Scrap dozens of tax reliefs, Osborne told

INCOME tax and national insurance tax should be merged and dozens of tax allowances abolished, according to recommendations published by the Office of Tax Simplification (OTS).

The OTS, convened in July by chancellor George Osborne to overhaul the UK’s increasingly complex tax system, has suggested that the Treasury get rid of 47 tax reliefs that it says cost the UK more in “administrative burden” than they benefit their recipients.

It suggests replacing national insurance and income tax with a single levy, pointing to instances where employers are forced to apply different reliefs to each tax for single employees. “The mismatch between the rules is a major cause of complexity,” it says.

The report adds that a range of reliefs on inheritance tax could also be done away with if the Treasury simply reviewed “the tax as a whole”. Abolishing inheritance tax was a key pledge in the Conservative manifesto, but was dropped during coalition negotiations.

And it adds that capital gains tax (CGT) for companies has diverged too far from CGT for individuals, saying: “The existence of two different regimes can cause confusion for taxpayers as well as for smaller firms of advisers.”

Despite its wide-ranging recommendations, however, the report only examined a fraction of the UK’s 1,042 taxes that it identified last year. Citing a lack of resources, the OTS narrowed its scope to look at just 155 reliefs, rather than performing a holistic evaluation of the whole tax system.

In particular, it excluded many corporate taxes. Neal Todd, a tax partner at law firm Berwin Leighton Paisner said: “The business community will be disappointed that the OTS has not been as bold in its proposals for the corporation tax system, despite the fact that over 80 per cent of corporation tax is paid by the top one per cent of companies.”

Some of the other reliefs that could be for the chop if Osborne accepts the recommendations include relief for expensing late-night taxis home from work, relief on provision of meals for employees on designated “cycle to work” days”, miners’ coal allowances and reliefs for divers and diving supervisors.