The OTS suggests HMRC could do more to explain to individuals how to navigate the tax system, but this is a timid approach, and its remit should be expanded to include a more wide-ranging challenge.
The Office of Tax Simplification (OTS) produces worthy reports suggesting ways the tax system could be simplified. They are a realist organisation, concentrating on identifying the “quick wins” that can be put in place with minimum effort and resource. However, we really wish they would stop being a mouse and try roaring like a lion.
Its latest 92-page report on “Taxation and Life Events: Simplifying tax for individuals” has 15 recommendations, focusing on five areas.
- the High-Income Child Benefit Charge
- the operation of PAYE, as people start work or first receive a pension
- the workings of pension reliefs and charges
- the ability for people to assist others who may have lesser capacity
- the potential for better information and education about tax
But most of their recommendations could be summed up as “explain it better”.
HICBC train crash
Consider the High-Income Child Benefit Charge (HICBC), which seems both a complex and badly-designed policy area. In fact, this was foreseen by tax professionals back in 2012 when it was described as a train wreck.
Parents need to register a claim for child benefit for a new-born to get a National Insurance number automatically issued to the child when he or she reaches 15 years and 9 months.
Registration is also needed to get the mother/carer the relevant pension credit on their NICs record. But if one of the parents earns over £50,000 there is a tax charge which clawbacks the benefit, so people logically don’t bother to claim it at all.
“Aha”, says the OTS, but if it was explained properly to them that they should register for the money but not claim it then all would be well.
Accidental employers
The OTS accurately identifies that there are issues for people who are accidental employers – of nannies, carers and the like – and identifies useful tools that already exist to help them. It then meekly recommends HMRC should signpost them better.
Why is the OTS not recommending some real tax simplification? They are the Office of Tax Simplification after all.
Here are some suggestions:
- Make registering the birth of a child result in the issue of its NINO.
- Make the child benefit the income of the child rather than the carer.
- Allow an accidental employer to open some kind of “tax paid” bank account or purchase “tax paid” cheques?
Off the wall suggestions like these may turn out to be neither practical nor desirable, but at least if the OTS were to explore the full range of possibilities the Overton Window of thinkable solutions might widen a little.
Payment day issues
Problems can arise in the interaction of pay and universal credit. If the normal payday is a non-banking day (eg Saturday) and the employer understandably reports wages paid on the day they are paid (most likely Friday) rather than the day they were due to be paid, the universal credit system may categorise it as a double payment in one UC award month rather than two payments falling into consecutive months.
This can have dire consequences for the worker if their universal credit award is cut, as Kate Upcraft explained in response to the Johnson and others v DWP case.
The OTS suggests HMRC should get employers to tweak their systems to tell DWP the due date and not the paid date (this is actually the correct procedure).
This might work – but wouldn’t it be better if the DWP system were reprogrammed to recognise a non-banking day and adjust automatically? Or, and this is obviously well outside of the OTS’ remit, if the minimum wage were increased so that people who were working didn’t actually need to be on benefits as well?
“Designing out” problem areas from the system must surely be the answer, whether to the complexities of pensioners’ tax codes, to recognising Lasting Powers of Attorney or to the other areas mentioned. Only after other radical solutions have been explored should “and educate people better” be a reasonable response.
More bite less squeak
What we all want from the OTS is an end to its defeatist tone. For example:
- 6.2 In an ideal world, any tax system would be simple and transparent…
- 6.4 Of course, that ideal world does not exist. (page 74)
The OTS is an apologetic mouse nibbling at the
margins, when what we really need is a roaring lion saying: Why not think
differently?[1]
[1] Reproduced from AccountingWeb