It's time we applied the same principles to the tax system. It is overweight and out of shape, and what is worse, it is getting heavier by the year. The Tax Law Rewrite project, while worthy in its aims and thorough in its execution, is simply highlighting how bad the problems are. Putting badly written, complex legislation into plain language is like putting an obese person into a well-made, but tight-fitting suit; the lumps and bumps are still there, but can be seen more clearly. One area where the tax system fails to reflect modern life is its application to workers. There are assumptions that people have long periods of consecutive employment with a small number of employers, based in a defined and separate workplace. And also there is a clear distinction between being employed and self-employed. But life isn't like that any more, if it ever was. People change jobs more frequently; may have a 'portfolio' of concurrent roles; increasingly use teleworking or operate on the move from a truly mobile office. In a timid way the tax system has tried to reflect some of these changes. The standard tax charge on mobile phones has been abolished, but it took too many pages of the Finance Bill to achieve this, and an employee is still likely to have a tax charge if his employer pays part of his landline bill rather than the mobile one. Legislation on company buses was complex, and as for the rules on company bikes ... did you know you would need to cycle at 30mph to earn the minimum wage from your mileage allowance? The trouble is underlying assumptions subtly drive the shape of the tax system, without anyone stopping to think whether what results is a sensible way to achieve the government's aim of raising the necessary amount of tax with the minimum political aggravation. So the rule on deductibility of expenses for employees is notoriously restrictive, but with an exception for the cost of keeping and maintaining a horse which survived until a few years ago. The rules on travelling expenses were updated, but not without a long consultation process, and two attempts at draft legislation, before coming up with something which dealt with the situation of most - but not all - workers. The recent furore on personal services companies, now at least partially alleviated, is another case in point. Why should there be a fuss about whether someone is employed or self-employed and whether an individual chooses to live off earned or unearned income? Wouldn't it make sense to have one set of expenses rules and, say, two rates of income tax and charge all income at the same rates? (Seem to have heard that one before, somewhere!) There are also burdens on employers, who have to operate all the various rules and act as unpaid tax collectors for the government. The PAYE system can just about cope with multiple employments, but overall the system is so complex that even the best-advised employer will make mistakes somewhere. For the inexperienced entrepreneur, the hassle of trying to cope with PAYE (including working family tax credit, student loans, statutory sick pay and so on and so on) can be such a burden the temptation to ignore the whole thing can become overwhelming. So what could the government do about this? I think it is time ministers took a look at the structure of tax reliefs available to employees, with a view to bringing the rules, particularly on expenses, in line with modern business life. It should not matter whether an individual is employed or self-employed - expenses incurred for business should be deductible for the payer and not be a taxable benefit for the payee. But it is important the reform is a change in the principles, not more detailed rules - otherwise instead of getting slimmer, the tax system will continue to get fatter until it collapses under its own weight. - Heather Self is chairman of the Chartered Institute of Taxation's technical committee and a partner with Ernst & Young.
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