Tax code is too complicated and needs urgent reform

Katie Close, CA, Director of tax, ICAS. Croner.

Tax was largely absent from the King’s Speech, but the challenges facing the UK’s tax system are only getting harder to ignore with such a tortured and immense tax code. Katie Close CA, director of tax at ICAS calls for urgent change.

The King’s Speech is traditionally the moment a government sets out its legislative priorities. This year, however, the silence on tax was striking, aside from a brief nod to a tourist tax in England.

At a time of sluggish growth, tight public finances and economic uncertainty, the absence of any serious tax agenda is hard to ignore. But rather than dwelling on what was missing, the silence presents an opportunity to reflect on a much deeper issue: how do we build trust in the UK tax system.

Back in 2020, HMRC and the Treasury published a 10-year plan to build a trusted and modern tax administration. Since then, the pace of digital transformation has accelerated significantly. The rollout of Making Tax Digital (MTD) for Income Tax is the latest step, bringing millions more taxpayers into a fully online system.

As technology becomes even more embedded in taxation, understanding how trust is built, and how digital systems can impact that trust, is essential. 

At a more fundamental level, the complexity of the UK’s tax code remains a persistent barrier to taxpayer confidence. The challenge for government is how tax administration modernisation can coexist with, and ultimately overcome, the complexity of the underlying tax legislation when it comes to rebuilding trust.

Trust is the foundation upon which any effective tax system rests. Without it, compliance declines, enforcement costs rise, and the legitimacy of the system itself is called into question. A combination of complexity, perceived unfairness, and policy volatility risks undermining public confidence in the tax administration. 

These are not new issues. However, as the King’s Speech highlighted, we now face increasing levels of volatility both globally and nationally. Tax, as both a system directly affected by this uncertainty and as the largest source of public revenue, is under growing pressure too.

Complexity in tax

One of the most persistent barriers to trust is the complexity of the tax code. Successive governments have added new rules and reliefs, often in response to short-term fiscal pressures rather than as part of a long-term strategy.

This complexity breeds uncertainty, and uncertainty undermines trust. Uncertainty can also be expensive. VAT cases are notorious for long and costly disputes over the correct treatment.

For Scottish businesses, there can be added complexity in dealing with discrepancies between how UK tax reliefs work and how Scots Law operates. 

A far better outcome for both businesses and the government would be for this uncertainty to be removed by reviewing the most complex parts of our tax legislation with a view to simplification. 

A renewed commitment to simplification would be a powerful signal. It would show that accessibility and understanding of tax are key to a thriving business and entrepreneur sector, and ultimately essential to a fair tax system.

Need for stability and predictability 

Trust is also closely linked to stability. Constant changes to tax policy, often announced at Budgets with limited consultation or implemented at speed, create a sense of unpredictability. For businesses making long-term investment decisions, this is particularly problematic.  

A more transparent and consultative approach to tax policymaking would help address this. This includes meaningful engagement with stakeholders, clear articulation of policy objectives, and sufficient lead time for implementation.

The existing framework for tax consultation is robust in principle, but its effectiveness depends on consistent application and listening to the concerns of the sector specialists and individuals affected. 

Looking forward

The silence on tax in the King’s Speech may be positive in one respect, by signalling that major reforms are not imminent.

But the opportunity borne from that silence is the chance to move away from reactive policymaking and focus instead on rebuilding trust in the tax system itself. That means the government committing to simplification, consistency and a digital system that works for taxpayers, not against them. Without this, confidence in the UK tax system will continue to erode.

About the author

Katie Close CA, director of tax at ICAS (Institute of Chartered Accountants of Scotland)