Chancellor Rachel Reeves’ efforts to fast-track tax reforms in the three months leading to this year’s Autumn Budget risk being “rushed” and putting Britons at a disadvantage, senior tax advisers have warned.
Treasury officials are reportedly “racing” to find tax reforms to ease the burden on businesses and individuals while improving productivity forecasts from the Office for Budget Responsibility (OBR) in order to keep her £9.9bn headroom intact.
But tax professionals have warned that the government needs to take a slow and careful approach to reforms, with previous policies resulting in unpredictable behavioural changes among Brits.
Helen Thornley, the technical officer for the Association of Taxation Technicians (ATT), the leading body for UK tax compliance services, said moves to change certain taxes could lead to “unintended consequences”.
Thornley referred to former Chancellor Jeremy Hunt‘s efforts to simplify the pensions system by removing the lifetime allowance on how much individuals could accumulate before incurring a charge as leading to people to “view pensions as another route for transferring wealth”.
“The government is now introducing some very complex inheritance tax provisions to counter this,” Thornley said.
The comments raise further concern over possible plans to replace the stamp duty for first time buyers with a new property tax that could apply to homes worth over £500,000.
Researchers at the Tony Blair Institute for Global Change have praised initial proposals reported in The Guardian and said changes could “keep the housing market moving” while top lawyers have suggested changes would be hard to implement amid warnings it could target homeowners in London and the South East in particular.
Tax reforms need to ‘spread burden’
Ellen Milner, director of public policy at the Chartered Institute of Taxation (CIOT), which awards qualifications to tax advisers, said interference with the overall system through the creation of new levies and adjustments on rules had made taxes more difficult to understand.
Government officials have suggested the theme of the year’s Autumn Budget will centre on “fairness” but Milner said previous changes to the system at large had led to “trade-offs” between making taxes more just for Brits and complexity for those abiding by the rules.
Stephenson Harwood, tax lawyer James Quarmby, who advises high net worth individuals on international taxation, said “rushed” reforms could confuse investors and undermine confidence.
“The OBR and economists can model outcomes, but forecasting is never precise when human behaviour is involved,” Quarmby said. “This is why tax reform has to be gradual, signposted and carefully designed.”
“Real reform would mean spreading the burden more evenly, simplifying the system and removing taxes that block investment and trade. It would not be easy, but it would leave us with a system that is fairer, more resilient and better for long-term growth.”
HMRC has been handed £1.7bn over four years to close the £43bn tax gap, with some 4,5000 compliance officers and 2,400 debt management staff hired to drive enforcement.
Last month also saw a marked increase in the number of compulsory liquidations, with restructuring body R3 claiming the taxman had become bolder in chasing unpaid tax.
The ATT and CIOT also support investment in digitising HMRC interactions, though Thornley said the government had to make some key decisions on self-assessment procedures before it could build a new online service.
The CIOT’s Milner suggested that further analysis on whether tax measures add or reduce complexity should be considered by the Treasury.