Tax experts call on PM’s successor to make “vital” improvements to tax system

Tax experts are calling on the next UK prime minister to act on the “pressing public interest” of making a better working tax system.

Boris Johnson is due to step down as prime minister later this year and will be succeeded by either Rishi Sunak or Liz Truss.

In a statement published on August 23, the Chartered Institute of Taxation (CIOT) announced its president – Susan Ball – had written to both Sunak and Truss, highlighting what the new leader’s priorities should be in terms of tax and spending.

Sunak has pledged to cut taxes by about £23 billion a year over the next decade, while Truss is pledging tax cuts she claims will cost £38 billion annually.

The letter to the two candidates outlines three “widely supported” areas for improvement including sustained investment in HMRC to improve performance, a review of existing digitalisation plans, and a more ambitious tax simplification agenda.

Investment in HMRC

In her letter, Ball stressed a properly funded HMRC is “vital” to the future of the UK.

“HMRC’s performance standards are falling short and need to be improved if HMRC is to play its essential role in supporting taxpayers and businesses”, she wrote.

There have been concerns over the move to digitalise the UK tax system as staff numbers within HMRC have been cut in anticipation that digitalisation will mean more savings.

Ball believes Johnson’s successor should make sure HMRC is able to maintain its existing resources. She also suggests helping to improve basic HMRC activities including answering telephone queries, dealing promptly with correspondence, investigation and compliance activity, and timely processing of new tax registrations and agent authorisations.

“The investment required to sustain these improvements is urgent and essential, not just for taxpayers but for the sustainability of future government revenues, so should not be put at risk by any new wider public spending cuts or constraints,” said Ball.

Making Tax Digital

Digitisation will improve HMRC’s efficiency and enable it to provide better support for taxpayers. However, since its announcement in 2015, concerns have been raised over the “unrealistic” timetable for Making Tax Digital (MTD).

MTD could bring technical challenges due to a limited choice of approved software available to taxpayers. This is affecting the number of taxpayers willing to take part in the pilot which means MTD risks being rolled out without proper piloting.

“The government should work with stakeholders to identify areas of risk with the current strategy and whether changes (possibly including more phasing and descoping) can be made to ensure that MTD can be launched successfully and be built on as experience develops,” Ball said.

Simplifying the tax system

Ball’s letter goes on to argue that the UK tax system has become “far too complicated” for taxpayers to understand and comply with, which is also making it harder to digitalise.

In 2010, the UK government established the Office of Tax Simplification to provide a renewed focus for tax simplification. However, since its establishment, successive governments have continued to make the tax system more complicated. For example, the  length of the tax code has increased considerably, which will inevitably increase compliance costs.

“We believe that these developments are hindering efforts to digitalise the tax system and thereby make it far more difficult for taxpayers to comply with,” said Ball.

She added the pace of change is resulting in software solutions “lagging behind.”

In 2015, the UK government published its vision that by 2020 every individual and small business would be able to see and manage their tax affairs through a digital tax account, removing the need for annual tax returns.

However, Ball stressed that, seven years later, this vision appears to be a “long way from reality.”

“We would welcome the opportunity to work with the new Government, HMRC and other professional bodies to effect improvements in the UK tax system,” Ball said.