Tinkering with tax simplification

Over 1,000 tax incentives have been identified and collated as part of the first stage of the Office of Tax Simplification work – tax advisers across the UK nod wearily! The next step is to review which tax incentives can be eliminated to ‘simplify’ UK tax. Target date for the first review is the next Budget scheduled for 23 March 2011.

I’m in two minds about this – on the one hand, there is little doubt that UK tax legislation has got way out of hand in terms of complexity (for many accountants lets alone business owners!). On the other, there are many targeted tax incentives which appear to have worked well to promote future growth areas e.g. R&D tax credits and the forthcoming ‘patent box’ (promising lower rates of tax) encourage innovation and enhanced capital allowances encourage investment in greener plant and machinery. There are plenty of other targeted tax incentives aimed at putting our economy on a firmer footing for the longer term future. Look at the Dyson Report on Making Britain a Hi-Tech Exporter and the recent Blueprint for Technology report for further support for targeted tax incentives.

Taxation can be effectively used as a carrot to incentivise investment (both cash and more importantly entrepreneurial zeal) in key growth areas, such as intellectual property-rich digital, tech and creative industries; those businesses and sectors that should provide longer term prospects for a healthy UK and global export economy. So why tinker?

Having said that, the relatively recent announcement to provide new start-ups with a holiday from National Insurance Contributions sounds well placed and simple enough – until you look at the detail (and this is just a summary of the detail!).

Overall, I am concerned that putting an axe to scores of these targeted tax incentives in the name of ‘simplification’ could have far-reaching and painful longer term repercussions for the UK economy. Yet we do need to plot a way through the streams of red-tape and bureacracy facing businesses so things must change.

Welcome your views.