Archive for October, 2017

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Risky business

October 31, 2017

I never worked in the Large Business section of HMRC so my ignorance on the inner workings of the section is largely an exotic fruit with the bloom still upon it. However we all have a stake in making sure that the revenue authorities play fairly in treating both large and small businesses equitably and efficiently so we all have a stake in the way HMRC deals with its Large Business customers.

What is a “large” business? In HMRC’s world, it is one with either a turnover of more than £200 million, or else it is part of a large multinational group even if its UK “footprint” is relatively small.

Currently HMRC uses a process called “Business Risk Review” (BRR) to divide large businesses into sheep and goats – they are assessed as either Low Risk or Not Low Risk, with “Low Risk” being rewarded by less contact with HMRC, fewer questions, less frequent reassessment of the risk. Six criteria are used to divide the sheep from the goats:

Inherent risk

  • the size of the business
  • its complexity
  • the amount of change to which it is subject

Behaviour

  • attitude to tax avoidance
  • systems and processes
  • openness with HMRC

You can easily see that, although low risk/not low risk is a binary, it is not a pejorative binary: being “not low risk” need not be because a business is trying it on in some way, but simply because it is  E X T R E M E L Y   L A R G E  or particularly complex.

 Someone, somewhere – a politician, or else some bright spark in HMT or HMRC – is busy pondering whether this is enough and whether

A more granular risk classification will help HMRC focus resource on the highest risk businesses, and increase the behavioural influence of the BRR process within business.

Here’s the consultation: it opened on 13th September and closes at quarter to midnight on December 6th.

Here’s what I think. First of all: why? Why change at all? What policy or practical issue are they trying to solve here? Does the current classification system not work? Is it taking up too much time or resource, is someone complaining about it, is there an actual need for change? I don’t see it in the consultation document. I honestly don’t see it at all.

Secondly, let’s look at paragraph 3.2 on page 10 of the document, where there is a flow chart setting out the BRR process. Look at the final point, where HMRC asks itself whether “HMRC can trust the customer to set the agenda for interactions with them”. This seems to me fundamentally misconceived. Of course a business or an individual has a perfect right to abstain from contact or cooperation with HMRC, in exactly the same way as we all have the right to remain silent if asked questions by a police officer. If a police officer turns up on your doorstep and asks you questions you are perfectly entitled to tell them to go away or not say anything at all. If they want to question you badly enough, they are entitled to arrest you, but then you are entitled to have a lawyer present while being questioned, and to answer “no comment” to anything you are asked – and neither guilt nor innocence should be inferred from silence. Rights are only rights if they are exercisable. But it is not up to the individual to decide whether or not they will be investigated by the police, questioned or arrested – it is the police’s decision whether or who or how to investigate.

So HMRC can offer a cooperative relationship to large businesses if they fulfil certain criteria, but it is not up to the business to “set the agenda for interactions” with HMRC and I am astonished that such a phrase has appeared in the consultation document at all. HMRC should run the show, decide what risks the taxpayer presents and how they will address them.

But if HMRC is, indeed, running the show, it is not at all clear to me how a more “granular” approach to risk assessment will be of benefit to anyone. At present the low risk/not low risk categorisation does not imply any wrongdoing on the part of the business being assessed. If they were assessed as one of “low risk, low-moderate risk, high-moderate risk, high risk and significant risk” would that not introduce new opportunity for conflict? Is “high-moderate risk” a pejorative designation? Would it be better to be “low-moderate risk”? Do the classifications depend on whether the risks are inherent or behavioural? What good does it do anyone to classify risks like this?

Again, if you were arrested, would it help to know you were considered low-moderate risk offender rather than a high-moderate one? Would it help you, would it help the police, would it help anyone?

Don’t do it, would be my response to this consultation. Or at least, if you must, explain why.

Posted in Consultation, HMRC | Leave a Comment »

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The kitchen table micro

October 10, 2017

I don’t get it.

I’m a micro business, so this tweet from HMRC is directed at me, right?

What definition of “micro” business are HMRC using these days? I mean, it used to be that a “small” business was one with 50 employees or fewer and a “micro” was one with fewer than 10 employees. This seems to be the definition used in this Parliamentary briefing from last year, which tells us that, of the five and a half million businesses in the UK, fully four million are micro businesses like mine, which have no employees at all

 

Why, then, is the HMRC twitter feed telling those four million people that they need to check whether FRS105 applies to them? What the hell IS FRS105?

As far as I can tell from following the links, it’s a change to the generally accepted accounting practice (GAAP) used to prepare accounts. If you look here, you’ll see HMRC helpfully tell you

Because of the changes to the UK Financial Reporting Standards (FRS), over the next few years UK businesses will see changes to the accounting practice used to prepare financial statements. In particular, many UK businesses will be required to apply one of the EU-endorsed IFRS, FRS 101, FRS 102 or FRS 105.

The purpose of these 3 papers is to assist businesses that will be applying FRS 101, FRS 102 or FRS 105. In particular, it provides an overview of the key accounting changes and the key tax considerations that arise for those businesses that transition from old UK GAAP to the new standards.

Clear? Well maybe, if you’re an accountant, but to this retired tax inspector it conveys almost no meaning, and to the couple who run my local coffee shop and the woman who runs the local chiropodist? Nothing except another thing to ask their accountant about, if they remember.

Why are HMRC pointing “micro” businesses to changes in accounting standard? It has taken me the best part of an afternoon to work out that, no, I don’t need to worry about it personally. Isn’t there a principle of “think small first” that is supposed to exclude the very smallest businesses from tax changes altogether where possible? Surely this ought to apply to communications too? This is not a change that a business with no employees and uncomplicated affairs needs to be concerned with at all, in my view. A business with an accountant? Well, their accountant ought to be up to date, but saying “If you use an accountant to prepare your accounts, make sure they are up to date with the changes to accounting standards here” would be an insult to the accountancy profession and its maintenance of its own professional standards.

Has HMRC learned nothing from the VATMOSS fiasco at all, where a group of micro businesses – kitchen table businesses – were all but wiped out by changes that weren’t intended to apply to them and which weren’t mitigated because HMRC had no idea these micro – nano? – kitchen table? – businesses even existed. Wouldn’t it be nice in this instance if HMRC had written an introduction to the changes which made it clear most unagented businesses don’t need to be worried, and then tested it out on a group of genuinely micro businesses? And then stopped mithering people on its twitter feed about something they will, with luck, never need to be concerned with at all?

Posted in Bit of politics, HMRC | Leave a Comment »