UK’s out-of-date tax system needs tax simplification reform

The fall-out from the COVID-19 pandemic presents a once in a generation opportunity for the Chancellor, Rishi Sunak, to introduce widespread reform and simplification to the UK’s out-of-date tax system. Dramatic reform, with tax simplification at the centre of the agenda, would ease taxpayers’ frustration, assist HMRC with collection and administration, as well as reduce the tax gap.

The Chancellor’s next Autumn budget (and only his second) could be the most important in recent history, as the UK looks towards economic recovery and avoid a dangerous and costly recession. This presents Rishi Sunak with an opportunity to overhaul the tax system and position the UK as the stand-out choice as a place for business in the international world.

In recent years, successive Governments and Chancellors have regularly tinkered with the UK tax code – some of this has rightly been in the combat against tax avoidance and evasion but much has been driven by a political agenda and becomes quickly outdated. This has led to confusion, frustration and ultimately uncertainty – both for the taxpayer and HMRC who have the unenviable task of trying to police the rules.

There are parts of the tax codes that have not been looked at since before the turn of the century and they have remained as they are, with further legislation being continuously added on top. This has created a problem for individuals and businesses who no longer fully understand the rules or have confidence in the system. Now more than ever, businesses need a simple and transparent tax system so that they are not left having to wrestle with tax compliance and reporting, but generating new business activities and opportunities which will help stimulate the economy.

A simple and easy-to-follow tax system for businesses and individuals needs to be the priority for the Chancellor. Areas for reform in the personal tax system alone could include removing the various spikes in marginal tax rates at certain income levels (such as the child benefit clawback and tapering of the personal allowance), abolishing inheritance tax and replacing with a capital gains tax charge on death and removing the 3% SDLT surcharge applying to additional residential property purchases.

Although it would be seen by many as controversial, there is a good argument to harmonise income tax and National Insurance and have a single flat rate of income tax applied universally. This is the way to increase tax revenue, reduce the tax gap and to help bring the debt down not just in the short term, but longer-term.


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