Archive for the ‘Consultation’ Category

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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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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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Catching up

September 27, 2012

I’m not sure whether to be cheered or depressed at the fact that my reader stats have remained about the same, in a week when I haven’t been posting (on account of it being the first week of my PhD studies, of which more later).  Anyway…

I see that there was a consultation which closed last week on the HMRC ambition to “clarify” their extra-statutory concession A19.  Now this gives me problems on several levels.  First of all, the completist in me goes “hang on, I thought the aim of this blog was to reply to ALL of HMRC’s consultations this year?”  I know there have been a couple lately where my response has been along the lines of ‘I’m not going to respond to this one because it’s too stupid…’, but the A19 one I didn’t see.  At all.  I mean, I can see it now, on the page for lapsed consultations but where was it on the tax tracker???  Did I miss it, or was it never there?  I mean, if (as it says on the “lapsed consultations” page) it opened on 3 July, why isn’t it on the tracker page under July?  Oh, and while we’re on the subject, the DirectGov page for “all” government consultation websites lists an HMRC site and an HMT site, but NOT the tax tracker site!  No wonder people – well all right, no wonder I, at least – get confused!

Don’t worry, though – next month the DirectGov page will be overtaken by the Gov.uk site… which is in beta testing now.  Here’s what I sent them by way of feedback today…

I seem to remember that at one point there was an aspiration to have all government consultations available from one webpage. At least direct.gov has a link to all government *consultation* pages on one page – well, except the tax tracker! – but the beta version of gov.uk doesn’t return any hits for consultation that seem relevant. Is the aspiration still in existence, and will it be met by gov.uk?

The automated response says they’ll, er, contact me if something changes!

So let’s have a look at A19.  Well, to start with, why on earth are we having a consultation about “clarifying” the wording of an extra-statutory concession?  An extra-statutory concession is where HMRC uses its powers to administer tax to achieve a sensible answer where the strict application of the law throws up something hard-edged and unpalatable – so for example there are rules that say if companies are controlled by the same people they only get one small companies rate.  You can’t split up your billion pound business into a thousand little companies and say they’re all entitled to small companies rate.  And for a married couple you add together all of their companies.  But there’s an extra statutory concession that lets you off the strict application of this, so that if a plumber marries a hairdresser their companies don’t necessarily get aggregated (but if a plumber marries the owner of her biggest supplier, a plumbing supplies company owner, well, tough)

Now I admit I thought that all of the extra statutory concessions were being reviewed with a view to either legislating or abolishing them, but I see that the latest technical note I can find on this (2010) says:

The House of Lords’ decision in the Wilkinson {note} case clarified the scope of HM Revenue & Customs’ (HMRC) administrative discretion to make concessions that depart from the strict statutory position. HMRC is therefore reviewing its concessions. Although it is likely that the majority can remain as they are, some are thought to be beyond the scope of HMRC’s discretion. Of these, some can be legislated to preserve their effect; others will need to be withdrawn. {Note :R v HM Commissioners of Inland Revenue ex p Wilkinson [2005] UKHL 30}

Nevertheless, the point remains – if we’re talking about an extra-statutory concession, shouldn’t our first thought be whether we need to have the concession at all?  But no:

The consultation is designed to explore the option for a revised version of Extra-statutory Concession (ESC) A19. It is not intended to cover whether ESC A19 should exist or the scope of concessions, but rather how HMRC may be able to improve the clarity of this particular concession ensuring it continues to be applied appropriately.

Ok… define “clarity” and “appropriately” in that last sentence, please!

Essentially the concession says that, where HMRC has messed up by not making use of information that taxpayers or their employers have sent to them, then HMRC won’t pursue them for tax they didn’t know they owed.  Which is pretty clear, no?

Well, no.  Apparently HMRC need to define “information”… because they aren’t going to guarantee that they can be bothered to look at correspondence from employers, perhaps?  Anyway, if the concession is changed, they will only accept “information” from employers and from the DWP on specified forms or the RTI equivalent.

But from the taxpayer… the proposed definition is

1. Direct communication from a taxpayer (or someone authorised to act on their behalf) informing HMRC about a change in income, allowances, benefits or personal circumstances.

You know, I think a tweet directed at @HMRCgovuk would count as information for those purposes.  Test case, anyone?  “@HMRCgovuk I just gift-aided £1k to @somecharity, love @FBlogs”

The plain fact is the ESC exists to protect unsophisticated taxpayers from HMRC errors, and for HMRC to seek to change it by introducing the weaselly concept of “taxpayer responsibilities” is monstrous.  Look, particularly, at the last paragraph of this:

Taxpayer responsibilities

As set out in the HMRC Charter HMRC expects individuals to take responsibility for getting things right even if they have authorised someone to act on their behalf.

HMRC expects individuals to:

 Tell it about any changes in their circumstances that will affect their payments or claims.

 Check their tax code to ensure the information included is correct and up to date.

Sometimes where there has been a change in personal circumstances, it might not be clear whether it has an effect on the amount of income tax an individual has to pay. If an individual is unsure as to whether a change of circumstance affects their tax code they should contact HMRC.

Now I’m an ex-tax Inspector and I spent much of this afternoon on the phone with HMRC trying to sort out my mum’s P800 which turned her overpayment into an underpayment by means of a mystery “adjustment” which we eventually deduced was on account of her making too many gift-aided charitable donations – yes, when pensioners helpfully tick the box to help the charity get gift aid, HMRC are happy to pursue them for the last penny.  But there are always, as Donald Rumsfeld famously remarked, the “unknown unknowns”.  How would someone like my mum know that she didn’t know that she had to pay more tax before she could tick the box?

Maybe the consultation will produce a sensible outcome and the concession will remain as it is.

But if it doesn’t, maybe we should all check with HMRC before we do *anything*.  Because it seems to be our responsibility, if we’re unsure whether a change of circumstance affects their tax code, to contact HMRC…

“Hello?  HMRC?  I’ve just started a PhD.  Does that affect my tax code?”

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Simples

September 21, 2012

I give up.

I mean, wouldn’t you expect an office called The Office of Tax Simplification to do just that?  To simplify tax, the tax system?

Right.  Well have a read of their framework document, which sets out what they are actually allowed to do and how they do it.  Basically it’s an independent office (but it’s set up by and in the Treasury and the Chancellor is responsible for it and for taking or not taking its advice) and it got right down to business:

An immediate task of the Office will be to decide, in conjunction with an informal group of potential Committee members, whether there should be a single Consultative Committee to steer the work of the Office or whether an individual Committee for each of the Office’s inquiries is preferable. Any Committee(s) constituted will meet regularly throughout the year or inquiry and minutes of Committee meetings will be published on the Office’s website.

Yes, Minister.

My reading of it is that the politicians thought it would be a good idea to do some work on simplifying the tax system – and they were right, for once – but they got Sir Humphreyed to death in the setting up of it.

Because it’s very clear that the Office can’t do any strategic thinking, about the whole tax system – how it works, how the bits fit together, how it might work better – and instead is bogged down in looking at little “projects” fed to it by, presumably, the Treasury.

Which is how it comes to produce something like its Review of Tax Advantaged Share Schemes and thus the consultation document  for the consultation which closed last week (18th).

I’m going to quote some bits of the consultation document.  Here’s the background.

The four schemes are:

Share Incentive Plan (SIP) – an ‘all employee’ scheme under which employees may purchase ‘partnership’ shares out of their pre-tax (gross) salary, be awarded ‘matching’ or ‘free’ shares by their employer, or reinvest dividends earned on SIP shares into ‘dividend’ shares.

Save As You Earn (SAYE) – an ‘all employee’ savings and share option scheme under which employees can save out of taxed earnings and use their savings to purchase shares at a discounted price.

Company Share Option Plan (CSOP) – a scheme under which selected employees may be awarded options to purchase shares.

Enterprise Management Incentives (EMI) – a scheme targeted on small and medium sized businesses carrying out certain trades, under which selected employees may be awarded share options.

Separate rules and requirements, limits, and qualifying conditions apply for each scheme. (my emphasis)

Four schemes, each with their own rules, got that?  Right.

Now we have a report from the OTS making some recommendations for simplifying them.  Ok… There are three categories of change discussed in the consultation document: those which the government has accepted, where the consultation is aimed at checking how to carry them out, those where the government isn’t sure, where they want further details before they make a decision, and those where they want to do “further investigation”, the outcome of which they’ll announce in the “autumn”, with further consultation to follow if appropriate.

Got that?

Well there’s more.

There’s also “other work”…

1.11 The focus of this consultation is the recommendations made by the OTS in its report on tax advantaged employee share schemes. However, there are a number of other consultations, reviews or further work planned or currently taking place in relation to employee share schemes, or employee ownership more generally. These are:

 The second stage of the OTS’s review of employee share schemes, focusing on non tax advantaged employee share schemes and share based incentives.

 EMI measures announced at Budget 2012. These include an increase in individual EMI limits to £250,000; an extension of capital gains tax entrepreneurs’ relief to gains made on shares acquired by exercising EMI options; and development of the guidance available for start-up companies wishing to use EMI.

 An HMRC consultation on extending access to EMI for academic employees, which will run alongside this consultation on the OTS’s recommendations.

 A review by the Department for Business Innovation and Skills on promoting employee ownership in the private sector.

 An internal review by HM Treasury to examine the role of employee ownership in supporting growth and options to remove barriers, including tax barriers, to its wider take-up, which will conclude ahead of the Chancellor’s 2012 Autumn Statement.

And, you know what, that was the point at which I lost the will to live. So, no, sorry, for the third time I’m not going to respond to a consultation. In fact, for the first time, I don’t think I’m going to even finish reading the consultation.

Because, know what?  If this is simplification, then I’m a meerkat.

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Tax is not regulation. Discuss.

September 19, 2012

All right, I admit it, I’m baffled.  Well, more than usually baffled.  I mean, I know I haven’t been in HMRC for three whole months now, but when I was last there the rules were that tax changes were excluded from the Impact Assessment process because they had their own, the Tax Information and Impact Note.

So, er, why have we published an Impact Assessment for the proposed changes to the Gift Aid scheme?  Have we decided it doesn’t count as a tax?  If it’s not a tax, is it a regulation?  Or what?

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It’s academic

September 18, 2012

Next week I’ll be starting a PhD at the Law Department of the University of Sheffield.  My current topic title is Tax Simplification and Better Regulation, and so the question of what is an academic and how we recognise and reward academics is one which I expect will be increasingly close to my heart.

So, full disclosure made, let’s now turn to the consultation on Enterprise Management Incentives: Extending Access for Academic Employees.  Woo hoo!

OK, well the government is quite clear it doesn’t want any of your faffy-abouty dissertations around the subject.

1.15 The Government is not seeking views during this consultation on broader issues, such as:

 whether there are employees other than academics for whom the present EMI working time requirement should be relaxed;

 the limits that apply to the value of EMI options that may be held by an employee or granted by a company;

 the requirement that EMI options may only be issued to employees of a qualifying company or group; or

 the features or requirements of any tax advantaged employee share scheme other than EMI.

So there! “This consultation is only concerned with the limited issue of allowing access to EMI for certain academic employees who do not currently meet the working time requirement.”

Basically what it seems to be about is a scheme to let small companies attract and retain talent by awarding shares to their employees without having to pay tax and national insurance on them.

EMI is a popular and successful scheme which each year enables around 20,000 employees to obtain options over shares with a total value of around £250 million, and provides tax advantages on exercise of these options of around £200 million.

But – to prevent the scheme being used as an avoidance device – there are rules to ensure your employee is an actual employee (and not a potential tax avoiding investor who “works” for you for half an hour a month at the minimum wage).  And these rules seem to mean that academics who do work for this kind of company sometimes come up against problems because of course their contract with their academic institution will usually mean most of their time is already spoken for.

You can see the point.  What we want is for scientists to take their brilliant ideas and turn them into brilliant businesses as well.  So let’s not faff about: give them the relief.  Agreed?  Good.

All right then.

So why are we doing it by way of a formal written consultation?  Why aren’t we doing it under the HMRC “care and management” powers – simply tell HMRC staff to stop faffing about trying to find ways that an academic working for an EMI scheme might NOT qualify.

Or why aren’t we setting up an expert working party with some actual academics who are or have been involved in EMI schemes to thrash out the definitions, like we’re doing with the creative industries consultation I wrote about yesterday?

Why haven’t we got any idea of the scale of the problem being addressed  – the impact assessment says helpfully that:

This measure is expected to have a cost, the magnitude of which will depend on the outcome of this consultation.

Why haven’t we got anyone in HMRC or HMT who looks at these documents before they go out and says “look, Fred, Freda, I see what you’re getting at, but have you seen what they’re doing in the Creative Industries team?  Couldn’t you try something like that?”

So this is another consultation I don’t propose to respond to.  Because when your first question is

Can you provide details and evidence on the typical working patterns and arrangements of academic employees engaged by EMI qualifying companies – for example, whether this involves a regular and permanent weekly commitment of time, or whether working time is concentrated at particular times of the academic year?

wouldn’t it occur to you that there are people who would know?  And wouldn’t it be a good idea to ask them?

How much does it cost to do a formal consultation, do you think?

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