The Treasury has issued nine consultation papers on various aspects of the personal and business tax system in what amounts to a far-reaching overhaul of the entire regime.
The papers are asking for views on, among other topics, a reform of the PAYE system, pensions tax relief and inheritance tax.
Announcing the consultations, David Gauke, the Treasury Secretary, said: “We want to make the tax system simpler and work better for the taxpayer. By reducing burdens, making the right choices and involving taxpayers, we are sending a very clear signal that Britain is open for business.
“We are committed to a more considered and open approach to tax policymaking. That is why consultation and scrutiny of our tax policies will be the cornerstone of our tax policymaking process. I want to encourage relevant parties to provide their feedback on the tax consultations we have published.”
The papers follow on from a series of tax changes introduced in the emergency Budget and from the government’s commitment to simplify the overall tax system.
Other tax issues that will be assessed include furnished holiday lettings, associated company rules, foreign branch taxation, the controlled foreign company regime and the modernisation of investment trust company rules.
On PAYE, the government is looking to update the system.
Mr Gauke said: “The PAYE system needs to respond better to the circumstances of the individual taxpayer because only in this way will we be able to reduce errors and provide taxpayers with the clearest picture possible of their tax and allowances.
“We also need a PAYE system that reduces the burden on employers.”
At the moment, responsibility for administering the system lies with employers, who deduct employees’ income tax and NICs at source.
A real time system could see tax and NICs automatically taken from employees’ gross pay as it enters their bank accounts.
There are plans, too, to change the way that pension contributions are treated for tax purposes.
The Treasury is proposing that each taxpayer’s annual pension allowance, the amount by which pension funds can grow tax free, should be reduced from the current £255,000 a year to between £30,000 and £45,000.
The new measures would replace the previous administration’s intention to taper pension tax relief for higher earners.
The consultations will also investigate inheritance tax avoidance schemes. Transfers of property into trusts, as a way of sidestepping inheritance tax, will be subject to a much closer level of scrutiny.
The government has already consulted on the use of travel and subsistence schemes for temporary workers under the national minimum wage, and has concluded that some action needs to be taken to prevent any abuses on expenses.
Commenting on the consultations, Vincent Oratore, President of the Chartered Institute of Taxation (CIOT), said: “The government’s objective of simplifying the system and reducing burdens on business and individual taxpayers is one that the CIOT shares. The more comprehensible the tax system the more likely it is to command public and business confidence and the more likely taxpayers are to get their tax right.
“The review of the proposed changes to pensions tax relief is especially welcome. We all understand that pensions tax relief is going to be curtailed, but that there has to be a simpler way than the complex and costly system previously legislated for. A cut in the annual contribution limit would be a simpler and more pragmatic way forward.”
Mr Oratore added: “We also welcome the discussion document on improving the operation of the PAYE system. It seems to acknowledge many of the problems with the PAYE system and offers the opportunity of real change to a system that, for all its merits, is creaking badly and imposing too many burdens on employers.
“The prospect of changes that, for example, largely eliminate P45/46 problems, mean tax codes are far more up-to-date and offer the possibility of streamlining tax credits and benefits, is very appealing.”
But Richard Baron, head of taxation at the Institute of Directors, warned: “We now need to see the full cycle through to Budget 2011. If proposals get the thumbs-down from business, it will be important for Ministers to accept that fact and drop them.”
More details on the various consultations can be found at http://www.hm-treasury.gov.uk/consult_liveindex.htm