The UK’s treasury committee has called on the government to carry out a “comprehensive and systematic review” of existing tax reliefs to simplify the regime.
The MPs involved with the committee said in a report on 18 July that the UK tax system is “too complicated” and it welcomes the Treasury’s commitment to simplifying the tax system.
But it added that the simplification “cannot merely focus on proposed new policies”.
Overall, the treasury committee recommends that the government should in particular look for ways of making it easier for taxpayers to adhere to the rules.
While assessing the tax relief system in the UK, the committee found that tax reliefs account for considerable reduction in tax revenue.
“They require adequate data to be collected and published to inform proper policymaking or accountability,” it added. “However, the evidence shows that this is not happening. The disparity between scrutiny of tax reliefs and that of equivalent direct public expenditure is stark.”
The report also stated that there are 1,180 tax reliefs, but HM Revenue & Customs (HMRC) only publishes estimated cost data for 365, leaving 815 uncosted.
The committee recommends HMRC publish cost data for all tax reliefs from the 2025/26 tax year onwards. It also wants the Treasury to reclassify tax reliefs as government expenditure.
The report also added: “Tax reliefs have been abused. The most straightforward way to reduce opportunities for such abuse is to simplify the tax system.
“Where tax reliefs are maintained, we recommend the government monitor them for indications of abuse as part of ongoing review processes. The government should seek and favour external consultation on potential abuse at both policy design and post-implementation monitoring phases.”
Removing reliefs from the statute book
The treasury committee also found that political pressure, including through lobbying, tends to promote both the creation of new tax reliefs and the retention of existing reliefs.
“Tax reliefs long detached from their original policy purpose clutter an ever more complex tax system,” the report added. “We are concerned that there is no routine within Government to identify and clean them from the statute book.
“We have taken evidence on several options for seeking to remove outdated tax reliefs from the statute book. A ‘one in, one out’ rule for tax reliefs would be a blunt instrument which could reduce flexibility in policy-making. Sunset clauses have their place, but tax relief expiry dates can act against the certainty important to promoting long-term investment.
“A formal, structured system of five-yearly reviews would provide enough time to judge the effectiveness of a tax relief and allow an opportunity to remove those reliefs no longer meeting their objectives.
“We recommend that the government institutes a system of five-yearly reviews, incorporating public consultation, for tax reliefs. Where these reviews find tax reliefs which no longer achieve policy objectives, are vulnerable to abuse, or have estimated costs significantly higher than expectations, then the government should commit to removing those reliefs.”