UK tax is too complicated and open to abuse, MPs warn

The UK tax system too complicated, resulting in abuse of some schemes and fraud, MPs have said.

A systematic review into the true cost of more than a thousand tax reliefs is urgently needed, according a report by the parliamentary Treasury Select Committee which warns that the current systems of scrutiny into the effectiveness of the reliefs are “inadequate”.

The report calls for a “simpler, better value and more effective tax system which is less prone to abuse”.

MPs found that while there are more than 1,000 tax reliefs in force in the UK tax system, scrutiny of their effectiveness is poor with the overall cost to the taxpayer unknown.

Analysis by HM Revenue and Customs (HMRC) of 105 reliefs found the cost to the taxpayer was £195bn. Hundreds of other tax reliefs have not been costed, MPs said.

The system, the committee concluded, is “too complicated” and “seemingly ever-expanding”.

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“Governments tend to introduce new reliefs, but rarely remove those which are redundant, making these problems progressively worse,” the report said.

The result “works against the Government’s stated aim, which we support, of simplifying the tax system.”

The Treasury Select Committee has previously criticised ministers for scrapping the Office of Tax Simplification, saying it sent the signal that making tax less complex was “no longer a priority in government”.

The committee said Treasury officials will be ordered to appear before it to report how they are seeking to simplify the existing tax system.

The Institute of Chartered Accountants in England and Wales said the UK tax system “is now too complex to work efficiently. This complexity has consequences for taxpayers.”

The report calls for a “comprehensive and systematic” review of the existing system and formal reviews of tax reliefs every five years. Greater public consultation on new and existing tax reliefs is also being recommended.

Harriett Baldwin, chairwoman of the Treasury Committee, said: “Our tax system is too complicated, and the proliferation of uncosted tax breaks add to that complexity.

“While some reliefs are very effective, others are prone to abuse or simply lie dormant, cluttering the ever-expanding tax code.

“The fact we only have costings for a third of reliefs is staggering – and something which needs rectifying with urgency.”

She added that the HMRC and the Treasury needed to “work hand in glove to get a grip on the complexity, lack of transparency and potential for abuse”.

A Government spokesman said: “Tax reliefs are a key way we can support fairness in the system and encourage activity that can help grow our economy.

“Keeping tax simple remains a priority, as seen with the recent abolition of the pensions lifetime allowance and reforms to alcohol duty.

“Additionally, HMRC continue to take action against tax relief fraud, more than doubling the number of people working in research and development compliance.”