Host

• Stephen Relf, Tax Technical Manager, ICAEW

Guests

• Professor Peter Jelfs, Brunel University of London
• Andy Richens, formerly of the Office of Tax Simplification

Producer

• Ed Adams

Series Lead

• Mark Rowland

Transcript

Stephen Relph: Hello and welcome to the Tax Track, the podcast series from ICAEW, exploring the latest developments in the world of tax. In July, 2026, a team of tax experts published a report on tax complexity and the impact it has on UK competitiveness and on growth. In this episode, we'll consider the pain points for businesses in meeting their tax reporting obligations, from barriers to claiming research and development tax relief to difficulties in getting help from HMRC.

[Teaser audio] Andy Richens: That really comes down to duplicate processes, complex legislation over cautious anti-avoidance, complicated forms and procedures around compliance.

SR: And we'll explore the causes and indications of tax complexity, including what the UK stands to gain from addressing it.

[Teaser audio] Peter Jelfs: A complex tax system can impact upon the reputation of a country as a place to do business, and ultimately as a destination for foreign direct investment.

SR: I'm Stephen Relph, a tax Technical Manager at ICAEW. Today I'm joined by Professor Peter Jelfs from Brunel University of London, and by Andy Richens, formerly of the Office of Tax Certification. Welcome, Peter and Andy.

AR: Hi, Stephen. Good to be here.

PJ: Thank you.

SR: So we're here today to discuss a report that was published just a few weeks ago by Peter Andy and by others. But actually the story starts quite a bit further back with a report published by the Office of Tax simplification or OTS in 2014. Now, for those who don't know, the OTS was set up in 2010 as an independent advisor to the government on simplifying the tax system, and it ceased work in 2022. As ministers at the time thought that they would prefer to embed tax simplification into the heart of government. Now it was very productive while it was operative, and in 2014 it published a review of the competitiveness of UK Tax Administration. Now Andy, you were part of that project in 2014.

AR: I was.

SR: How did it come about?

AR: Well, it was really the World Bank Annual report paying taxes compiled in collaboration with PWC, and they looked at three factors. They looked at the rates of tax and number of tax payments and the time taken to comply with the tax administration. Now in the league table, at the time, the UK was 14th out of 90 odd countries that made up the report. So the Prime Minister at the time, David Cameron, didn't like that, and wanted us to be higher up the league table. Whilst the rates of tax and indeed the number of tax payments was outside of the OTS remit, most certainly the time taken to comply was within it. So we agreed to write a report interviewing businesses. We considered we could get as high as 10th. The top five was not realistic with petro economies, but we thought we could get as high as 10th with our recommendations, we made 60 recommendations if they were taken on board. But I should say that we did recognise that reform was necessary because other countries were improving as well. So if we didn't do anything, we wouldn't just be standing still. We would actually fall back.

SR: So I guess the natural next question is where are we now? Did we improve on that 14th place?

AR: Sadly not. So I mentioned 60 recommendations and in fact 57 of those were marked as accepted or to be considered further by the government of the day. That was the coalition government at the time. The final paying taxes report, which was published in 2020, showed a fall from 14th to 27th place in the uk in the World Bank rankings with an increase of 10% in time taken to comply with those burdens. There was a 'replacement business' ready, it was called. A replacement to the World Bank PWC report, but that used slightly different factors and matrices it showed the UK was 48 out of 94 countries. But there was a difference in the way in which that was arrived at.

SR: Is that the reason for this new strand of work to find out why we've got to where we are?

AR: Absolutely, yes. The competitiveness and growth are constantly mentioned by the current government. We thought this small private team that we formed would be interested. We had to do that because the OTS was abolished, as you said, back in 2022. We thought it would be interesting to revisit that report to see what has happened in the meantime and to have a listen to business and see what still needs to happen.

SR: I think that's on the minds of everyone at the moment, including policy makers. Isn't that correct, Peter?

PJ: Very much so, yes. I mean, tax complexity is one of these topics that actually interests people from all over the political spectrum and with the rapid churn in politicians and governments in the UK they all want something that's new and interesting to say. Now nobody is really seriously against tax simplification and for tax complexity. But it's one of these things that's fine in theory, but never quite seems to really get done. That's at least part of the reason why we wanted to do this, this study, to get it back on the agenda, get people talking about it. We really hope that some of those people who've shown an interest in what we are doing will act on some of the recommendations.

SR: So you had quite a big task then. How did you go about approaching it?

AR: We decided to follow the OTS modus or operandi, which was really to speak to as many stakeholders as possible. So that's businesses, both large and SME, their advisors, their representative bodies, academics and HMRC as well. We were really happy that they all freely engaged with us. Which gave us an evidence base as to the pressure points that businesses find in complying with their obligations under the tax system.

SR: Okay, so before we get into the details of the report, I think this is a good place just to pause and to clarify that although you did receive some funding from ICAEW, the report was researched, written, and published independently of ICAEW and of the tax faculty. Now, that said, there are common themes between your work and the work the tax faculty does, and you can learn more about that by following the links in the show notes. The report is wide ranging, it is comprehensive. It does seem to touch on pretty much almost all areas of the tax system. But I think what stood out for me was the section on R&D research and development tax relief. Now, a little bit of background there. So a few years ago we saw quite a big increase in the number and amount of claims. HMRC in the government suspected that something was wrong there and clamped down on the regime changing legislation and processes. Since then we've had a fall in the number of claims made. Now in the report, you state that accessing R&D tax credits was raised by stakeholders at virtually all meetings we held. I think that's quite telling. What did people have to say?

AR: Well, there certainly was a recurring theme coming through, both from businesses themselves and from their advisors, particularly the SME size businesses. I think it's best summed up by one of the people who gave us a lovely quote, R&D was the best example of a policy in place for a reason, but then trying to stop that policy being applied. So we all appreciate that HMRC had to act to curtail those bad actors that you referred to really that were exploiting fluffiness in the definition of innovation. There was, of course, a previous lack of policing of the definitions and boundaries as well. So that sort of allowed that to develop. But the situation we now find ourselves in is way removed from the original UK government policy rationale, which was to incentivise business to invest in R&D. What we're left with is businesses, particularly small businesses, fearful of making a claim or reinvesting their R&D credit, if they do, if they are fortunate enough to get that for fear of inquiry and recovery.

SR: Peter, from an academic viewpoint, are R&D tax credits a good way of stimulating investment and activity?

PJ: Well, how long have you got? I mean, there are definitely two sides to this argument. So there are those who say that R&D tax credits are a great way to incentivise R&D. It is additive. So we see extra R&D being generated as a result of giving back some money with tax credits. Conversely, there are people who think that actually tax credits are. Really just incentivizing work that's already been done or would've been done anyway. Now, this particular report we were looking at complexity. We weren't looking at the academic definition of whether R&D works or anything like that. But of course this rapidly becomes a practical issue rather than a theoretical one. If what we are seeing is that those companies for whom R&D tax credits will be of most value, namely small businesses, are actually being put off making a claim. So this is a very clear finding. We know HMRC had to act because as you've said the scheme was being abused. Everyone's clear on that, but we have to be careful it doesn't swing. The compliance activity doesn't swing too far, the pendulum and actually harm UK PLC in the process.

SR: You have made recommendations in the report, haven't you, about how it could be improved. Could you chat us through that?

AR: Yeah, certainly. So the expert panel that's recently been appointed, we recommend that they assist HMRC rather than just having a couple of meetings a year talk, talking R&D, that they actually assist HMRC in drafting case studies for inclusion in the official guidance to assist the understanding of what constitutes R&D because there isn't that understanding, there isn't that certainty for business or their advisors at the moment and to expand the advanced clearance service that's recently been introduced and the additional information form that came in as part of the process change that you referred to so that businesses have certainty, their claim has been accepted, and that would mean HMRC would only be able to subsequently revoke the claim if the business had acted carelessly or deliberately as part of the claims process. The culture that exists within the gatekeeper, which is HMRC for these purposes towards business. We felt that needed to be looked at. We explore that, I think later on in the report and in the discussion.

SR: Yeah, we'll certainly come back to HMRC and what they could maybe do differently. One of the key recommendations from the earlier 2014 report from the OTS was to look at reforming the calculation of trading profits for corporation tax and for income tax. And I think at that point there was some 80 differences between taxable profit and accounting profits, mainly due to the wholly and exclusively rural and also the treatment of capital expenditure. Now, is this an area that's still causing problems?

AR: It is. First of all, we ought to say that we were told total alignment was never going to be possible between the accounting profit and the taxable profit. The biggest reason I think is capital allowances because it's not going to be possible to change accounting standards to depreciate 100% in year one. But the annual investment allowance was highly popular or is highly popular and that came through time and time again. So there's going to be a need for adjustment. However, we were given examples of extensive admin work for no particular tax advantage. So things like movements in provisions the pension is on the cash basis. Trivial legal expenses, the anti hybrid rules, which were brought in for anti avoidance purposes, but there's no size threshold. So even small amounts have to be looked at. In particular repairs, I remember this from when I was in practise, how managers struggle with repairs. It's always been seen as a grey area. Is it revenue? Is it capital? We've got different definitions for accounting and for tax. Why? So we really repeated the original OTS recommendations to reduce as far as possible the number of adjustments unless there's an incentivisation such as R&D capital allowances or a particular compliance rationale as to why it's there. Otherwise let's reduce those adjustments and in particular, align definitions where possible between tax and accounts such as capital and revenue. One point that was raised with us is , so it's okay for larger businesses, but what about if you are below the audit threshold? So to deal with repairs there, we revisit an OTS property income report, one of the final reports published in 2022, which looked at a statutory bright line definition for repairs if the business falls below the accounting thresholds.

SR: Yeah, I mean, that certainly seems like a good idea. As you say, I think it seems that most people you interviewed had their own particular bug bear. Something that, as you say, caused them lots of time but didn't really achieve a great deal. That's partly because tax is objective, but also we have all these mechanical adjustments we have to make. You also mentioned that this does have a disproportionate impact on smaller companies. Now, one thing that stood out for me from your report is the reference to Think Small first. Could you just talk us through what you mean by that?

PJ: Standard setters and regulators always seem to start from the perspective of the largest companies and what they're facing, and then may carve out some exemptions for SMEs as they finalise their thoughts on new regulation. This is a real bug Bear for SMEs in particular because SMEs face such different challenges from large businesses. Of course the disproportionate impact on them is because SMEs don't have the resources in-house to deal with regulation or complexity specifically in the cases that we look at. So large companies will have an in-house tax team, SMEs will have to speak to an advisor and this kind of thing. So, I think it's something in an ideal world that regulators would do. They'll come out with a list of reasons why they can't and why they have to start with the biggest, because that's where the biggest risk sits. But of course we must remember that actually the vast majority of businesses by number in the UK or the EU are SMEs and they also employ a very significant number of people in work.

SR: If we take a step back again to the publication of the 2014 OTS report, it happened at the time of the introduction of real-time information, RTI. Now in the report, some initial problems were noted. What has happened since, have they been resolved?

AR: That's right. So there were teething problems, unsurprisingly, in a way. The one that I remember was duplication of records was a problem. So it was disappointing to hear that's still a problem now, particularly when businesses merge or when they switch payroll providers. Another echoing, if you like, of what we heard back in 2014 was that reconciliation of payroll systems and HMRC systems proved difficult and HMRC wouldn't always recognise that it's their own system that is at fault. So I do remember people saying we ring the helpline and they tell us everything's working fine, when it clearly wasn't for them. It must have been so, well, it was very frustrating for them, and we're hearing the same now. In fact, the RTI system's been described to us this time as quite fragile. So if an error is made with PAYE data at the point of submission, the whole tranche are rejected, not just the erroneous record. There was concern raised whether the system would be able to cope with mandatory payrolling of benefits. In fact, we note that it was due to come in from April 27, full mandatory pay rolling of benefits, but only if the systems can cope. We note that in fact, it's now being phased in. So I think there's some recognition that the systems are struggling and creaking a little bit.

SR: So also the tax system clearly needs good engagement from HMRC. Now, recent stats show that there has been some improvement on calls and posts, but doubts do remain on accuracy and consistency. Is this reflected in the feedback you received, Peter?

PJ: Yes, I think it would be fair to say that. There are a number of issues still and particularly for small businesses around even being able to contact HMRC when eventually they or their advisor gets through receiving accurate and helpful information is a separate issue in of itself. This extends up to larger businesses who want, for example, certainty around certain important transactions, certain tax issues. Obviously, the point of the report is not just to have a go at HMRC and to say we should bring back all the local offices, that kind of thing. We recognise times have changed. But equally and this touches on much bigger issues we've talked about culture. Another big topic is morale. So if small businesses get the impression that HMRC can't be contacted or they're not interested, they're not able to give them good advice, even if they're maybe not seen to be going after bad actors and bad businesses, they start to think, what's the point? Why should I spend time trying to be accurate in what I'm doing? We can see clear links from that, that lack of good morale into say, concepts like the tax gap, which has been attributed to small businesses. We think this is an area that needs to be explored, both from an academic perspective, but also with more studies like this. We think it's important and policy makers should really be making an effort in this field.

AR: The improvements in the stats that are being published wasn't really reflected in the feedback we got. I think that the important point is there's been no change in customer satisfaction. It is still quite low, sadly. Just picking up on Peter's point there about the culture of HMRC towards business, another quote that we heard was “let's change from, ‘let's see what you've done wrong’, to ‘how can we help you invest in Innovation UK?’”

SR: Yeah. I have to say I did really enjoy reading the quotes that you included in the report. There's some fantastic insights you got there in quite plain language quite a lot of the time, but really useful stuff. So there is also a section in the report on VAT with the recommendation that the government explores suggestions to broaden the VAT base with a lower headline rate. Now this is a key theme of the Institute's how to fix VAT campaign and if you wanna learn more about that, please do go to the show notes where we'll include a link to further information. Now, so far we've focused on practical issues, but I'd like to take just a few minutes to stand back and talk about tax complexity in general. So could you explain what we mean by tax complexity?

AR: The OTS has, of course, produced a number of papers already on complexity and recognise that some complexity is going to be necessary to achieve policy aims, but unnecessary complexity that really comes down to duplicate processes, complex legislation, overcautious, anti-avoidance, complicated forms and procedures around compliance.

SR: So if tax complexity is difficult to define, I assume it's almost impossible to measure it?

PJ: What we have seen in the academic literature is trying to create an aggregate measure, if you like. So we could look at underlying attributes of the tax system, like incoherent policy, intricacy, volume of rules, volume of legislation. We have also seen an approach that disaggregates complexity into things like political categories. So what do certain political views think about it? Why? What is the connection between complexity and political agendas? That kind of thing. So , yes, it can be measured and it has been in certain academic contexts and papers, but it's, as I say, the difficulty is comparing different studies and actually being able to come to sensible conclusions when you have more than one study in that environment.

AR: So yes, just picking up on the OTS complexity index, the OTX index divided the UK tax system by area. So for example, CGT and then corporation tax and so on, and applied a complexity rating aggregated from 10 metrics under two areas. So there was underlying complexity and there was impact of complexity on taxpayers and indeed on HMRC as well. So of those 10 metrics, four were based on objective measures, things like number of reliefs, number of finance act changes, a readability index, and the number of pages of that particular bit of legislation. The remaining six, this is where I came in and helped with the scoring. These were scored subjectively by OTS team members with the rating between one and five, with five being the most complex and on complexity guidance information. So the six were complexity of guidance, the official guidance that produced the information necessary to comply with the number of taxpayers that are affected by the bit of legislation, the compliance burden for taxpayers and HMRC and finally average taxpayer ability and potential revenue at risk. Then they all get added together to get a score.

SR: I guess that makes it easier then to decide where the UK is in comparison to other countries. Does it come out unfavourably?

PJ: I think the overall impression we got was that the UK is definitely not an outlier. Some countries came up more than once in our conversations, Estonia was one example that was quoted to us a number of times. We also heard about Ireland, but interestingly we spoke to some Irish advisors and we were hearing exactly the same problems that UK advisors and businesses were talking about in terms of their interaction with HMRC and then obviously countries with very different cultures. So certain things that politicians can do in Singapore, they would never get away with in the UK, shall we say. So we have to be very careful when saying that a Singapore model could be transported into the UK.

SR: So if we look now at the impacts of tax complexity, the obvious one is the direct costs of having to meet your tax obligations. We have a figure for that from the National Order Office. The latest estimate puts it at over 15 billion pounds a year. But I'm guessing there's more to it than that.

PJ: A complex tax system can impact upon the reputation of a country as a place to do business and ultimately as a destination for foreign direct investment. So it's potentially very serious that there are certainly things that we would call cognitive costs, that lack of certainty that a business might have potentially the stress of trying to comply with tax morale, the idea that a business might feel there's no point trying to get an accurate answer. We talked about the impact potentially on the tax gap. Again, complexity can have unseen and usually adverse consequences on policy changes. So the innovation one is a great example. When people were sitting discussing R&D tax credits 20 years ago, they probably weren't thinking about complexity and how that's going to impact businesses in actually hands-on investing.

AR: I'll just add that national audit office figure that you mentioned, Stephen, that's going to cover fees to advisors acquisition costs, so things like software for MTD purposes or whatever, and internal costs of compliance as well. But it won't include changes since 2015, which was the last year that these things were measured by HMRC. So all that's happened is the measurements in 2015 have been upgraded . So if the OTS is to be replaced by embedding simplification into the HMTHMRC policymaking process, then shouldn't the tax impact note show the cost saving of simplification measures that they are putting forward?

SR: That's a very good call, Andy. I think from everything you've said there, and Peter, you've said it's clear that the UK has a lot to gain from addressing tax complexity. We're coming to the end of the episode now, but I do have two final questions. First one for Andy. How would you like to see the government respond to your report?

AR: Well, we really hope that the recommendations are studied seriously by policy makers. They are based on evidence that we've heard from businesses themselves. But also I think there has to be recognition that there's a place for an independent body to engage with stakeholders and feed that back to the government.

PJ: Peter, what's next for the team? Well, we at the moment are busy disseminating our report. We want to talk to as many people as possible about what we've found. Going forward, I mean, we'd love to revisit this study in a relatively short period of time to see if anything changes. As I said before we, in the academic world, really want this to kickstart many more academics looking at this, this topic, seriously, to build up that academic literature.

SR: Well certainly thank you for the work you've done to date and clearly for the work that's still to come as well. I think as we've demonstrated today, the UK's tax system is very complex and we do all stand to benefit from greater simplification. So that brings today's episode to a close. Many thanks Peter and Andy for your contributions, and thank you for listening. All of the topics we've discussed today are covered in more depth in the articles linked in the show notes. If you found this useful, then don't forget to subscribe so you never miss an episode. You can rate and share the podcast too. We'll be back next month with the next tax track. In the meantime, why not check out the sister podcast from ICAEW? Accountancy Insights provides business finance and accountancy analysis while each episode of Behind the Numbers offers a deep dive into a selected topic. There's also the Students' podcast aimed at young professionals to keep up with the latest developments and tax. Please make sure to subscribe to our weekly tax wire newsletter. Tax faculty members also have access to our in-depth tax line articles. Thank you for listening.