OTS analysis of definitions in tax legislatio

As part of the Office of Tax Simplification’s (OTS) project, which began in April 2013, to identify and measure the factors responsible for tax complexity, definitions in tax legislation have been considered and a paper has been published analysing the use of definitions for three tax acts: the Inheritance Tax Act 1984, the Taxation of Chargeable Gains Act 1992 and the Corporation Tax Act 2010.

The review found that there were different definitions used for the same term in tax and, on the basis of the sample considered, there is sometimes no obvious reason for this. It became apparent as the project progressed that definitions develop in accordance with what was needed at the time.

The OTS have also found that , although ideal, it would not be practical to reduce the numerous definitions to a smaller number of streamlined or common definitions as this may result in unintended consequences. Consequently, they believe that the most appropriate way forward is to focus on future definitions and try to identify features of a “good” or helpful definition, reports Harris & Co accountancy services.

The OTS have identified that a “good” definition will try to encompass clarity; focus on essential features; the use of an existing definition where possible; avoid circularity, figurative or obscure language; and be affirmative rather than negative.

Suggestions for improving tax definitions include introducing a tagging system for definitions in online data to create an online resource and the development of guidance for policy makers and draftsmen to summarise what makes a good and a poor definition.