The UK Tax System, COVID-19 and a possible opportunity for change

The UK Tax System

One of the areas people have focussed on during the COVID-19 pandemic that has hit the country, is the UK’s tax system, the treasury has done its best to help in the crisis and one of those actions is to ease up on tax collection from Business and Individuals. But we also have the opportunity at this difficult time, it has given business time to take stock, to do a bit of housekeeping and to get procedures and practices up to date and fit for purpose. Perhaps it’s a good time for the Treasury to do the same.

The UK has the Worlds Longest Tax Code at 22,000 pages, massive bureaucracy reflecting our habit of constantly gold plating any regulation that is put in place, this has made our dealings with the EU more complex as we have laid layer upon layer of compliance on our businesses whereas the EU has taken a far more relaxed approach in many cases. Often agreeing to rules and regulation without ever putting them into practice or enforcing them. Planning, Health and Safety in the Hospitality industry and Tax being 3 good examples. Greater and greater state intervention in some instances can be useful but in others it can stifle productivity, creativity and innovation.

In the case of tax, big business often has more and better resources than the regulator and this causes issues where we see small and micro business following the letter of the law, while big business seems able to find short cuts and loopholes. The government can use tax to favour certain industries or discourage certain behaviour this adds to a less even playing field and the perception that there is one rule for one and one for another.

If you compare the UK to Hong Kong, the top rate of income tax is 17%, there is no Inheritance tax, no VAT, no Dividend tax, no capital gains tax and corporation tax is only 16.5% and its tax code is a mere 350 pages, what a contrast. This doesn’t seem to affect their standard of living which is high, their education or welfare systems.

One of our biggest problems seems to be that we keep adding things to the UK tax code without taking anything out, this is despite the introduction of the tax simplification office, which seems to have failed miserably in its tax. As Sir John Harvey Jones used to say, if you keep adding rules and regulations, its like adding barnacles to a ship, eventually it starts to affect its performance and it starts to slow down.

The trick is to remove the old barnacles before adding new ones, something we seem incapable of doing, we need to clean up the tax code and that means ruthlessly and efficiently simplifying the code. No one says its going to be easy, but it needs doing, and now may be a perfect opportunity to do so!