Below is an update on the work streams of the Office of Tax Simplification (OTS). The OTS has also recently published its second annual report for the year to 31 March 2018.

Simplifying the taxation of savings income

This new report from the OTS looks at the taxation of people’s savings income and identifies areas that might be simplified. According to the OTS, the UK tax regime offers a range of tax reliefs to encourage people to put money aside for their future needs which work well for most taxpayers as 95 percent of people pay no tax on savings income. However aspects of the regime are complicated, difficult to understand, and can produce anomalous outcomes.

Many taxpayers continue to worry that they will be taxed on their savings income and misunderstandings and confusion remain. This is the area, and inevitably the complexity, that the OTS considers is now the time to address.

This is the first broad review of its type into the application of the tax system to savings and investment income. It seeks to identify ways to remove some of the real complexities in the system and help taxpayers understand their position. More than half of UK adults (65 percent) save some of their income.

This report provides a comprehensive picture of the taxation of:

• interest and dividend income
• ISAs
• pension withdrawals
• life insurance bonds
• collective investment vehicles such as unit and investment trusts

The report identifies nine areas where further work would be beneficial, including:

• a review of the various savings rates and allowances, and the interactions between them, to identify options to streamline the income tax calculation
• drawing up a personal tax roadmap to clearly set out the government’s vision for personal taxation, including plans for savings income
• improving guidance on the taxation of savings income, particularly on the treatment of pension lump sums, an area of particular confusion
• simplification of ISAs, including a review of the rules on withdrawals from the Lifetime ISA

Simplifying tax relief for fixed assets

This report explores the possibility of replacing capital allowances (“CAs”) with accounts depreciation as a way of giving tax relief on tangible assets, following up one of the main recommendations in the OTS’s July 2017 review of the corporation tax computation.

According to the report, the main source of complexity which such a change could remove – if applied across the whole range of depreciating assets – is the task of determining which assets qualify for capital allowances, given that buildings do not generally qualify at present even though fixtures and other plant and machinery do.

The report concludes that replacing CAs with depreciation would be a radical change. It could be done and the report describes how. However, it is not clear that it should be done. The long term benefits it would deliver would not be enough to make the disruption worthwhile.

Gig economy

Last month the OTS published a paper which looks at gig economy workers who operate through online platforms, how they pay tax and how this could be simplified.

The paper concludes that:

• The government should consider the case for enabling online platforms such as taxi or delivery firms to operate a system equivalent to PAYE for self-employed platform workers (without affecting their employment status);
• HMRC continue to focus on the development of guidance and to ensure that this is readily available and targeted – especially at people who may unknowingly generate tax liabilities;
• HMRC engage fully with technology developers to provide reassurance to the burgeoning self-employed that digital applications are fit for purpose in submitting accurate tax data and returns as necessary; and
• HMRC consider the case for establishing an app for the self-employed to help them manage their tax affairs.

The Chancellor has also requested a further OTS review of the business lifecycle. The review will focus on issues affecting small businesses. A separate scoping document on this review has also been published.

The OTS has also published a number of consultation outcomes in the following areas:

• OTS review of the Corporation Tax computation
• Look-through discussion document
• Key questions published for OTS review on IT/NICs
• IT/NICs closer alignment project – committee membership
• Sole Enterprise Protected Assets discussion document
• Income tax and National Insurance contributions closer alignment survey
• Key questions for OTS review on small company taxation