At the time the Conservatives announced their plans for an Office of Tax Simplification it looked to me like a good exception to the general policy of cutting quangoes. Its major report into tax reliefs looks to have justified that belief – because the Office of Tax Simplification has discovered that far more tax reliefs exist than it was expecting.

Yup, you read that right – that tax system is so complicated it turned out to be even more complicated than people who already thought it was complicated expected. Or in its language:

We found 1,042 reliefs,allowances and exemptions; far more than any of our initial estimates.

The OTS’s report also has the distinction of starting its foreword with a quote from Star Trek, even if by Chapter 1 it is back on to more familiar tax quotation grounds with William Gladstone.

The big stories from the review are:

During the review, a number of key themes have emerged:

• Merging income tax and NIC – this is a long term project of structural reform thatwould deliver major simplification;
• Employee benefits and expenses – The longer term aim would be to align the treatment of employee benefits, with shorter term aims of simplifying many minorbenefits with a de minimis limit of £100/£500, or amending the current £8,500threshold;
• Inheritance tax and trusts – the reliefs for inheritance tax are integral to the policyand we consider that a more appropriate approach would be to review the tax as a whole;
• Capital gains tax, particularly as applicable to companies –the capital gains systems for individuals and companies have drifted apart, with gains by individuals taxed at a lower rate than income to reflect inflation, whereas companies are still required to calculate indexation. Our aim would be to realign the treatments and simplify the tax, but as there are changes in relation to corporate capital gains expected in Finance Bill 2011, this is clearly a longer term project; and
• Environmental taxes –Both landfill tax and aggregates levy should be reviewed, as both regimes contain basic charging provisions with numerous exemptions and it may be more appropriate to define what is caught rather than what is excluded.

In amongst the details are some great examples of just how much parts of the tax system is in need of simplification, such as the continuing tax break on the first 15pence (yes, pence) of the value of a luncheon voucher given by an employer to staff. As the review says,

The value of this relief has eroded since its introduction in 1946 and is outweighed by the time and cost in providing it.

My favourite, however, is the discovery that there is still a tax relief on the books for a tax rule that no longer exists:

Certain specified and certified instruments were exempt from £5 fixed stamp duty. As the fixed rate of duty was abolished in 2008, the policy rationale is no longer relevant and the relief  has no current application.

Yorkshire drinkers of obscure beer may wish to check section 4.37.

Office of Tax Simplication – Review of Tax Reliefs