation, parliament put them there.

The question to answer is not why loopholes are being “exploited”, but why they were allowed to be there in the first place.

Sadly, the scope of the inquiry seems to be based on the assumption that it is all the tax-payers’ (and the tax professions’) fault. Somebody, as the Treasury Committee is doing on VAT, needs to look at the wider issues. Tinkering will not solve the problem.

All three enquiries are open for submissions and details of these and other open inquiries can be found at: www.parliament.uk/get-involved/committees

Malcolm Bacchus is LSCA President. Follow him at @BaccmaConsult

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