Tax policy making: a new approach
HM Treasury and HMRC have jointly issued a document, 'Tax Policy Making: a new
approach'. The Government wants a new, more considered approach to tax policy
making. Consultation on policy design and scrutiny of draft legislative
proposals are intended to be the cornerstones of this approach, though
flexibility will be needed to make changes to the tax system.
The main features are to increase predictability by:
- providing taxpayers with clarity on policy setters' approach and certainty on the future direction of the tax system;
- by providing stability;
- slowing down the rate of change to tax legislation;
- focusing on fewer and better developed proposals supported by improved processes for changing tax law; and
- increasing simplicity, by creating an independent Office of Tax Simplification.
When embarking on significant areas of reform, the Government will set out:
- its policy objectives;
- how the reforms will be taken forward, including the approach to consultation; and
- the proposed timetable for reform.
The Government will publish a statement on its approach to tax consultation
later this year. It welcomes discussion with interested parties on the scope and
content of that statement. The Government has identified a number of
improvements to the current consultation process.
It is seeking views on a new convention, under which the majority of changes to tax law are confirmed no later than three months before the tax year in which they come into effect or publication of the Finance Bill in which they are to be included and accompanied by draft primary legislation and significant statutory instruments. There would be exceptions to the convention, including:
- straightforward changes to rates;
- allowances and thresholds;
- revenue protection measures; and
- areas where forestalling presents a significant risk.
The Government plans to take a more strategic approach to the risk of avoidance to prevent increasing complexity and reduce the need for frequent legislative change. Its approach will be to:
- consider avoidance opportunities when undertaking policy reform, for example, through legislative approaches that clearly set out the intended objectives;
- review areas in which repeated changes have been made to close loopholes; and
- consider whether a general anti avoidance rule ('GAAR') should form one element of strengthened defences.
HMRC will engage informally with interested parties over the summer to
explore whether there is a case for developing a UK GAAR, look critically at the
need to announce legislative changes taking immediate effect outside fiscal
events and develop a clear protocol for the circumstances in which the
Government would be willing to make such announcements. It will work with
interested parties in developing this protocol.
The Government proposes a minimum of eight weeks for comments on draft Finance Bill legislation and that a similar approach be adopted to secondary legislation which makes substantive changes.
As a general principle, the Government will provide more information on the underlying rationale for tax policy changes, accompanied by supporting analysis and assumptions. The Government is also committed to fully understanding the effects of tax policy options. It will introduce a tailored tax impact assessment, in place of the current regulatory impact assessment, to cover a wider range of effects. Officials will work with interested parties over the summer on this.
The Government will publish more information on tax policy costings. The Government is publishing policy costing methodology.
Who will be affected?
All taxpayers, though the main effects are likely to be felt by businesses.
Discussions will start over the summer.
We support proposals to think more carefully at all stages about proposals to
change tax law. Business and the professions have both generally commented that
the consultation process does improve legislation, but is often hurried and
lacks a clear strategy.
One challenge will be to exercise the self-restraint that is necessary to consult carefully enough when the Government, Treasury or HMRC thinks it knows best what to do. Another possible challenge is the number of people in the Treasury or HMRC who have the detailed knowledge and experience to lead consultations and conclude on their result.