Tax simplification: easier said than done

When I started in tax in 2006, UK tax legislation filled 12,664 pages, which was quite enough when you were carrying books into exams. Fast forward to 2026 and that number has nearly doubled to 23,485 pages; luckily today’s students can access the legislation digitally during their exams.

However, more legislation has also brought greater complexity as successive governments and Chancellors – Mr Healey is the 9th Chancellor since 2006 – have sought to address the UK’s fiscal problems. The problem is that almost every policy change has led to more complexity in the tax system; the end result is that complexity is no longer confined to the wealthy but increasingly impacts taxpayers with incomes below £125,000.

Cliff edges and fiscal drag

Freezing thresholds may appear to be a simple policy but it gives rise to fiscal drag. As wages outpace tax thresholds, more taxpayers are dragged into higher rates of tax and the associated complexity.

We also have the Higher Income Child Benefit Charge (HICBC) which affects taxpayers with income in excess of £60,000 and is fully tapered once income exceeds £80,000. The HICBC has faced much criticism over the years due to its complexity and unfairness; it is based on the adjusted net income of the highest earner in the household, rather than household income. You can therefore have one person earning £90,000 and their partner having no income, yet the HICBC applies in full. Their next door neighbours could earn £59,000 each (total income of £118,000) and avoid the charge completely.

The withdrawal of tax-free childcare works in a similar way; if the highest earner earns over £100,000 then the tax free childcare allowance for the household is lost entirely. A single earner household with income of £101,000 would lose full entitlement, whereas a household with two parents earning £90,000 each would retain their entitlement in full.

This policy can discourage parents from returning to work after maternity or paternity leave as the loss of the free childcare can leave the household financially worse off. There are numerous examples of working parents declining additional hours, promotions or bonuses to remain below the £100,000 threshold. Reports of doctors restricting their working hours for this reason have become increasingly common. The policy is there not only complex but may also undermine the government’s objective to boost growth and the labour market.

The £1million Inheritance tax nil rate band (IHT NRB) was announced by George Osbourne in 2015, but of course it is not a straightforward £1million band. It is a basic NRB of £325,000 and an additional main residence nil rate band (MRNRB) of £175,000 which is available in specific circumstances, including where the value of your estate is less than £2million. Readers will be pleased to know that, where an estate exceeds £2million, the MRNRB is tapered, as Chancellors seem particularly fond of tapers. If an estate passes to a spouse or civil partner on death, both NRBs may be transferred, meaning potentially the maximum NRB available on the second death is two NRBs and two MRNBs, giving us the £1million total. For a piece of legislation that was intended to take more estates out of the IHT net and associated reporting, it is excessively complicated.

The people most affected by complexity

Tax Aid supports taxpayers on low incomes (below £30,500) who are struggling to meet their tax obligations. Blick Rothenberg is proud to support Tax Aid through corporate volunteering, and our volunteers see first-hand how the tax complexity impacts those with multiple low paid jobs, pensioners and the self-employed. These challenges are compounded where English is not a first language, or where individuals face physical or mental health issues. Navigating complex administrative processes can also present additional barriers for neurodivergent individuals. In practice, the people least able to afford mistakes can be the ones more likely to make them due to difficulties when navigating the UK tax system and HMRC’s processes.

It is well known that a side effect of fiscal drag and the triple lock is that the state pension will exceed the personal allowance with effect from April 2027. For pensioners who rely solely on the State Pension, there have been no confirmation that they will not be required to file Self-Assessment tax returns. Requiring those individuals to file tax returns seems disproportionate given the levels of income involved, particularly when a PAYE earner with six figure income does not have to file a return. HMRC simply do not have the resources to manage the additional Self-Assessment records.

The hope is that the Chancellor addresses this point with a straightforward change; he could for example re-introduce the age-related personal allowance or increase the personal allowance for all so that it keeps pace with the state pension. The worry is that any change designed to fix this adds yet more complexity to the tax system.

Hidden cost of simplification

Where there have been efforts to simplify, making the rules simpler does not necessarily make the system fairer. We can see how failing to tackle the problem of how to look at household income for the purposes of the HICBC and tax-free childcare can lead to unfair outcomes. Assessing the income of the highest earner may be administratively “simpler”, but it can lead to unfairness.

The requirement for anyone with PAYE earnings over £100,000 to file a tax return was increased to £150,000 with effect from 6 April 2023 and removed entirely from 6 April 2024. At first glance this appears to be a positive step toward simplification, taking thousands of people out of Self-Assessment. However, even those whose only income is from PAYE are potentially caught within a particularly complicated section of the tax code and may actually overpay tax if they rely solely on their PAYE code or HMRC’s simple assessments to review their tax position. For example:

• By not claiming higher and additional rate relief on Gift Aid donations or personal pension contributions
• Similarly, Gift Aid and personal pension contributions impact your “adjusted net income” figure, which is the figure on which the personal allowance taper, the HICBC, and tax free childcare withdrawal is based

Conclusion

The challenge facing policymakers is not simplification for its own sake, but finding the right balance between simplicity, fairness and accessibility. Any reform must consider the impact of additional reporting and greater numbers of taxpayers on HMRC’s already stretched resources; even well-meaning changes will fail if HMRC are not equipped to support taxpayers and administer the changes effectively. Simplification would benefit both taxpayers and HMRC but will require consultation, long-term planning and a willingness to resist solving every problem in the UK system with another layer of legislation.

Would you like to know more?

If you would like to discuss any of the above in more detail, please get in touch with your usual Blick Rothenberg contact or with Stefanie Tremain using the form below.