Board minutes - 20 January 2011

Present

Rt Hon Michael Jack – Chairman
John Whiting – Tax Director
Dave Hartnett – HM Revenue & Customs
Teresa Graham
Adam Broke
Richard Brown – HM Treasury, standing in for Edward Troup

Secretariat

Jeremy Sherwood

1. Minutes of the last meeting

The minutes of the 17 November 2010 meeting were formally agreed.

2. Action points from the last meeting

Advisors to the Board: The Chairman welcomed Teresa Graham and Adam Broke to the meeting, who had been appointed for six months to advise the Board on tax simplification.
Membership of Consultative Committees: At the last Board meeting, it had been decided to invite the Recruitment and Employers’ Confederation to nominate a representative for the small business consultative committee. However, they had not yet nominated an individual – the OTS secretariat would follow this up.
Reliefs review interim report: This was published on 13 December. It set out the criteria that the OTS proposed to use in analysing each relief, and applied them to a sample of 13 reliefs. The report provisionally concluded that three reliefs should be retained, five simplified and five abolished. It also divided the 1,042 reliefs into three categories, according to the priority with which they would be reviewed. The first 74 in Annex A would definitely be looked at, the next 75 in Annex B would be looked at if time permitted, and the remaining reliefs would not be analysed for now.

3. Update on tax reliefs review

The interim report had been generally well received, with most commentators agreeing that the proposed methodology for the review was coming up with sensible outcomes. Around 60 representations had been received from interested parties. One common point made was that for many reliefs, you could not look at the relief in isolation, but needed to consider it within the wider context of the tax system. This would be addressed in the final report.

There was a discussion about the proposed structure and content of the final report. It would be important to come up with some concrete results, whilst acknowledging that real simplification of the tax system would take time and these reviews are just the start of the process. The report should draw out some common high level themes from the analysis of individual reliefs, and highlight particular areas of the tax system that were especially complex. At the same time, a degree of “housekeeping”, removing clearly obsolete reliefs from tax legislation was desirable. The report should be clear about what evidence had been used to justify the proposals on each relief. Where there was not enough evidence to come to a firm conclusion, this should be said.

The KPMG report on administrative burdens carried out in 2006 for HMRC had pointed out that the best way to reduce burdens on business was either to abolish an obligation, or to keep it unchanged. Change in itself tended to increase administrative burdens, at least in the short term. Where the OTS proposed to simplify a relief, it would be helpful to set out some ideas of how the relief could be simplified, and to explain why the simplification is needed.

The recent Mirrlees Review carried out for the Institute for Fiscal Studies had looked at some areas covered by the OTS reviews, and some of the analysis coming out of that review could be referred to.

4. Update on small business tax review

The OTS had carried out a programme of visits around the country during November and December, speaking to small businesses and tax practitioners. The aim was to gather evidence of where the tax system was particularly complex for small businesses, and to gather ideas for simplifying it. The team was now drawing together these ideas into common themes, which would be presented as areas for possible future study in an interim report to the Chancellor by the Budget. Alongside that, the team was gathering ideas for specific simplifications that might be possible to bring in more quickly. Some of these were likely to be improvements to tax legislation; others would be suggestions for administrative improvements for HMRC.

The Board thought the focus of the report should be on practical measures that would reduce the costs of small businesses in complying with the tax system. The conclusions would need to be expressed in a straightforward way, without going into a great level of detail at this stage. One point made was that the Office needed to take account of developments at an EU level, for example on a new accounting standard for small businesses.

The interim report would also propose legislative options for replacing IR35, the intermediaries legislation introduced in 2000. The OTS had set up a sub-committee of its small business tax consultative committee to look in detail at possible options for reform, based on ideas which had been collected during the programme of meetings with businesses and other interested parties.

The Chairman put on record his thanks and appreciation for the hard work of the OTS team and the organisations and individuals that had contributed to the wide-ranging consultation.

5. Future reviews and staffing

The Board discussed possible areas for future reviews and the likely implications on staffing of the Office. Proposals would be put to the Chancellor before the March Budget.

6. AOB

Michael Jack reported that he had written in November to all Members of Parliament telling them about the OTS, and inviting them to report any examples of complexity in the tax system experienced by their constituents.

7. Date of next Board meeting

The date of the next meeting was arranged for 23 February at 11:30am, and the OTS secretariat was asked to arrange further dates for the rest of the year.