Tax reliefs are undoubtedly a vital part of the tax system. They’re a tool to encourage important behaviours, from saving and investment to charitable giving. Most of the business reliefs in the system are linked to government policy to encourage UK competitiveness and growth, and they’re having a positive impact. Witness the spate of overseas firms choosing to locate here.
But the more reliefs you have in the tax system, the more complex that system will inevitably be. The government regularly monitors the effectiveness of reliefs, and now the Public Accounts Committee is conducting a wholesale review.
I think some form of review of the system is a good idea. As part of our ‘paying for tomorrow’ project, looking at how the tax system should adapt for future, we recently brought together 22 members of the public to spend two days debating potential tax reform. One of the overriding messages from the jury was the desire for greater simplicity. With this in mind, when looking at VAT, the jury wanted to see fewer reliefs and exemptions.
Reviewing and reducing the number of tax reliefs is easier said than done. The Office for Tax Simplification is doing much work here, but are there other steps that could help manage the build up of reliefs in the system?
We have long held that sunset clauses could be a sensible step. These would provide a clear opportunity to assess if a relief is working as intended. They needn’t cause uncertainty, because the whole point is that effective reliefs would continue. A tax system of highly effective reliefs is something we should aim towards.
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Tax reliefs: sunset clauses could help
Tax reliefs are undoubtedly a vital part of the tax system. They’re a tool to encourage important behaviours, from saving and investment to charitable giving. Most of the business reliefs in the system are linked to government policy to encourage UK competitiveness and growth, and they’re having a positive impact. Witness the spate of overseas firms choosing to locate here.
But the more reliefs you have in the tax system, the more complex that system will inevitably be. The government regularly monitors the effectiveness of reliefs, and now the Public Accounts Committee is conducting a wholesale review.
I think some form of review of the system is a good idea. As part of our ‘paying for tomorrow’ project, looking at how the tax system should adapt for future, we recently brought together 22 members of the public to spend two days debating potential tax reform. One of the overriding messages from the jury was the desire for greater simplicity. With this in mind, when looking at VAT, the jury wanted to see fewer reliefs and exemptions.
Reviewing and reducing the number of tax reliefs is easier said than done. The Office for Tax Simplification is doing much work here, but are there other steps that could help manage the build up of reliefs in the system?
We have long held that sunset clauses could be a sensible step. These would provide a clear opportunity to assess if a relief is working as intended. They needn’t cause uncertainty, because the whole point is that effective reliefs would continue. A tax system of highly effective reliefs is something we should aim towards.
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