Less regulation = more tax? Discuss…..

Apparently small businesses want to pay more tax. Well 57% of them would be prepared to pay more tax if there was less regulation. That is the eye opening conclusion of a recent survey conducted by the Forum of Private Business.

Actually that was the headline that accompanied the survey. What also came across clearly was the feeling that the tax system is favouring large businesses at the expense of smaller ones. Small businesses believe that large businesses are more able to exploit tax loopholes, thus avoiding taxes that smaller businesses cannot, which gives them an unfair competitive advantage.

Of course tax avoidance is not illegal. Most of us indulge in it through savings schemes such as ISAs or pensions. Put simply tax avoidance is organising one’s affairs to take advantage of tax legislation as it currently stands in order to minimise the tax that has to be paid.

However there is a feeling that certain tax avoidance (or should we call it minimisation) as practised by many large businesses is unfair. Indeed we have seen a number of recent demonstrations against corporations that are believed to be unfairly avoiding tax.

I can sympathise with this view to a certain extent, particularly as certain tax minimisation strategies come across as being aggressive or cynical. But much of blame for this falls squarely on the shoulders of the authorities. Poor or complicated tax law provides loopholes, which are then blocked by new laws, which then provoke new loopholes, leading to a spiral of complexity out of all proportion to the problem being addressed.      

Inevitably the burden of this complexity falls disproportionately on smaller businesses, hence the calls for simplicity. This has led to the formation of the Office of Tax Simplification, which is tasked with providing independent advice on simplifying the UK tax system.  

Obviously the problem with tax neutral simplification is that it will create winners and losers and as we all know the losers shout loud and long while the winners keep quiet and count the money.

However less regulation can and should ultimately mean less tax for all. A simplified tax code that clearly states what is and what is not allowed would make compliance much easier. This in turn would allow a slimmed down HMRC to focus on cracking down on evasion rather than wasting everybody’s time on routine compliance work, thus potentially increasing the overall tax take. A definite win-win scenario in my book.

I suppose to misquote a popular saying if an idea is to too simple to be true, than it probably is. Maybe I am being naïve about the whole simplification issue. What does everybody else out there think?