Tax reliefs reduce the amount of tax an individual or company pays when they meet certain conditions.
Some, such as relief for businesses investing in research and development or tax credits for firms developing video games, are designed to promote particular activities.
Others, such as the personal allowance someone receives before paying income tax, are structural aspects of the tax system.
There are over 1,180 tax reliefs in operation in the UK, but only 365 have official costings.
This lack of transparency has contributed to the abuse of some tax reliefs, and in certain cases, fraud.
A new report by the Treasury Committee calls on the Government to undertake a comprehensive and systematic review of existing tax reliefs.
The Committee also recommends that reliefs be reclassified as Government spending, and that five-yearly reviews be instituted to remove reliefs which no longer achieve policy objectives, are vulnerable to abuse, or cost significantly more than expected.
The Chair of the Treasury Committee, Harriett Baldwin MP, said: “Our tax system is too complicated, and the proliferation of un-costed tax breaks add to that complexity. While some reliefs are very effective, others are prone to abuse or simply lie dormant, cluttering the ever-expanding tax code. The fact we only have costings for a third of reliefs is staggering – and something which needs rectifying with urgency.”
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The Committee’s report calls on the Government to take action to address the complexity and lack of transparency of the UK tax system.
This would help to ensure that tax reliefs are used effectively and that the public purse is protected from abuse.
There have often been reports that the government will slash pensions tax relief on contributions made by 40 and 45 percent rate taxpayers.
They may get just 20 percent tax relief in future, in line with basic rate taxpayers. There has even been a suggestion that chancellor will charge inheritance tax on unused pension pots when people die.
Suggestions have also been made that the treasury may take the axe to a hugely popular benefit, the ability to take 25 percent of your pension free of tax from age 55.
So a treasury select committee review of all tax reliefs may stir up controversial policies.
Watch this space!