LLOYD'S/TAX LAWS. The plain language of tax

The Inland Revenue's plan to rewrite tax laws in plain English is taking shape. Ronald Downhill examines the issues

Criticisms of tax legislation are increasing, and it is no coincidence that recent finance Acts have stretched to unprecedented lengths.

As of last November, there were nearly 6,000 pages of Inland Revenue primary legislation – an increase of more than 50 per cent since 1988. But it is not just the volume that has been criticised, it is also the language and structure.

A number of initiatives have been taken to address the problem. In 1994, a committee was set up by the Institute of Fiscal Studies to examine the state of tax legislation in the UK and determine what needed to be done to make it intelligible.

The committee concluded that tax legislation should be drafted in a plain English style using shorter sentences and a clearer structure. It recommended a pilot project to see if a rewrite – which would be expensive – could be justified.

It is estimated that completing a rewrite would take about five years and involve a team of up to 40 people.

Last month, the Inland Revenue published a consultative document setting out proposals for carrying out the project.

The Revenue aims to make the rewritten laws as easy as possible to understand, through logical ordering of the provisions, directness of expression and clear and simple layout. Shorter sentences would be used wherever possible, as will positive language. For example, “25 per cent or more” is clearer than “not less than 25 per cent”. The Revenue also considers that addressing the taxpayer as “You” is often clearer.

In the rewritten laws, “legalese” would be avoided and consideration would be given to the use of gender-free language.

Early in the project, a framework for ordering the tax legislation would have to be decided. Options include: changing little or nothing; taking an activity-based approach, a subject-based approach, ordering by separate taxes and

ordering by type of taxpayer.

Although the Revenue accepts that the numbering of sections is less important, numbering systems can make the law easier to use. The consultative document considers possible variations to the present sequential system.

Gaps could be left in the legislation to allow amendments to be inserted. A multicharacter numbering system could be adopted. If three-character numbering were used, the first character could denote a part of the Act, the second a chapter within that part and the third a section in the chapter.

A decision has to be made as to which parts of the legislation should be rewritten first and it is thought sensible to choose legislation that affects a substantial body of taxpayers. This way, the rewriting techniques can be tested as much as possible.

The Revenue's suggestion is to start with the charging provisions for trading income of

individuals, though other legislation would need to be tackled too, if the rewriting techniques are to be properly tested.

Suggestions of other legislation include corporation tax losses for a single company, the definition of company distributions and the schedule E foreign earnings deduction.

Decisions have to be made as to when the ordering and numbering of the rewritten legislation should be determined and how the rewritten legislation should be implemented.

At the moment, the Revenue favours a solution involving a “ghost code”, which would not be enacted, but would provide a guide as to how the finished product would look. The ghost code would have the advantage that it could be modified fairly easily while the rewriting project goes on. It would not have any legal status.

There is also the issue of whether the rewritten legislation should be brought into

effect on a single day – the Big Bang approach – or in stages. Big Bang would represent a clean break and the country would get plenty of notice of at least the bulk of the legislation, giving people an opportunity to get used to it before it came into effect.

Big Bang would also make the project easy to implement, as it would allow detailed changes in ordering and numbering to be made right up to the last minute.

On the other hand, it would seem a shame if users could not benefit from the rewrite exercise as it proceeds. Also, if the new legislation were implemented in stages, practical experience of using it could be made use of in the later stages of the rewrite.

It has been decided that the project should be carried out by a project team within the Revenue, but with substantial private sector involvement. The project team will include a number of people from outside Government, and recruitment will begin shortly. Further, the Revenue thinks that the process will benefit from formal consultation arrangements with the private sector. It is suggested that this might be a standing committee, chaired by the Revenue, of users' representatives, with sub-groups to concentrate on specialised issues. In addition to private sector involvement in these two areas. ministers have decided, in the light of views expressed by the Tax Law Review Committee and others, that there should be a small, high-level, private sector/Revenue steering committee to provide strategic guidance. The private sector members would be appointed for their personal standing rather than in any representative capacity.

Although there are still many decisions to be taken, time is running out and the Revenue has set 1 November as the final date for practitioners to express their views.

v Copies of the consultative document are available from the Inland Revenue Reference Library, Ground Floor, South West Wing, Bush House, Strand, London WC2R 4RD, price £4.

Ronald Downhill is partner at Berwin Leighton.