ICAEW’s Tax Faculty is looking at how the UK’s tax system can better work for everyone. Feeding into the ‘How to build a better tax system’ campaign, faculty board members set out the dangers of inaction and possible solutions to improve the sustainability of UK tax. They had strong feelings about what needed to change.

Simplify the tax system

“We've got a hugely complicated tax system in the UK,” says Stephen Dale, partner in French accounting firm, Roosevelt Expertise, and Chair of ICAEW’s VAT and Customs Committee. He cites VAT as an obvious example, having ballooned into 600 pages of legislation from just 40 when it was introduced in 1972.

“The tax itself was a simple one back in 1972. We've now probably got one of the most complex VAT systems in the world, with multiple rates, exemptions, zero ratings. It really is becoming a nightmare for businesses to be able to cope with,” he says.

“Simplification, simplification, and simplification is what we must achieve, particularly in VAT. It may only be one very small area of taxation, but nonetheless representing a huge amount of tax revenue for the government. Let's make it simple.”

Ruth Corkin, Principal, Hillier Hopkins, agrees: “The tax system is really complicated, and there's room for simplification and removal of old laws, and updating for the current technical situation, and the way people transact.”

“From an international business perspective, what you really want is for the UK to be amenable to your business continuing to operate in the country without undue administration or bureaucracy,” says Chelsea Aldridge, Vice Chair of the Tax Faculty Board.

From that perspective, tax needs to be simple to administer, and for non-UK tax specialists to understand. She says: “It shouldn't just be UK tax people working on UK tax, because that just doesn't reflect the reality of where some businesses are at.

“Any international business should be able to operate in the UK, and if that means that their tax team is based in the Netherlands, or wherever they're based, they should be able to still administer the tax.”

Improve and transform HMRC

Investment in HMRC is one of the first things that the government should do to start improving the tax system, says Stuart Lisle, Chair of ICAEW’s Tax Faculty Board and former BDO Tax Partner. “Investment is needed to enable HMRC to really deliver what they're expected to deliver for the taxpayers,” he says “HMRC is the main fundraising department in the government, so it really does need to perform well.”

HMRC and the community of agents in the UK should have a more positive and collaborative relationship, says Corkin. “HMRC should really be engaging with agents to assist them…helping taxpayers to pay the right amount of tax at the right time.”

HMRC’s internal communication also needs to be improved, she adds. “HMRC itself is a big organisation. It doesn't necessarily communicate between the different teams. Better communication internally, better training, and less rigidity, will mean that taxpayers can feel that it's more approachable and can more easily self-serve to pay the right amount of tax.”

The need for stability

ICAEW has updated its Ten Tenets for a Better Tax System, first issued in 1999. The updated version highlights the need for stability in the tax system.

The tax system in the UK is subject to constant, small changes. ICAEW is arguing that any changes to the system should be justified by economic, social or environmental goals. It needs to be clear to taxpayers, advisers and agents why any element of the tax system is changing. Many of the iterative changes over the past 50 years have ended up making the tax system more complicated.

This is something that Aldridge vehemently agrees with. She says: “Stability, particularly for business, is probably one of the most important tenets of our tax system.”

Five pillars to build on the tenets

In revising the Ten Tenets, and through the involvement of its volunteers, the Tax Faculty identified five institutional pillars that tax systems need to function properly:

• policymakers,
• administration,
• tax profession,
• judiciary, and
• digital infrastructure. 

“At the moment, those pillars don't seem to be functioning as they should, and so this work is looking at why that is and what can be done to fix those pillars going forward,” says Ed Saltmarsh, Tax Technical Manager at ICAEW.

ICAEW has had input from the Tax Faculty Board and volunteers on other tax committees, but now is calling for more members to get involved. “We really want to hear from members about what they think the problems are, but more importantly, what they think the solutions are,” says Saltmarsh.

“This is a collaborative project. We want to hear from everyone about how the tax system should work for them.”

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