Review of Reliefs: Background and Approach

08 November 2010

The Office of Tax Simplification is carrying out a review into all tax reliefs, allowances and exemptions, for businesses and individuals, across all the taxes administered by HM Revenue & Customs. The Chancellor has asked us to identify reliefs that should be simplified or repealed to help achieve a simpler tax system.

As a first step, we have drawn together for the first time in one place a list of these reliefs and are publishing it on our website. Alongside this list, we are also setting out how we propose to carry out our review. We hope that the list and our ideas on methodology will help stimulate the debate into the complexity of the tax system caused by the plethora of reliefs, special cases and exemptions.

It is important to make clear that no recommendations or decisions have been made about any individual reliefs. Any changes that do result would be put before Parliament using the normal Finance Bill process.

The list of reliefs

The list of reliefs has been drawn up with the help of HM Revenue and Customs. We then did some checking against tax legislation but, in an exercise of this scale, there will inevitably be some omissions, duplicates and inconsistencies in describing or classifying the reliefs. If you spot any omissions, please tell us: we need your help to make sure the list is as comprehensive as possible.

We have taken a broad view of what constitutes a relief – the term can include:

A specific deduction set out in legislation from taxable income or profits - for example, specific deductions from trading or employment income.
An allowance or a tax-free amount of income or gains – for example, the personal allowance for income tax or the inheritance tax threshold.
An exemption from the scope of tax – for example, cars are not subject to capital gains tax.
A reduction in tax due – for example double taxation relief.
A tax credit – for example research and development tax credits for small or medium companies.
Zero rates – for example talking books for the blind
Reduced rates – for example on domestic fuel and power.

We have included structural reliefs which avoid income being charged to tax twice under different parts of the tax code, for example, the exemption from income tax for companies. We have not included administrative reliefs such as error or mistake reliefs or mitigation of tax related penalties or interest.

However, we do not treat items which a business deducts in arriving at its accounting profit as reliefs. In short, we are looking for items that through legislation alter the figure of profit, income, gain, estate, supply, etc which would otherwise be subject to tax.

Our approach to the review

Our task is to make recommendations, based on analysis of evidence we will gather over the course of our review, for reliefs that can be sensibly repealed, modified, streamlined or simply delivered in a different way so as to make the tax system simpler. The provisional criteria we suggest on which we will base our recommendations are:

Evidence of complexity, costs and administrative burdens in claiming the reliefs. As a start, we have, for example, been given access to HMRC’s cost data on administrative burdens on business of over 2,400 obligations under the tax system.
Evidence of economic efficiency or evaluations of reliefs designed to influence behaviour in a certain way.
Evidence of take-up and awareness of the reliefs.
Whether the policy rationale for the reliefs is still valid. For example, the relief may be largely historic, or there may be duplication with other reliefs or Government spending interventions.
The likely impact of changing or repealing the relief or exemption. For example, repealing some allowances or exemptions would increase complexity for people and businesses that did not previous need to worry about that particular area of the tax system.

We are setting up a consultative committee of tax and business experts to advise us on our review. The committee met for the first time on 3 November. We want to discuss with this committee our suggested criteria for reviewing the reliefs, and whether there are any particular priority areas to look at.

We plan to publish an interim report around the end of November setting out the final criteria we will apply in reviewing the list, and applying these to a small representative sample of tax reliefs. Our aim is to test whether our emerging conclusions are on the right track. We will then apply the criteria to a wider sample of reliefs in our final report, being guided by our Consultative Committee, the views we receive from interested parties, and of course, working within the restrictions of our limited resources.

In the meantime, we have already started to gather people’s views on tax reliefs through meetings with tax experts and industry bodies and will continue this process over the next two months or so. If you would like to arrange a meeting, please contact us at ots-reliefs@ots.gsi.gov.uk.

We welcome comments on the list and on the approach we propose to take on our review – please send these to ots-reliefs@ots.gsi.gov.uk by the end of November. We will carefully consider any points made but unfortunately cannot commit to giving a detailed reply in every case.

Our aim is to operate in an open and transparent way, and to generate input and involvement from tax professionals and other interested parties. We hope that publication of this list will inform and stimulate a wider debate about the number of tax reliefs that have grown up over the years. Whilst there may have been a good reason at the time for introducing each relief, taken together they are a significant factor in the complexity and sheer volume of our UK tax legislation.

Review of Reliefs: Background and Approach

The list of reliefs

Our approach to the review

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Office of Tax Simplification