This is the shocking verdict which the authors of a new report, published by the Institute of Economic Affairs, have come to following an in depth study into tax related compliance and administration costs which fall on UK businesses.

The report also reveals that the average Finance Act in the 2000s has been three times as long as the average Finance Act in the 1980s – a damning indictment of New Labour’s record on red tape. Indeed, the UK is one of only 3 out of the 43 most advanced economies where the costs of tax collection are not falling.

At the same time we are told that the UK has the longest tax code in the developed world, running to some 8,300 pages of primary legislation. In comparison the German and French legislation extend to a modest 1,700 and 1,300 pages respectively.

Frankly the tax system in the UK is just too complicated and the impact on small businesses is particularly devastating. The costs of tax collection bear approximately sixteen times more heavily on the smallest businesses than on the largest. This acts as an impediment to competition and to the expansion of employment among small firms.

The reports authors claim that costs could be reduced by up to a third if there were radical reform of the tax system. For example:

  • definitions and procedures should be consistent across all taxes
  • taxable and accounting profits should be aligned
  • special tax reliefs on company investment should be abolished
  • investment returns that are disguised as capital gains should be taxed in the same way that income is taxed
  • taxes generating minimal revenue with high compliance costs (e.g. inheritance tax) should be scrapped

In a further radical proposal, the report argues for the abolition of the annual Finance Act to reduce the political pressure on Chancellors to complicate further the tax system with headline-grabbing measures in each Budget.

A printed copy of the full report is available from the Institute of Economic Affairs at £12-50 or you can download a free PDF version by clicking on the link below:

Taxation and Red Tape: The Cost to British Business of Complying with the UK Tax System

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 Category: Political Comment

Category: Taxation

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