The Institute for Fiscal Studies has some worrying news for people who are looking forward to a simpler UK tax system.
The IFS believes that government reforms to lower taxes will add greater complexity to the system. And that’s despite the setting up the OTS, which is charged with simplifying the system.
In its Green Budget report, the IFS examined the coming reductions in corporation tax and income from patents as well as the taxation of intellectual property, controlled foreign companies and reforms to the taxation of R&D.
Its conclusions were that if all the reforms are enacted, we will have a lower corporation tax than most other European countries but a significantly more complex system which would provide a distortionary and expensive tax break to a small handful of firms.
The IFS questions the justification of taxing firms and limited company contractors with low profits at a different rate to those earning high profits. It also criticised the proposal to reduce the tax on the Patent Box to 10% saying it was not only poorly targeted but would also add an unnecessary complexity to the taxation system.
When George Osborne took office as Chancellor of the Exchequer, he set up the Office for Tax Simplification to examine the UK’s tax regime. The OTS has been examining tax reliefs and has already identified some that it believes should go.
In addition, the OTS has conducted a series of roadshows that provided SME owners the chance to air their views on the subject of taxation. These meetings proved especially fruitful, and the OTS now has a clearer view of which areas businesses would like to see tackled.
Preliminary findings from are expected from the Office before the Budget along with a further report on ways to simplify the system of tax reliefs.
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