The UK’s taxation system is suffering from ‘tax code rot’. And just like IT systems that have suffered prolonged ‘code rot’ and reached the point of crippling inefficiencies, it must be thrown away and a new tax code completely rebuilt.
Further measures to prevent tax leaking out of the system, in the form of anti-avoidance ‘patches’, are paradoxically increasing tax loss, as ever-more taxpayers refuse to be bullied by an increasingly desperate HMRC.
In the IT world, contractor developers will be familiar with the concept of ‘code rot’. This occurs when successive developers have hacked in add-ons to existing code in a poorly designed fashion, usually in response to users’ requests and with equally poorly defined requirements.
Successive versions with code updates increase the complexity of the system to the point that it becomes too cumbersome and too costly for the organisation it serves to maintain or adapt. That’s when the organisation begins to function in spite of, and not because of, its IT systems. The only answer is to throw the code away and rebuild it.
The latest raft of anti-tax avoidance and evasion patches just published by the Treasury remind us just how bad the UK’s tax code rot has become.
And talking of reminders: The Treasury, plus the politicians and media egging it on to ever-more draconian tax patches, need reminding of some basics: Tax evasion is illegal and taxpayers choosing to evade tax should be treated like the lawbreakers they are; but tax avoidance (even that deemed ‘aggressive’) remains completely legal.
Sadly, successive Chancellors have hacked-in reactive and poorly conceived anti-avoidance tax code updates that fail to address the underlying causes of avoidance.
At 14,000 pages in length in 2011, it could be argued that the UK’s tax code is well past the ‘too cumbersome and too costly’ stage. As successive governments have increased the pressure on the system to generate increased tax yields, so the tax avoidance cracks have become larger – leaking more tax from the government’s financial plumbing.
HMRC, whose job it is to try and apply the patches, continues to haemorrhage through retirement and redundancy its most effective and experienced tax inspectors – the very people who actually understand parts of the enormous tax code and how it should be correctly applied.
As a result, the taxman is now resorting to highly questionable scaremongering tactics that have no basis in law and therefore cannot actually be enforced. They might scare a proportion of taxpayers into paying more than they have to, but ultimately these are doomed to failure.
Rather than persist in tinkering with an unfit-for-purpose tax code that baffles even tax experts, we need a government, and a Chancellor, that has the resolve and courage to throw away what is patently not working. Let’s stop the tax code rot and build a new system of taxation for 21st century knowledge-based economy.