At a debate on 8 July hosted by the Association of Revenue and Customs (ARC) and held in the House of Commons, top tax advisers called for the introduction of more “purposive” tax legislation to help guard against the misuse of loopholes in the system.
A panel chaired by British Labour politician – Margaret Hodge, listened to debaters who argued that poorly-drafted and unclear tax laws cause distortions and provide opportunities for potential tax avoiders.
Jolyon Maugham, Devereux Chambers tax barrister, speaking to a panel comprising of Labour front-bencher Shabana Mahmood, Conservative Nigel Mills, Mazars tax partner Tim Davies, Association of Revenue & Customs president Tony Wallace and Legal & General head of tax Grace Stevens, said that a greater emphasis on the purpose of new laws would help understanding, interpretation and application of laws.
According to advisers the understanding of tax laws is fraught with impediments such as language, lack of practical examples and stated aims. And in their opinion Parliament can help by clearly explaining what it needs to make the legislation accessible to laypeople.
ARC president Wallace, said, “There’s nothing wrong with tax planning, but many structures go way beyond government intention. Better understanding makes better law.”
One special case-in-point is the IR35 legislation – it has proved not only complex to understand but also confusing for many. So much so it had led to accusation of tax avoidance by BBC who in September 2012 admitted that 148 of its 467 presenters worked through PSCs. Besides this issue, the IR35 rule has been criticised as 256 cases were investigated in 2012/13, compared to just 59 investigations in the previous year.
Labour MP Mahmood asked for the formation of a group to understand tax and finance rules to help prevent debatable laws like the IR35. She said, “We do that on the cheap in this country. Scrutiny needs to be better.” She added that improving public knowledge about tax laws would help improve transparency – as on a visit to a constituency school she had noted that many students did not understand that tax is deducted from an employee’s wages before it hits their accounts.
The panel of advisers also suggested HMRC focus on transparency by comparability and disclose more about a company’s tax position – they also argued that a policy should cut both ways. In response Hodge suggested “properly costing” tax reliefs on an individual basis, rather than just cumulatively. However, Conservative MP Mills favoured drastic reforms and admitted the tax system “unfit for the purpose”. He said, “At some point, we’ll have to bite bullet and strip it back and rewrite, tax by tax,” he said.