In its latest report, the House of Commons Treasury Committee examines tax reliefs and concludes that the “huge and seemingly ever-expanding suite of tax reliefs” is an important factor in the complexity of the UK tax system.
The committee’s report quotes evidence from ICAEW that this complexity is opening up the system for exploitation and simultaneously leaving others unaware of their ability to access reliefs.
“The more rules you put into something, historically that tends to mean there is more opportunity for things to perhaps go wrong,” Anita Monteith, then Head of Taxation Policy at ICAEW, told the committee at a hearing in December 2022.
The report concludes that a “comprehensive and systematic” review of all tax reliefs is needed to identify opportunities for simplification.
It goes on highlight ICAEW’s example of intangibles relief, which was meant to support innovation, but, as ICAEW stated: “Instead it created multiple opportunities for tax avoidance where taxes were reduced with no true benefit in innovation.”
The committee recommends that greater consultation is needed to identify potential abuse before the introduction of new reliefs in future and as part of post-implementation monitoring.
It also advocates action to manage and remove existing reliefs. The report states: “Governments tend to introduce new reliefs, but rarely remove those which are redundant, making these problems progressively worse.”
It concludes: “The government should conduct five-year reviews of individual tax reliefs and commit to remove those reliefs that no longer serve their policy goal or are vulnerable to abuse.”
The Treasury Committee report quotes ICAEW’s argument that tax reliefs should be kept to a minimum. ICAEW stated: “This approach should help to keep the tax system simple, understandable, should limit the scope for abuse and also will mean that taxpayers are not foregoing reliefs to which they might have been entitled but which they did not know about.”
The committee also reflects on the potential costs of tax reliefs, stating that while almost 1,200 tax reliefs are available in the UK, less than one-third have published costings.
Alongside recommending that HMRC publishes full costings of all tax reliefs, the committee concludes that tax reliefs designed to promote behaviour should be classed as public spending and “scrutinised as such”.
Responding to the publication of the report, ICAEW’s Head of Tax, Frank Haskew, said: “We welcome the Treasury Committee’s report, which has clearly listened to the evidence provided.
“Action needs to be taken on simplifying tax reliefs to reduce exploitation and ensure all those who are eligible can access them. We look forward to working with HMRC and Treasury in future to support these changes.”
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