Archive for October, 2012

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Twins

October 22, 2012

Twin proposals today, sharing one consultation document, the attribution of gains to members of closely controlled non-resident companies.  Apparently the EU has, in its wisdom, decided that some of our anti-avoidance legislation is a bit TOO effective, so we have to level the playing field.  It’s an overworked metaphor, I know, but personally I always like to think of that playing field being levelled UP… if you level it down you’re going to get bogged down.  I don’t insist on the metaphor but you know what I mean – let’s not (and oh goodness it’s so hard to find a way of saying this that isn’t a cliche!) race to the bottom!

Anyway.

The thing about this one is that it seems to involve two different teams (as two different lead contacts are named) and it looks as if they have come to slightly different conclusions.  Now both may well be valid conclusions, and I don’t know enough about the intricacies of the particular bits of anti avoidance legislation to know whether there were any other sensible alternatives, but essentially it looks as if the first provision includes a motive test where there wasn’t one before, and the second provision introduces an objective test where there was only previously a motive test – in other words each provision started with either a belt OR some braces, but finished up with both!  (I really MUST stop mangling my metaphors)

So here’s what I sent the team.  In my haste to hit the consultation deadline I made a mistake in the first paragraph and misread the consultation as if it said that they were removing the motive test in the case of transfers of assets abroad where in fact of course the proposal is to back it up with an alternative, more objective test – but that doesn’t quite undermine my point about whether this is a simplifying or a complexifying measure!

You are consulting on two different anti-avoidance provisions and, as there are two lead officials named in the consultation, I deduce there are two different teams working on them. The thing that jumps out at me about your consultation document, then, is that you appear to be reforming gains attributed to members of non-resident closely controlled companies by introducing a new motive test… and to be reforming transfer of assets abroad by, er, removing the motive test. While I’m sure each of you has thought through his or her own proposals, is there the possibility that these changes will cumulatively make the tax code more, rather than less, complex?

In particular, both changes seem to use similar concepts of “genuine establishment” which read, from the consultation document, as though they are capable of objective verification. It is only in the context of non-resident closely controlled companies that you are introducing a “motive test”. You say this is “designed to give an immediate and convenient exclusion for any taxpayer who can show there is no tax avoidance motive at all…” Forgive me, but aren’t you suggesting your “convenient” way for a taxpayer to exclude themselves from this legislation is to prove a negative? I’d strongly suggest dropping this suggestion and using the same “genuine establishment” test for each provision.

I also see that your consultation does not seem to set out any alternatives to the proposals you have put forward in the draft legislation: have you considered and tested what alternatives there are? Your tax impact assessment does not “anticipate” any equality impacts and I would be interested to know on what evidence you have reached this conclusion. You also consider that the changes will make “operations slightly easier for a small number of businesses”. However the government has committed itself not to introduce any new regulation on small businesses in the life of this parliament – will there be any small businesses in the small number of businesses caught by these changes and, if so, will the slight ease you anticipate be greater than the deadweight cost of researching and understanding the changes you propose?

Until you can answer these questions I would suggest that the case for change is not made.

I also notice that the nice straightforward explanation of the impacts in the form of answers to seven questions that we saw earlier this month hasn’t carried through to this consultation document – and nor has the commitment to post-implementation review!

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Starbux redux

October 19, 2012

So the original Reuters investigation into Starbucks’ tax position reported that

There is no suggestion Starbucks has broken any laws. Indeed, the group’s overall tax rate – including deferred taxes which may or may not be paid in the future – was 31 percent last year, much higher than the 18.5 percent average rate that campaign group Citizens for Tax Justice says large U.S. corporations paid in recent years.

But on overseas income, Starbucks paid an average tax rate of 13 percent, one of the lowest in the consumer goods sector.

After the press furore earlier in the week there was also, as you would expect these days, a bit of a twitter flurry about the circumstances around the whole position.  The point I hadn’t picked up on earlier was that the 31% tax figure in the US consolidated accounts may not represent tax actually paid.  It might simply be a provision for the tax that they would have to pay if they eventually distributed the profits back to the US.

Which is the same as paying it, right?  Just paying it next year rather than this?

Well no, actually, or at least not necessarily.

In 2004 there was a weaselly-named piece of US legislation called the the American Jobs Creation Act of 2004.  The premise was that, if US-based multinationals repatriated the profits they were keeping offshore they would use the money to create jobs, no, honest, guv.  So wouldn’t it be a good idea to offer them a tax break to do so?  Instead of charging them, say, 35% tax, just charge them 5 and a quarter per cent.  Because, you know, half a loaf is better than none, so 5.25% of a squillion is a lot better than 35% of nothing, and look at the jobs that would follow!

Yes, look.  Apparently – and I’m shocked, shocked! to read it – the companies took the money AND cut jobs at the same time.  Stellar!  As the Congressional Research Service politely puts it,

While empirical evidence is clear that this provision resulted in a significant increase in repatriated earnings, empirical evidence is unable to show a corresponding increase in domestic investment or employment.

I don’t know much about US politics except what I see on the news or read online, but I gather that there is lobbying afoot to introduce a similar tax break again…

But I stress, this isn’t about Starbucks or any other multinational.  It’s about regulatory capture of nation states by multinationals, so that tax arbitrage – finding the jurisdiction with the lowest effective tax rate and putting your profitable operations there – becomes a legitimate way of structuring your business.  And for governments it becomes routine to be offering a ludicrously low tax rate in the hope that multinationals who relocate will at least let you have crumbs from their table in sales taxes (VAT)  and the personal taxes you can levy on their employees (PAYE).

But as Richard Murphy points out, this is privileging large multinationals over indigenous small businesses.

Hmm… has anyone else noticed the disappearance of the Small Firms Impact Test from the BIS website since Michael Fallon took over from Mark Prisk?  (Was it something I said?)  I put in an FoI request a while ago to see the minutes of the cross Whitehall Better Regulation, consultation and economist networks’ meetings and am being fobbed off that they need time to think about it, because it may be exempt under the “formulation of government policy” exclusion, apparently.

What policy could they possibly be formulating?

Well, the coalition have already thrown away the rules about consultation, quietly slipping a new set of guidelines onto the Cabinet Office website.  And, if you look very, very closely at the last line (item 9) of this very boring and obscure document about Changes to Impact Assessment and Regulatory Policy Scrutiny, you’ll see that

A full update to the IA Guidance will be issued in the autumn, following the conclusions from the Better Regulation Framework Review.

Google “Better Regulation Framework Review” and you’ll find one hit, the link above (actually you may now get two, one being this blog)   But my point is you won’t find a public announcement of any such review.  Who’s conducting it?  What external input are they having into it?  And who will lay me a tenner on the Small Firms Impact Test making it into the next version?  Interesting times!

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Cable cars. Seriously.

October 17, 2012

There’s a consultation closing today on whether it’s a good idea to apply a reduced rate of VAT to cable cars.  This is because, under the arcane VAT rules (and why do we never talk about setting up a European Tax Simplification Office to simplify THOSE, eh??) cable cars might “count” as public transport – which is zero rated – but the individual cars “count” as the unit of measure and, typically, hold fewer than ten passengers, so “count” as individual vehicles rather than public transport.  And, because the EU won’t let countries introduce new zero rated categories for VAT, the best the government can offer by way of untangling this anomaly is to introduce a new 5% rate of VAT on cable car traffic.

Got that?

Well yes, it’ll go some way to ending an anomaly and will cost nothing, will do some good to Scottish ski lifts and tourists heading up the Great Orme, won’t do anyone any harm, so yes, let’s get on with it, right?

Hmmm.

Well first of all, the government’s ambition is to simplify tax, not make it more complicated, right?  And adding another exception rate band category to VAT will complicate, rather than simplify, the system as a whole.

Secondly, the government is committed (well, at least it was the last time I looked) to using better regulation tools in order to achieve better tax policy.  One of those tools is the tax impact assessment.

Yes.

Let’s look at that one for a bit, shall we?

Exchequer impact – negligible

Economic impact – negligible

Impact on individuals – depends whether the operators choose to pass on the VAT reduction or not.  (Are we taking bets???)

Equalities impact: “no equality groups have been identified as being impacted by this change”.  Uhuh.  Where, exactly, did we look?  I’m sorely tempted to put in a Freedom Of Information Act request for the data underlying this assertion, because I strongly suspect that there was a thought experiment that went something like:

  • “It won’t have an equality impact, will it?”
  • “Nah!”

But I may be being unnecessarily cynical – after all, how could you tell the difference between a bland statement based on real solid research and one based on airy nothing?  Let’s assume that this statement is factually based and simply flag up that maybe there’s something of a flaw in the system there, then, shall we?

Impact on businesses – Now this is the bit that interests me.

There are cable-suspended lifts within the five Scottish ski resorts, and in a further three skiing areas in England. In addition, there are cable-suspended lifts located elsewhere in England and Wales. The reduced rate will only apply to the small number of such systems where they are not subject to the exclusions mentioned in section 2, or covered by the existing zero rate.

Now I’m sorry, but wouldn’t you expect at some point there to be some mention of this?  And by “this” I mean the extraordinary Emirates Airline cable car linking Greenwich peninsula and the Royal Docks Olympics sites.

I mean, am I being just an old cynic in wondering whether this high profile high risk investment was the prime mover behind this “tweak” to the VAT rules?  I have no idea, genuinely – but then I’ve just read the consultation, and I really ought to, don’t you think?

Next there’s the impact on HMRC – negligible, right.

Finally other impacts.  Now, if you read this blog regularly you’ll know I have a bit of a Thing about small business and the government’s warm words about how they’ll “think small first” and how often that is simply ignored in practice.

Well here we say:

Small firms are likely to be affected by this change, and again, we would welcome feedback on the potential impact.

Aw, isn’t that nice?  Warm words again, welcoming our input.

Well, no it isn’t, actually!  This change was announced in the Budget, the legislation is attached to the consultation document, and it’s to become law in, presumably, next Spring.  As the condoc itself says

This consultation is being conducted in line with the Tax Consultation Framework. There are 5 stages to tax policy development:

Stage 1 Setting out objectives and identifying options.

Stage 2 Determining the best option and developing a framework for implementation including detailed policy design.

Stage 3 Drafting legislation to effect the proposed change.

Stage 4 Implementing and monitoring the change.

Stage 5 Reviewing and evaluating the change.

This consultation is taking place during stage 3 of the process.

So this isn’t an early-days “here’s a problem, let’s think how we can solve it” kind of consultation.  It’s a “this is the legislation: does it work in the way we think it does” final stage of policy development, the last stage before the thing goes live.

So at this point HMRC ought to bloody well know what the likely impact on small firms will be, and it shouldn’t have got this far without doing the work of finding out.

Similarly the impact assessment says:

Any policy change will also be tested against the list of possible impacts used in regulatory impact assessments. The full list of these “other impacts” is set out in Annex A of Overview of Tax Legislation and Rates available from http://www.hmrc.gov.uk/budget2012/ootlar.htm

The policy change “will be” tested?  When?  And what earthly use will it be when the change is a fait accompli?  Will the change encourage more people to use cable cars?  Will that encourage people to build more cable cars?  Are cable cars a sustainable form of transport?  So will changing the VAT rate that applies to them have some impact on carbon emissions?

I give up.

I do notice, however, that there’s a more than usually thorough section on evaluation and how and when the change will be evaluated.  Goodness.

I am cynical enough to think that there’s been some shift in the Whitehall Better Regulation methodology that has put a new emphasis on evaluation, at the same time as taking the foot off the pedal with respect to small firms.  I’ll be having a look at the next batch of tax impact assessments with more than usual interest to see if the evidence bears this out.

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Company time

October 16, 2012

HMRC have issued a spectacularly ill-timed briefing on Taxing the profits of multinational businesses which purports to explain – to MPs and other stakeholders, in a glossy leaflet paid for our of your and my taxes – how the tax system applies to companies based in more than one country.

Like, oh, Starbucks, for example? In a fine piece of investigative reporting, Reuters reports that Starbucks reduced its UK corporation tax to nil for the past three years by, amongst other things,

  • roasting its beans in an Amsterdam subsidiary instead of in the UK
  • paying interest on loans to other group companies outside the UK
  • paying a royalty for “intellectual property” for the use of its brand name and business processes

Let’s see what guidance the HMRC leaflet gives to our MPs and other policy makers on how this might have come to be and what we can expect them to do about it, shall we?

HMRC is alive to the risk that multinationals may try to structure their affairs so that profits from economic activity carried on in the UK are not taxed here.

Oh, well that’s good, isn’t it?  HMRC is “alive to the risk”?

What are the government doing to counteract that risk, then?

Because HMRC are nice to business, honest.

HMRC seeks to develop open and co-operative relationships with multinational businesses. In the vast majority of cases, we can reach agreement about what the right amount of tax is. Where we cannot reach agreement, we take a robust approach and take large businesses to court, where necessary, to secure the right amount of tax.

Taking large businesses to court?  Well the number of prosecutions is about the number of hens’ teeth – around 50-100 a year it seems, most of which will be clear-cut small-fry tax credit fraud cases and the like – obvious cases, where the offence is easy to understand, the guilt is easy to prove, and the numbers are peanuts but useful to discourage others.  The HMRC prosecutions policy is here, but the bit to notice is that it’s NOT the policy to prosecute in most cases.  The Civil Investigation of Fraud is the more likely process if you’re a multi-national:

It is HMRC’s policy to deal with fraud by use of the cost effective Civil Investigation of Fraud (CIF) procedures, wherever appropriate

Wait a minute, though!  No-one is suggesting Starbucks have done anything criminal, nor anything fraudulent-but-not-quite-criminal!  In fact from the newspaper reports Starbucks seem to have reduced their UK tax take to nil by using entirely legal means, means which are sitting right there in the face of the UK tax code.  They’re not legally or morally bound to pay anything else!  So what does the government mean when it says it will take large businesses to court where necessary?

Well, here’s HMRC’s Litigation and Settlement Strategy.  Most tax disputes are settled by the accountant and the tax inspector arguing the point across correspondence and meetings until either they reach a meeting of minds, a compromise, or, yes, have to go to actions set out in the Litigation and Settlement Strategy.  Assuming there’s some sort of appeal in place that can be litigated, the two sides go to the Courts and Tribunal Service and argue their point in front of the Tax Tribunal

HMRC obviously can’t comment on an individual business’ affairs so can’t really tell us whether they think Starbucks’ tax bill is correct or not, or whether it’s under investigation or not, or even whether there’s any litigation in prospect or not.  Does Starbucks avoid UK tax or not? Let’s give the HMRC leaflet the last word.  My emphasis, though!

Globalisation means that multinationals have the opportunity to structure their business to take advantage of beneficial tax rules in different countries. Provided that this results in profits being taxed in line with where genuine economic activity is carried on, this does not amount to tax avoidance.

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For some values of “interesting”. Part the third.

October 9, 2012

Here’s what I actually sent in response to the Financial Policy Committe: Macro Prudential Tools consultation

1 Do you agree that the FPC should be responsible for setting the level of the CCB in the UK?
What are you asking here? Do you want to know whether we think there should be a Financial Policy Committee or a “Counter Cyclical Buffer” at all? Because if the existence of the authority and the mechanism are taken as read, then it’s obvious that the one ought to be in charge of the other. However as evidenced in the IA, you don’t seem to have considered (or at least to have shared in this document) any other option except creating the FPC or not. In short, the answer has to be “yes” because of the way you’ve framed the question, but the case for change is not made because you haven’t given any evidence of having considered any alternatives.

2 Do you have any views on the Government’s proposal to give the FPC control over the CCB buffer rate for the UK before 2016?
As for 1: it seems we’re taking part in a macro-prudential experiment whether we will or no.

3 Do you agree that sectoral capital requirements will be an effective macro-prudential tool for the FPC?
Were you a Latin scholar? I seem to remember that there is a Latin formulation for “a question expecting the answer, yes”. It sounds like a reasonable idea, but I would like to see a reasoned consideration of some alternative proposals before agreeing. It may be “effective”: will it be the most effective alternative we could reasonably adopt? I can’t tell from this.

4 Do you agree that the FPC should have the ability to apply granular requirements e.g. differentiated by LTV or LTI for residential property related assets?

As for 3. I would, however, like to point out that it appears that you are proposing a “fine tuning” mechanism which might well impose prohibitive costs or entirely prevent access to some forms of financing for particular kinds of customer with no consideration being given at the time of adjustment to any question of equality – for example it looks as if you could cut off the housing market entirely to dampen market “exuberance” without needing to consider the consequences for the people denied housing. I strongly suggest the FPC needs to be covered by the Equalities Act and to have a statutory requirement to give “due consideration” to equality issues as they might affect the end user of the banks’ or other financial institutions’ services before taking any action.

5 Do you have views on how macro-prudential sectoral capital requirements should be integrated with the existing micro-prudential framework?
None at all, sorry.

6 Do you agree that the FPC should have a direction-making power for a time-varying leverage ratio once international standards are in place?
Well again, it would be a pretty pointless institution if it didn’t, but what alternatives have you considered? Is there a need (for example) for the UK’s institutions to have a different mechanism from the EU’s or do you envisage the FPC acting as the UK arm of the ESRB? I also dislike the idea of giving the FPC carte blanche at this stage but would like to look at this again in 2018 or whenever the envisaged “international standards” are being put in place.

7 Do you believe that there is a case for the scope of the FPC’s directive tools to be applied to firms that are currently outside the purview of CRR/CRD IV?
No opinion, except again to point out the dearth of options offered.

8 Do you have any views on the best definition for exempting small investment firms from the FPC’s directive tools?
First use the SFIT definition (fewer than 20 employees) and then, because that doesn’t necessarily map to risk for a finance company, have a turnover and/or capital test. Around a million, probably.

9 Do you have any views on whether procedural requirements under FSMA 2000 should be modified or waived when the regulators implement FPC directions?
Either there’s a reason to have “procedural requirements” or there isn’t. If there’s a reason to have them, in that you’re trying to used evidence-based policy to make the best decisions, then that might be overriden in an immediate need, where someone (the FPC) has to make the decision urgently on evidence that might not necessarily be immediately available or shareable. But the procedural rules should still apply post hoc to justify the *retention* of the direction, or the direction should fall. In particular there should be no margin for equality issues to be overlooked or overruled.

10 Do you believe that liquidity requirements could be a useful tool for the FPC to have a direction power over once international standards have been developed?
As for 3

11 Do you believe that margining requirements could be a useful tool for the FPC to have a direction power over once international standards have been developed?
As for 3

12 What is your assessment of the advantages and disadvantages of granting the FPC a power to set and vary maximum LTV and/or LTI ratios?
No opinion, except to reiterate that there must be other options than do it/don’t do it. What are they?

13 Do you agree with the Government that recommendation powers will be sufficient to implement disclosure policies?
As for 3.

14 Do you have any comments regarding the Statutory Instrument?
Yes: I am surprised that you are asking for comments on the SI and not on the accompanying IA which is of poor quality (I see it has an amber rating). I have commented further on this in my blog entry.

Regards

Wendy Bradley
http://tiintax.com

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For some values of “interesting”: part the second

October 8, 2012

OK then, let’s all turn to page 48 of the Financial Policy Committe: Macro Prudential Tools consultation where the 13-page Impact Assessment for the proposal is published.

First of all, note the RPC Opinion, which is that this is an “amber” IA, on a three category “traffic light” scale of Red-Amber-Green.  Now, I don’t know about your driving skills, but I know that when I took the test, Amber meant stop, provided it’s safe to do so.  However the Regulatory Policy Committee, the panel of independent experts who assess the quality of the evidence underlying impact assessments before they’re published, obviously work to a different set of traffic lights.  Because their amber means “fit for purpose” but with issues that ought to be put right:

Under the RPC’s traffic light system, if it is ‘Fit for Purpose,’ it is classified as either ‘Amber’ or ‘Green’. ‘Amber’ is used to denote an IA with areas of concern that should be corrected but which is still ‘Fit for Purpose’. If an IA is classified ‘Red’ it is ‘Not Fit for Purpose’ – the RPC has major concerns over the quality of evidence and analysis.

So this IA has areas of concern that should be corrected.  Hmmm.

Well for me the first one is the cost of the preferred option, where the total net present value of the proposal is given as £68,600m.  No, you read it right. Sixty-eight point six billion.

Now I’m baffled by this.  I know I’m easily baffled, particularly by government gobbledegook, but what on earth is the Financial Policy Committee’s macro-prudential toolkit going to involve that will cost sixty-eight point six billion?  How much are these people going to be paid, for heaven’s sake!

I suspect the answer is that the figure doesn’t represent the cost of setting up and operating the committee, duh.  It’s suspiciously close to the figure we’ve (where “we” means “British citizens”) been compelled to “invest” in the two failed banks, RBS and Lloyds but that can’t be it, surely?  I’m hoping the Treasury analysts who put the figures up are going to be allowed to respond to this blog and I’m not going to have to put in an FoI request to explain what they’re talking about <waves to the Treasury>

Theoretically, the IA should show the cost to businesses – that’s the basic theology of IA anyway, that the government shouldn’t make regulatory decisions that are going to cost businesses money without working out the costs and benefits first.

All right, let’s just assume I’m having a Deeply Stupid moment and the reason we’re spending sixty-eight point six billion quid is transparently obvious to everyone except me and move along.

Next look at “what policy options have been considered”.

“Two policy options have been considered”.  I call bullshit.  Basically the document has been prepared on a take it or leave it basis – do this, or do nothing – when actually the whole point of using “better regulation” mechanisms like impact assessment and consultation is to generate and consider the evidence in favour of a range of options.  You could (off the top of my head)

  • set up a separate body, not part of the Bank of England at all
  • let the Treasury operate macro-prudential policy
  • make it (once more?) part of the Chancellor’s job
  • set up a kind of “Cobra” committee of MPs to do the job
  • form a citizen’s jury
  • submit ourselves to the EU or US mechanisms
  • set up another Bretton Woods type conference with a view to merging the EU and US mechanisms and forming some kind of world macro-prudential finance organisation

Hey, I didn’t say they were GOOD options, I said they were OPTIONS, and the point of the exercise is, surely, to think of all the possibilities and then decide between them.  Evidence based policy – look at the research, the evidence, that’s out there, and then form a judgement.  Not, you know, policy based evidence, where you decide what you want to do and then consult on evidence to support it!

(Part three will be the consultation response I actually sent)

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For some values of “interesting”

October 8, 2012

Ooh, this is interesting.  Well, for some values of “interesting”, obviously!

It’s not an HMRC consultation but a Treasury one, on the Financial Services Bill: the Financial Policy Committee’s macro-prudential tools.  And the good news is, it’s open till December, so you have plenty of time to read and respond…

Yes, well.

Assuming you ARE interested, it’s about the bank crisis and how the “tripartite” regulatory system didn’t actually have anyone whose responsibility was to look at the way the system itself worked – so all the bits could function reasonably well and meet all their regulatory requirements, but the whole thing fall apart.  As if we’d checked the wheels were turning and the tyres at the right pressure, the brakes fully operational and the driver sober, but no-one was in charge of spotting there was no steering wheel and isn’t that a cliff up ahead???  “Macro-prudential” seems to be a poncey way of saying “in charge of the system as a whole”, as well as signalling “don’t bother your pretty little heads about it, plebs: we only want to hear from, you know, People Like Us.”

Also, let’s be clear, there’s already a “macro-prudential” regulatory body in the US (The Financial Stability Oversight Council aka the FSOC) and the EU has set up the European Systemic Risk Board (ESRB) to identify macro-prudential risk in the EU and then to warn the individual member states who are responsible for, er, doing something about the warnings.

With me so far?  Right, then – what are we going to do over here? Well, it seems, we’re going to have a subsidiary of the Bank of England with power to look at the financial system as a whole and ensure financial stability in the light of the government’s economic objectives (at present, for “growth and employment”)

Incidentally I was a bit gobsmacked by 3.12 of the document:

3.12 In addition to the new secondary objective, the Financial Services Bill already prohibits the FPC from taking any action that it believes would be likely to have a significant adverse effect on the capacity of the financial sector to contribute to the growth of the UK economy in the medium or long term.

Wait just a cotton-picking minute: you can’t save the economy if it would have an adverse effect on the banks’ position in society?  Can we not envisage financial circumstances so dire that the best thing for the country – yes, the country; it’s a nation state made up of citizens, not a plc – would be for the banks to play a less prominent role.  For some of them to go to the wall and finance to be provided direct by government or by some other structure like cooperatives or credit unions or something brilliant that no-one’s invented yet.  Do we really want to hard-wire the banks into primacy?  Like I said, a bit gobsmacking!  When did that one slide on through?

My response is a bit long, and my response to the impact assessment is even longer, so I’ve split it between three posts.  Watch this space for parts two and three!  (Well, somebody must find it interesting.  Somewhere.  Anyone?  Bueller??)

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Today’s round up

October 5, 2012

We have three consultations closing today.

Let’s start with The Use of Rebated Fuel for Gritting in Rural Areas.  OK then: there’s a kind of fuel (“red diesel”) used in farming etc which has a lower rate of fuel duty applied.  It’s dyed red so that it’s easy to see whether you’re using it or not. Got that?  Well…

In recent winters, during periods of extreme weather, HMRC have, by way of a temporary relaxation, allowed tractors being used to grit rural roads to use red diesel. HMRC is now considering whether to formalise this approach.

This looks so obviously sensible to me that I’m tempted to say, well, what the heck are you consulting about, then?  Just carry on being sensible and don’t muck about “formalising” it.  We’re supposed to want to simplify the tax regime, remember, and avoid unnecessary regulation?

But the consultation document is clearly written and, in particular, has the tax impact assessment written in a way I haven’t seen before, where they simply answer the seven questions involved:

What are you doing?

Why are you doing it?

Why are you doing it this way?

What will it raise?

What will it cost customers?

What will it cost the public sector?

What are the other impacts?

as a readable narrative that actually makes sense.  Bravo!  Here’s the answer I sent:

I’m not responding to your list of specific consultation questions because I neither drive, use red diesel nor live in a rural community. That said, as a citizen stakeholder with a particular interest in consultations, I think this consultation asks the right questions of the right people and I applaud the decision to make its existence public rather than conducting it “informally” without bringing it to the attention of the wider public.

My personal response would be that neither legislation nor any other form of regulation of this is necessary and you should continue to operate under HMRC’s powers to manage the tax system. However if there are any unintended consequences (which I see you are seeking to assess in your final three questions) then perhaps you could proceed by way of an extra statutory concession, if you’re still creating new ones, so it’s clear under what circumstances you’d expect to see it operate.

Kudos to the team involved.  Next!

Well, next we have Inheritance Tax: Simplifying Charges on Trusts Now, see, I have problems with the underlying concept of this.  Because it seems to be all about making life simpler for people who have stuck their assets into a trust in order to avoid (legally) the full weight of inheritance tax.  Remember, in spite of what the Daily Mail and the other tabloids would have you believe, inheritance tax doesn’t affect most of us – you have to leave £325,000 before your estate has to pay anything at all and most of us outside London have houses worth less than that.  And, don’t forget, a married couple gets twice that, because the nil rate band is per person, so houses up to 650k are safe from the taxman.  And, don’t forget as well, that YOU don’t pay inheritance tax, your estate does – and, as I personally don’t believe in inherited wealth – I can’t really see the panic that sets in when people with a couple of million contemplate the possibility of forty per cent of it going back to the public purse after their death as being particularly, well, serious.

So trusts are used to avoid it, and there are rules to stop everyone putting everything into trust, so you have to pay a charge when you put the asset into the trust and then every tenth year after that – and this consultation is about whether it’s possible to simplify the calculation of the charge.

Hmmm.  It’d be a lot simpler to charge a flat rate 20% on entry and then 10% every ten years.  Let’s do that, eh?  No?

Well it’s true that I don’t know enough about trusts and how they work to make any useful contribution to the discussion on this – the problem is, that I don’t trust anyone who does to have the interests of the taxpaying citizenry as a whole in mind rather than the narrow interests of those rich enough to exercise the privilege of tax planning.

Here’s what I sent anyway.

Can I first of all say that I believe that this consultation needs to balance the interests of the wider taxpaying population against the narrow interest of those wealthy enough to exercise the privilege of tax planning via trusts. As one of the former rather than the latter, I’m very much against any simplification which gives a relaxation of the regime. To that end I’d be in favour of achieving simplicity by making the tax charge on entry into a trust a flat rate 20% and keeping the exit and periodic charges at the same rate but without any adjustments for reliefs or historic values or other adjustments. In other words, simplify the whole regime so that any distribution is charged at the same flat rate (whether capital or revenue) and the periodic and exit charges are also flat rate on the current asset value. Presumably calculating what this flat rate should be to arrive at roughly the same charge as if the trust did not exist would be do-able? If trusts are entered into for legitimate, non-tax reasons then a result which gives roughly the same result as you would get without the trust is eminently reasonable. And if trusts are entered into for tax planning reasons… why on earth is it a legitimate object of policy to facilitate legal avoidance?

Finally, your tax impact assessment says you have no evidence to suggest the measure will have any adverse equalities impacts: I cannot agree. You say there are only some 900 trusts affected by ten yearly or exit charge calculations each year. You have not given due consideration to equality if you have not considered the privilege accorded to these 900 taxpayers in contrast to the treatment of the rest of the population.

And finally, we have the technical consultation on Delivering a cap on income tax relief.  This, you will remember, is the proposal to stop rich people claiming all the reliefs that exist (on their investments in start up companies, for example) so that they reduce their income down to nothing and pay no tax for the year.  There was a bit of a furore over the inclusion of charitable donations in this and the proposal has now been revised to exclude charitable giving from the cap.  This seems fairly reasonable to me, although I would point out that in a democracy we have this thing called a government, which we elect, which is charged with collecting a contribution from everyone and then deciding on where the priority areas for spending are – the NHS or the army?  Street cleaning or child support?  The arts or sciences?  Bread or roses?  Allowing millionaires to opt out of this and decide to fund their own priorities is… well, Not Cool.

Nevertheless, I haven’t really got anything to add to the actual consultation, per se.  The impact assessment is really good, too, until you get to the end…  well, anyway, here’s what I sent to them.

Since this is a technical consultation I find I don’t have any useful insights to contribute in response to the specific questions on page 16 of the condoc. However I have a few comments in response to your final question, on the tax impact assessment.

I thought the TIA was exemplary in its clarity, particularly in the impact on individuals and households and in the consideration of equalities impacts. Well done.

However I think I might have to take issue with your assessment of the possible impacts on small businesses. I’m not clear from the consultation document how many of the reliefs now to be capped are designed to enable the funding of start up enterprises which are likely to come into the category of “small”. The section on “other impacts” in the TIA rather glosses over any substantive analysis of the effect on small firms and I wonder whether you have done any proactive consultation (with small firms who have benefited from early trade losses reliefs or qualifying loan interest relief, for example?) to make sure these proposals won’t have any unintended consequences. In an era where we are constantly being told we are in such a financial crisis that benefits, pensions and public sector salaries need to be frozen or cut and that austerity plus growth is the only policy that will save us, I would find it very strange if the proposal were to be legislated without some clearer assurance that this change will not impact negatively on growth by impacting on the flow of finance to start ups.

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Catching up

October 5, 2012

Sorry I’ve been quiet: first couple of weeks of my PhD studies and I’ve been running around trying to get my act together.  However let’s catch up on what’s going on in the wonderful world of tax consultations.  And I see we have a number of consultations closing today, as well as a nice collection to keep us busy over the next few weeks.

And, given the government’s inability to produce a list of its consultations in order of the date they close (why?  Why?  How hard could it be??) I thought I would publish here for your delight and delectation the ones I’ve found that are coming up.

5  Oct  Use of rebated fuel for gritting activities in rural areas
5  Oct  Inheritance tax: simplifying charges on trusts
5  Oct  Delivering a cap on income tax relief: a technical consultation –
9  Oct  Amending the Stamp Duty Land Tax Transfer of Rights Rules
9  Oct  Stamp duty land tax: sub sales
10 Oct  Setting the strategy for UK payments
12 Oct  Decommissioning Relief Deeds: Increasing tax certainty for oil and gas investment in the UK Continental Shelf
15 Oct  Foreign currency assets and chargeable gains
15 Oct  Lifting the lid on Tax Avoidance Schemes 
15 Oct  Foreign currency assets and chargeable gains
17 Oct  AT treatment of small cable-based transport
22 Oct  The attribution of gains to members of closely controlled non-resident companies
5 Nov  Life insurance policies: time apportionment reductions
8 Nov  Consultation on vulnerable beneficiary trusts
23 Nov  Information powers (Informal consultation)
23 Nov  Implementing the UK-US FATCA Agreement
5 Dec  VAT: exemption for education providers

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