Archive for the ‘Consultation’ Category

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To regulate or…

August 20, 2012

How much does it  cost to pass a piece of legislation?  Any idea?  No, I don’t know either.  I suppose it must vary according to whether the legislation is debated in both Houses of Parliament, the length of the debate, the numbers involved…?  How much of the costs of the upkeep of the Lords and Commons would you apportion to the legislative process?  What about statutory instruments?  They can either require a positive or negative process – in some circumstances they have to be positively passed, but in some they go through on the nod unless someone actively objects.

I’d be fascinated to know if anyone has any figures on the bare costs of  making legislation, any legislation, as opposed to any costs and benefits imposed or accruing from the legislation.  But whatever the cost IS, common sense tells us that there is one.

So there has to be a benefit from making legislation, or else why would we (as a country) incur the cost in the first place?

This is the question that seems to be have been entirely overlooked in the consultation on withdrawing the requirement to make a self assessment  return, which closed last week.

Essentially, if you are sent a Self Assessment Return, you have fallen into the HMRC sausage-machine and will need to fill the return in and send it back or you’ll be ground up by the machinery and spat out at the other end after penalties and determinations and pursuit of imaginary (estimated) debts.  So it’s a good thing that there’s an “out”.

But there already IS an out – HMRC has the power, under its “care and management” of the tax system, to say, actually we sent you this one by mistake, don’t bother.

The question that OUGHT to have been addressed by the consultation was whether this was enough or whether there was a need to replace the HMRC discretionary power with a legislated, mandatory provision.  Unfortunately what the document seems to me to address is whether it’s better to have legislation or – nothing.  Ask the question that way round, and you get an entirely different answer.

Asking whether we can rely on HMRC to exercise its discretion with common sense, even-handedness and some human compassion would have been a revealing question.  How disappointing, then, that the Department chickened out of asking it.

Here’s the response I sent:

This is an individual’s response and will also be published, with commentary, on my blog, http://tiintax.com.

1. If HMRC already has the power under its “care and management” provisions as stated in the consultation document, then I cannot understand what advantage is there to legislation?  The government is committed not to regulate unnecessarily and on the evidence of this consultation document I cannot see that a case has been made that legislation is either necessary or desirable.
2. Should there be a deadline?  No.  People don’t know what they don’t know.  If people don’t understand the requirement to file and don’t comply, they won’t know there’s a deadline they have to meet to explain that they don’t think they need to comply until they’ve passed it!
3.  Is a sanction needed if people lie to get the notice rescinded?  Well probably, but is legislation required to introduce a NEW one?  Wouldn’t the circumstance be covered by the existing power to make a discovery assessment, ie HMRC would discover an amount hadn’t been assessed by reason of the taxpayer’s negligence or fraud.  This looks like regulatory creep to me.
4. The impact assessment is wrong: the state that currently applies is that HMRC *can* rescind the requirement under their care and management powers.  The impact assessment tests the proposal against the concept of HMRC being UNABLE to remove a requirement to file once a self assessment return is issued.  What it should, of course, be testing against is the status quo, the current flexibility being in HMRC’s hands.
5. The question to be addressed – both in the IA and in the consultation – surely is whether there is any need for LEGISLATION, rather than whether there is any need for FLEXIBILITY.  The consultation document says there is already flexibility, and does not make a case for there being legislation to codify how the flexibility might be exercised

Sorry and all that!

Posted in Consultation, HMRC | Tagged , , | 1 Comment »

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August 8, 2012

I’m a firm believer in the Oliver Wendell Holmes theory that “taxes are the price we pay for civilisation”.  As a retired Tax Inspector, you’d expect that.  I have no patience with tax arbitrage, tax avoidance schemes and tax evasion, and even less patience with any attempt to persuade the tax authorities to be less than even handed in collecting the right amount of tax – neither too much nor too little – from everyone, no matter how big or small their business.

Nor do I have any patience with big business whining about how much tax they pay, particularly when they include the PAYE they collect for the government but which is actually paid by their employees, or the VAT they also collect for the government but which is paid by the end user of the products they sell.

So I’m not really an impartial reader of the Taxation of Controlling Persons consultation document, which is full of soothing words about how we don’t doubt that people use personal service companies for all sorts of legitimate reasons (to which I say: name one!) but we’d rather like them to stop doing it if they’re, you know, the head of the BBC or the head of the Student Loans company or someone else who might come back to embarrass us.

Quite.

Personal service companies are, essentially, one man companies.  So if I want to be head of Company Ltd but don’t want to pay tax on my gazillion pound salary, I arrange for Company Ltd to buy in management services from a little company called “Worker Ltd”.  And the fact that Worker Ltd happens to belong to me, and the services that Company Ltd buys from Worker Ltd are the managements services of, er, me…

The reason that might be good for me is that Company Ltd pays Worker Ltd the gazillion pounds it is happy to pay for my services but without deducting tax – it’s a company-to-company payment for services, rather than an employer-to-employee payment of wages.  And then, because Worker Ltd belongs to me, I can decide whether it pays me a minimum wage salary and sticks the other gazillion in the bank for later, or pays me my gazillion and pays the tax on it.  And the reason this might be good for Company Ltd is that they can pay my company for my services without having to worry about such trivialities as employer’s National Insurance, employment legislation (so there’s no sick pay or holiday pay due to me from Company Ltd, it all comes out of my Worker Ltd company) and there’s no unnecessary fuss about, say, equal opportunities or redundancy legislation if Company Ltd wants to get rid of me, they just tell Worker Ltd they don’t want any services this week, thanks.

There’s legislation to stop the Worker Co from sticking its money in the bank and saying nya nya nya to the tax authorities: it’s called IR35 (after the leaflet that introduced it) but basically it says, imagine Worker Co didn’t exist: would Company Ltd have to pay deduct PAYE before it paid me?  If so, then you ignore Worker Co and Company Ltd has to pay the PAYE.  It’s not popular and, frankly, it doesn’t always work, but at least it’s there.

Essentially this consultation is a result of the government giving up on the idea it can ever come up with a way of defining employment that will do away with this kind of disguised employment and saying simply that, if the person with the service company is in a position to control Company Ltd, then let’s apply IR35-ish rules.

Personally I think they ought to grasp the nettle and be about a million per cent more bullish about what we mean by employment/self-employment and kill off these service companies altogether.  But that’s not going to happen – the people who use service companies are too well organised an interest group, and anyway it’s a useful tax dodge for lots of rich people, and only the little people pay taxes anyway…

Ahem.  I hadn’t realised I felt quite so strongly about this one!

Anyway, here’s what I sent in response to the consultation.  As ever, feel free to adopt, adapt or otherwise recycle if you wish.

This is an individual’s response and is also online (with commentary) at my blog, http://tiintax.com. I have answered your specific questions: where I have not included a question below it is because I have nothing to add. However I would additionally add that the impact assessment at page 14 of the document is so thin as to be virtually useless and as a result it does not provide the necessary information to allow the costs/benefits of this proposal to be assessed. The exemption for micro businesses is ambiguously worded and as a result the small firms impact test is incomplete. No sectoral impacts have been explored, when in fact there must be existing data on where and how this measure will impact – presumably on the civil service and on broadcasters? This should be explained in the economic impact field and would enable a more constructive engagement with the relevant sectors.

Q1 Is creating a provision which would require the engaging organisation to deduct income tax and National Insurance at source a correct and proportionate solution to this problem?

Yes, under certain circumstances. For government and quasi-government organisations (eg the head of the Student Loans organisation) I would argue that legislation is unecessary: all that is required is for the government to declare that it will not acquire services via service companies and that anyone working in a government department or quango is an employee and will be paid via PAYE. Where it is, for example, buying in IT or other services (such as the HMRC Aspire contract) then there should be clear blue water between the people providing services under that contract and government employees. Contractors would not, for example, have desk space in or security card access to government buildings. If they do, then they are employees and should be treated as such.

Q3 Are there alternative approaches that would better deliver the transparency the Government is seeking in the taxation of controlling persons than requiring them to have income tax and National Insurance deducted at source by the engaging organisation?

Yes: although a “control” provision is useful, a timing provision would also be useful. Anyone who works for the same organisation for more than (say) three months should be a deemed employee. If a genuine contract for services is in place then different staff would be able to provide the service.

Q6 Is someone who has managerial control over a significant proportion of the workforce and/or control over a significant proportion of the organisations budget the correct delineation for a ‘controlling person’?

No: what about (say) the head of a policy team in HMRC? They might control only a few staff and a small budget, but “own” a significant slice of the tax code. Similarly someone like the head of a minority channel or a commissioning editor at a broadcasting organisation might not direct a significant number of staff and the contractual arrangements might mean they did not directly control a large proportion of the budget, but by setting the policy or direction in which commissions are awarded might control a significant part of the organisation.

Q7 Should we extend controlling person to bring a larger group within the remit of this provision? If so who and why?

As above: people who control the ethos, policy or practice of the organisation should be included.

Q8 Should controlling person be narrowed so that fewer people are within its remit? If so who should be additionally excluded and why?

No.

Q10 Is there any reason we should not exclude micro businesses, who are not part of a group structure from this provision?

In case it doesn’t quite “go without saying”, clearly it is right to exclude micro businesses who are not part of a group structure when they are the payers/engagers. Equally, it is not right to exclude micro businesses who are the payees/engagees!

Kind regards

Wendy Bradley
http://tiintax.com

Posted in Bit of politics, Consultation, Employment | Leave a Comment »

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Trackless wastes

August 1, 2012

Yes, I know I wrote on Monday about the Tax Tracker and yes, I know they published another iteration of the tracker ON Monday, sigh.

Turns out I missed one, anyway – there’s a formal consultation due “in the summer” on “Life insurance policies: time apportionment reductions”.

I had another look at the list of consultation closing dates over the summer and the only alteration I could find was the addition of:

Closes 22 October: The attribution of gains to members of closely controlled non-resident companies

I note in passing that there’s a remarkable number of “informal” and/or “technical” consultations, which I take to be officialese for “yes, I know we said we’d consult on tax changes, but we don’t want your opinions, peasants; we just want to talk to knowledgeable tax specialists who will Understand.”

You think I’m exaggerating?

I obtained some internal HMRC correspondence under an FoI request which contained amongst other things the interesting news that my response to the consultation on the proposals to add a top up to Gift Aid “is of rather poor quality”.  While the ex-Civil Servant in me finds this extremely funny, the Angry Citizen in me finds this… less so.

Because what are we consulting for, please?  I mean, if all that is wanted is to crowd-source the bread and butter work of policy making – to save the government money by getting rid of civil servants so that instead the government can rely on the tax and legal professions and interested industry bodies to do the tedious work of updating and checking legislation for them, well then, yes: my response on the Gift Aid consultation was, indeed of “rather poor quality”.

Because I didn’t do that.  I didn’t try to do the job of the policy team for them and work out any kinks in their proposals.  Because, you know, I used to do that kind of thing for a living and I’d be a scab if I now started doing it for free!

What I did try to do, was to give my response as a citizen to a proposal which will affect me, as a citizen, a taxpayer and as a person who gives to charity.  The fact that I thought it was a misconceived proposal should have been a useful datum.  I’m not saying it should in any way be decisive; but it should be part of the picture.

And any other citizen who chooses to comment on the workings of government and the development of policy ought also to be able to feel that their contribution is taken on board as part of the picture.  It’s government of the people, by the people, for the people; not GCSE civics.

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

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Diary time

July 30, 2012

No, not a post advocating the reintroduction of the Milk Marketing Board – that would be dairy time (although, incidentally, I do wonder why the farmers don’t join together and form local cooperatives and sell their own milk…)

No, no – today is just a quick run round the latest tax tracker which was published last Friday.  And, oh look, remember those consultations “to be published” in May, and then June, and then July?  Well we’re now down to a mere seven which are to be published “in the summer” (or even “in the autumn”), and only three of those are “formal”, ie will come with a consultation document open to all of us, and (one hopes) a TIIN showing the costs and benefits.

They are:

  • Personal Independence Payments: trusts for vulnerable people
  • VAT: exemption for education providers, and
  • Integrating the operation of income tax and National Insurance contributions

Because none of those sounds at all controversial or difficult, right???

Also, I have written before about the frustrations of trying to work with the Direct Gov consultation website and its multiple links to departmental pages, and the frustration of finding the Treasury consultation page gives an unsortable PDF rather than something that’s usable – although there’s a fuller list on the web page, in order of publication.  Well, here, for your diary, is a list of the tax consultations which are open over the summer in what I hope is a more useful format, ie in the order in which the consultation closes!!!  Because, complaining apart, the slow-motion car-crash that was the last budget does at least have the saving grace of being subject to consultation before it gets enshrined in law.  So don’t miss the consultation you’re interested in because you were on holiday when the consultation closed!

16 Aug Consultation into the Taxation of Controlling Persons (HMRC led)
16 Aug Withdrawing a notice to file a self-assessment form (HMRC led)
20 Aug Taxations of unauthorised unit trusts (HMRC led)
23 Aug Ensuring fair taxation for residential property transactions
30 Aug Consultation on a disincorporation relief
6 Sep Securing compliance with Real Time Informaton (RTI) (HMRC led)
6 Sep Life insurance: Qualifying Policies (HMRC led)
10 Sep Corporation tax reliefs for the creative sector
13 Sep Statutory residence test/ ordinary residence/ statement of practice 1/09 Disclosure of tax avoidance
14 Sep General anti-abuse rule (GAAR) consultation (HMRC led)
18 Sep Enterprise Management Incentives: extending access for academic employees (HMRC led)
18 Sep Office of Tax Simplification’s report on tax advantaged employee share schemes (HMRC led)
1 Oct Decommissioning Relief Deeds: Increasing tax certainty for oil and gas investment in the UK Continental Shelf
5 Oct Use of rebated fuel for gritting activities in rural areas (HMRC led)
5 Oct Delivering a cap on income tax relief: a technical consultation
5 Oct Inheritance tax: simplifying charges on trusts (HMRC led)
9 Oct Stamp duty land tax: sub sales (HMRC led)
15 Oct Foreign currency assets and chargeable gains (HMRC led)
15 Oct Lifting the lid on Tax Avoidance Schemes (HMRC led)
17 Oct VAT treatment of small cable-based transport (HMRC led)

Posted in Consultation, Reference | Leave a Comment »

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Have I got news for you? (Well, have I?)

July 23, 2012

There’s been some very poor reporting of the speech David Gauke made this morning at the Policy Exchange – “cowboy” tax advisers will be forced to “name and shame” their clients, for example.  No they won’t, and, don’t be daft.  Some journalists need to do some research that doesn’t involve google once in a while.

The speech itself is interesting, though, in part because the Minister has a go at what’s acceptable and what isn’t in terms of tax planning:

Legitimate use of reliefs is not tax avoidance:

Claiming capital reliefs on investment is not tax avoidance – when those reliefs were introduced precisely to encourage the investment in question.

Claiming reliefs against double taxation is not tax avoidance – when the alternative would be taxpayers paying tax twice on the same income.

Claiming back tax on legitimate charitable donations is not tax avoidance – any more than ticking the ‘gift aid’ box is.

Not paying tax on your pension contributions is not tax avoidance.

Taking out a tax free ISA is not tax avoidance.

Quite.  (Although you then ask yourself why we then had the ill-conceived consultation on capping charitable tax reliefs…???)  

Buying a house for personal use through a corporate entity to avoid SDLT is avoidance.

Channelling money backwards and forwards through complex networks for no commercial reason but to minimise tax is avoidance.

Paying loans in lieu of salaries through shell companies is avoidance.

And using artificial ‘losses’ deliberately accrued to claim back tax is avoidance.

To which we say “yes!!!!” (And, when are you going to give HMRC the resources to do something about it??)

Where, though, do we find the announcement that leads to the “name and shame” the “cowboys” headlines?  Well, a consultation IS announced:

Today we consult on ways to improve the information available to the public on avoidance.  Publishing warnings for all to see, and making it easier for taxpayers to see if their adviser has promoted failed avoidance schemes in the past.

(which, you will note, suggests that it’s information about advisers that might be made public, not about their clients)

Let us turn, then, to the Tax Updates and Consultation Tracker helpfully provided by HM Treasury, which lists as To Be Published in July a consultation on “Disclosure of tax avoidance schemes (DOTAS)” Hmmm…. the accompanying PDF helpfully elucidates that this will be

Consultation on extending the DOTAS hallmarks so as to capture avoidance schemes that do not currently have to be notified.

Because, as anyone who works in tax would already know, there is already a regime which says that, if you’re going to market an avoidance scheme, you have to tell HMRC about it.  You have to give it a reference number, and you have to tell the people who buy the scheme from you what the reference number is, and they have to include the reference number on their returns.  Avoidance, not evasion, remember?  These are people who are trying to outsmart the taxman, not hide from him.

So have I got news for you?  Or, to put it another way, is this consultation “news” at all?

Well we don’t know what it’s going to say yet, do we.*

But…

Well…

Look at the briefing note which the Law Society produces for its members, telling them what their responsibilities are if they are the promoters of a scheme and reassuring them that they aren’t going to be asked to violate their professional ethics by disclosing privileged information and they aren’t going to be caught by the legislation if they simply give advice to their clients on a scheme that someone else is promoting.

And turn to section 9, “more information”, and the list of legislation on disclosure of tax schemes.  There are thirty two of them.  So far. Including

I seem to recall that David Gauke said, in the foreword to Tax Policy Making: A New Approach that

Business and tax professionals have previously criticised the tax policy making process as piecemeal and reactive, pointing to the wide range of policy announcements in recent years that have been unexpected and insufficiently thought through.

We could discuss whether this vast train of DOTAS legislation is the result of “piecemeal” policy development that hasn’t been sufficiently “thought through”, or is a sensible use of an iterative approach.  Or we could just say that it’s the tax authorities and the tax avoiders playing whack-a-mole.

As the Minister himself said in his speech today:

There are some who might say that consultation documents on tax administration are often an effective cure for insomnia, but this is one consultation that will keep the promoters of aggressive tax avoidance schemes awake at night.

Um… are you sure, Minister?

 

[*Update: not twenty minutes after I’d posted this, I saw in my twitter feed a tweet from Tax Journal which had a link to the consultation itself.  So we DO know what it says.  But – having read through it – I’m afraid the rest of this still stands.  Sorry and all that.  Oh, and could someone from the Treasury please explain why they bother having a tax consultations tracker at all if it isn’t up to date, please?  Thanks!]

Posted in Avoidance, Bit of politics, Consultation | Tagged , , , , , | Leave a Comment »

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Self defence?

July 19, 2012

I am grateful to Ian Brownhill for his article on the Justice Gap blog with the news that the government is changing what happens if you are accused of a crime.  From this autumn, if you are accused and found innocent, you will no longer be able to claim reasonable costs of your defence but only an amount equivalent to the amount which would have been paid out if you’d been on legal aid.  So no fancy forensic work and no high profile barrister and you might at some point have to make a Sophie’s Choice between keeping your house and keeping out of prison.

Where does this come from?  The legislation is in The Costs in Criminal Cases (General)(Amendment) Regulations 2012.  So, yes, I thought I’d have a look for the impact assessment.  And, no, there isn’t one.  This is what the Explanatory Memorandum says:

10.1 The impact on business, charities or voluntary bodies was set out in the final Impact Assessment that was published with the Legal Aid, Sentencing and Punishment of Offenders Act 2012 which can be found at www.justice.gov.uk/downloads/legislation/bills-acts/legal-aid-sentencing/ia-central- funds.pdf

OK, so there’s no impact assessment for this particular statutory instrument, but the impacts were taken into account in the IA for the enabling legislation.

Let’s look there, then.

What is the problem under consideration?  Why is government intervention necessary? Individuals who are found not guilty (or acquitted) in criminal cases and who have paid privately for their defence may have their expenses reimbursed, including legal costs, from central funds.  The central funds budget is a Ministry of Justice budget.  The problem under consideration is that central funds spending has exceeded its set budget, which cannot be extended because of the Government’s fiscal deficit reduction objectives.  Government intervention is required to maintain central funds within budget.

All right, that’s plain enough.  There’s no more money.  The budget is fixed.  The problem is how to stay within a fixed budget with a fluctuating and presumably increasing set of costs.

The impact assessment should then go on to consider the options available to meet that objective. (para 58 of the IA toolkit:)

it is Government policy to regulate only as a last resort, having demonstrated that satisfactory outcomes cannot be achieved by alternatives, self-regulatory or non- regulatory approaches. These options should be considered during this step.

What do we think?  “The government should give them more money” is one obvious option that’s ruled out by the way the question is framed; what we’re looking at is ways to stay within the set budget limit.  Well what about using money that we get from elsewhere?  Fines and penalties, for example?  There was a spare 59.5 million from the Barclays fine that was only going to be used to lower the fees the other bankers paid for self-regulation, as I recall – couldn’t we use that?

The impact assessment doesn’t contain any options other than cap the fees or do nothing.  Hmmmm.

It also suggests that the amount to be raised by making the change is about fifty million a year – hey, Barclays could pay for this year and we could set a higher budget next year?  No??  Just a thought!

Legal Aid Clients and Providers: An estimated loss of up to £50m in nominal cash from central funds payments. £10m of this is from companies being excluded from central funds on the basis that they might be able to buy insurance. £40m is from paying only legal aid remuneration rates. The burden would be shared between providers and clients depending on whether clients choose to pay their provider over and above legal aid rates.

All right then – this is the important bit.  The change means that companies can’t claim back their expenses any more but are expected to have (or obtain) insurance, which saves around £10m a year.  The remaining £40m is shared between providers and clients.  Track that thought, it’s important.

Because impact assessments are all about the impact on businesses.  The theory is that if the state makes you and me fill in a form on a Sunday afternoon, well, we’re annoyed but we haven’t lost anything financially.  But if the state makes a business fill in a particular form, then – the theory goes – the business has suffered an “administrative burden” – has been forced to pay someone to spend some time doing something that doesn’t earn them profits.

And that’s why impact assessments are all about the costs and benefits to business – you and I, as citizens, may think that it’s unconscionable that we wouldn’t be reimbursed our legal fees were we to be falsely accused of something but, in Impact Assessment terms, that doesn’t matter.  What does matter here, I think, is that the government hasn’t followed its own rules.

Part of the impact assessment, as I’ve said before, is to look at the impact on small businesses.

Now, it says clearly that the burden of this change will fall on both “clients and providers” – both the people wrongly accused and the people who defend them.  The people who defend them who might be solicitors or barristers, in small or large firms.

Because what is a “small firm” for the purposes of the small firms impact test?  It’s a firm with fewer than 20 employees.  Not partners, not members; employees.

How many solicitors are in small firms within that definition?  I don’t know, but I’d suspect a large number.  How many barristers?  I don’t know, but I’d suspect nearly all of them.  And the government has made this regulatory change without taking that into consideration.

Look at clauses 56-60 on the impact assessment for the main legislation.  Most of it is about the removal of repayment provisions for companies accused of wrongdoing: the only consideration of small firms who are legal services providers is in paragraph 60:

Small firms which are legal services providers may be affected by these proposals if their income and/or levels of business is lower in future.

Well big hairy woo – how many of them might be affected and in what way?  We don’t know and we don’t care, seemingly.  But look again at the explanatory memorandum to the actual SI making the change:

11. Regulating small business

11.1 The legislation does not apply to small business.

I put it to you that this is nonsense.  The statutory instrument fixes “the amount to be paid to the accused”: how many wrongly accused people are also small business owners (one man or “micro businesses” in the jargon)?  We don’t know, and MoJ doesn’t care.  How much of the impact of this change will affect legal services providers who are also small businesses?  Again, we don’t know, and MoJ doesn’t care.

Yes, I agree, I’m finding a piece of legislation I don’t like and trying to find a way of overturning it on a technicality.  But for heaven’s sake, the government makes these rules to regulate its own conduct, because it knows that some of its members and servants think it appropriate to say “Yes, Minister” when they ought to be saying “are you sure, Minister?”

One final thought.  I had a not tremendously helpful response from BIS to my Open Letter to Mark Prisk on the subject of the small firms impact test.  It tells me that “independent scrutiny of IAs through the Regulatory Policy Committee” ought to drive up the quality of IAs in the medium term.  I did look on the RPC site for their opinion on the Central Funds IA but couldn’t find it, and to date they haven’t answered my phone message or email asking them for  a link.  But if you look here, at their last annual report, and turn to pages 60-62, you’ll see the MoJ has a less than stellar record of having not one impact assessment scored as “green” on the RPC’s red/amber/green ratings grid at its first attempt, and it only managed to get two of its twenty eight listed IAs through the “green” hurdle on the second attempt.  Maybe a nice little judicial review of whether this legislation should be sent back and its impact on small firms given proper consideration might encourage them to pay more attention in future?

Posted in Bit of politics, Consultation, SFIT | Tagged , , , , | 1 Comment »

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Whose service is it anyway?

July 16, 2012

Sorry I was a bit quiet last week: I was sick.  Fortunately it was nothing to do with my blood pressure, because otherwise I think we might have had a bit of a mess today when my head exploded.

Why, do I hear you ask?

It all starts with the Cabinet Office consultation with the civil service unions about reforming facilities time.

(Incidentally, when did the word “reform” lose its meaning of “improve or amend, moving to a better state by abandoning what is wrong or corrupt” and instead come to mean “cut, preferably off at the knees”?)

OK let’s unpack this one a bit.  First of all, who is invited to consult?  Civil servants, that’s who.  Just civil servants.  Not the citizens who pay for government services (including the wages of civil servants) via our taxes.

Who cares?  Well the Taxpayers Alliance published a report last year claiming unions received more public funding than the political parties received donations, so  they’ve already had their two cents worth.  The Daily Mail has its opinion out there and it’s just what you’d expect.  Francis Maude has seemingly already made up his mind.

Yes, there are a few countervailing arguments.  The TUC had a go, commissioning a report, for example.  But where is the room for the wider argument, the opinion of the citizen, the consultation with the people who pay the civil service’s wages?

Secondly, and I know you know what I’m going to say, but where is the damned impact assessment?  The Government’s own rules say that when they are consulting about something with an impact on the public sector they should include an assessment of the costs and benefits of the proposal.  In this case, there’s a lot about how much facilities time is granted and what it’s used for and how it might be more closely regulated, and absolutely nothing about any benefits.  In other words, think about your own spending.  If you have to save money and you see you have two direct debits, one for £30 a month and one for £40, would you just stop the £40 payment? Or would you want to look at what you were paying for first? Instead of stopping payment on your house contents insurance because it costs £40 might you not first be well advised to consider the benefits of having cover, and the risks inherent in not having any?

Isn’t there also a legitimate expectation argument, in other words the government has said that it will consult before making regulatory changes and that this consultation will include an impact assessment?  If I were in one of the civil service unions I’d be looking closely at whether a judicial review was appropriate at this point, with the objective of asking the government to re-run their consultation on a rational basis, ie consulting fully with all the affected parties and including a proper assessment of the benefits, as well as the costs, of the proposals.

So I object to the limits on the consultees and on the lack of a proper consideration of the impacts.  What about the proposals themselves?

There are four areas covered in the consultation:

1) Reporting and benchmarking – developing a common system for reporting and monitoring Facility time across the Civil Service;

2) Ending or limiting the practice of 100% of Civil Service employees’ time being spent on trade union duties and activities;

3) Reviewing arrangements for time off for trade union activities so that the default is that this time is unpaid; and

4) Reduction in overall facility time across the Civil Service, in particular through more rigorous individual management of facility time. Ensuring that the provision of the use of facilities is appropriate, and represents good value to the taxpayer.

A “common system for reporting and monitoring” sounds like a reasonable idea but then I’m old enough to remember when the civil service had common pay and conditions that applied across departments and only required one team to negotiate and implement them instead of a different team in each department.

The second one is interesting.  As far as I can tell (and I’ve read the document twice so far) there’s absolutely no justification offered for wanting to end or limit the practice of having one person working for the union full time rather than thirty six people on an hour a week.  You elect a union president, for a year they’re union president full time, and then they go back to their job.  If that’s a problem, then can we see some evidence of what the problem is and why it’s a problem, please?

The third one is interesting: distinguishing between union duties and union activities and suggesting that you can get paid time off for one but not for the other.

We intend that we will develop and introduce a rigorous checking regime to support departments to differentiate between time off for duties and activities? Q3. How can we best introduce this approach? Are there any other approaches that you can suggest?

That’s an “it all depends what you mean by…” section.  What are duties and what are activities?  Well, helpfully listed in the appendix, I see that duties include

accompanying or representing a trade union member at a disciplinary or grievance hearing;

Now, I was a union personal caseworker for some years, but I never attended a disciplinary or grievance hearing.  I had discussions with people about whether they were in danger of disciplinary action or had cause to take grievance proceedings.  I accompanied people to formal and informal meetings with their managers or the people they managed to see if disagreements could be settled without recourse to disciplinary and grievance hearings.  Would all that time have been a “duty” – for which I would have been allowed paid work time – or an “activity” – for which I would have been expected to take unpaid leave?

And a “rigorous checking regime”?  So instead of someone being able to call on a colleague with some union training to help sort things out, what should we do now?  Perhaps private enterprise will step in and we’ll see a whole new raft of “ambulance chasing” lawyers offering no fee claims direct with a guarantee you’ll keep 100% of the compensation?

And the fourth objective of the consultation?  Words fail.  Is there any evidence that there is a need to reduce union facilities time?  Is there any evidence that a “rigorous individual management” of facilities time isn’t code for “bullying and victimising union members who choose to be active in their union”?  And is there a scintilla of evidence that trades union facilities time is not already “appropriate, and represents good value to the taxpayer”?

Posted in Bit of politics, Consultation | 2 Comments »

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Calling Joe Public

July 9, 2012

I see that Taxation magazine are running a survey on tax evasion – and it’s an interesting read.  How far would you go?  (note the magazine itself is behind a paywall, but the survey, so far as I can tell, is not)

However the results of the survey are to be included in their response to the GAAR consultation (the consultation about a “general anti abuse rule”) – so I’d urge you to respond, so that at least some of the responses come from ordinary members of the public and not from tax professionals.

That’s an important point, because a lot of the complexity of tax comes, at least in my view, from only asking people who already know a lot about it.

Think about it.  If you take a small child and ask them whether something is fair, they instinctively know the difference between right and wrong – yes, you have to frame the question in language they can understand, and sometimes you have to frame it so they understand they could be either side of the dilemma.  But “fairness” seems to me to be an inherent human quality that we let ourselves overthink until we dilute it to death.

Similarly in the days when I used to take the occasional tax case to the General Commissioners – translation, appear for the Inland Revenue, one of HMRC’s precursor organisations, at the precursor to the Lower Tax Tribunal – the recognised method of preparation was to try your argument out (with the names and identifying details filed off, of course) on someone with no connection with the department like a friend or partner.  Which is incredibly helpful – until they have learned enough of the jargon to dismiss the case with a sniff of “well it’s just a ‘wholly and exclusively’ argument, isn’t it?”   In which case, you know you’ve “used them up” and need to find a new fair assessor on whom to practice your argument.

So, yes.  Let’s check the Taxation scenarios for fairness and reasonableness.  But let’s get people who haven’t been used up, ordinary citizens, members of the public, to do it, and not just the Usual Suspects.

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Attention herbal smokers!

July 5, 2012

I’ve had a reply from HMRC on the herbal smoking products issue that I referred to yesterday.  Here it is.

Dear Wendy

I’m sorry you didn’t make the deadline, that doesn’t mean I’ll ignore
your comments. I understand that on the face of it our policy might seem
a little unfair or complicated. It is certainly not intended to be
either.

Legislation for tobacco tax goes back quite a way and has to cover many
possibilities. In the past there have been tobacco substitutes that were
intended to replace tobacco directly. That explains the complication
that you highlighted.

In order to keep tax regimes for tobacco as close as possible across
Europe, individual countries shape their laws around European laws,
these are known as Directives. The Directive has long held that unless
smoking products have proven medicinal qualities they must all be taxed
in the same way. This is regardless of whether they contain tobacco and
is certainly, in part, because the harmful effects of smoking come from
the smoke and the addictive aspect comes from nicotine (if there is
any).

UK law has to be in line with the Directives and in this case it wasn’t.
Whilst the market for herbal products was very small in relation to
tobacco products, it was growing and new products were appearing. These
products may not have been on the High Street but they put the spotlight
on the issue and made changes even more necessary.

This isn’t though a question of bureaucracy and the European Union
forcing our policies, it’s a question of keeping the tobacco tax system
aligned with our neighbours and preventing tax loss through what was
basically a loophole.

As you will see when I publish the results of the consultation, this is
a complex issue with arguments from different directions. The bottom
line is though that smoking is dangerous whether tobacco or herbal
mixtures and therefore there is not a strong argument  for continuing to
treat herbal smoking products more favourably than their counterparts.

I hope you find the above helpful in explaining what this policy is
about and that although we are unable to resist the arguments  to change
our policy, we recognise that it will be difficult for some an so wish
to make the implementation as easy as possible.

Kind regards

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Closed consultations

July 4, 2012

Since one of the objectives of this blog is to respond to all the government tax consultations (I had seriously thought I could look at ALL government consultations, but have you SEEN how many there are!) it’s conceivable you’re wondering about the ones that closed last week which I haven’t mentioned so far.

Here’s a quick round up.

Above the line R&D credit. Essentially the government will refund some of a large company’s research and development costs in order to encourage investment in R&D. I have nothing to say – it’s a laudable aim, a well written consultation, and includes a decent impact assessment. Stand up, R&D tax credits team, and take a small round of applause.

REITs (Real Estate Investment Trusts).  There are proposals to change the REITS regime to encourage investment in social housing.  This, again, would have been an exemplary consultation if it had included an impact assessment showing the estimated costs and benefits of the change.  Without that, in my view, the case for change is not made.

Incidentally, in passing I note that

2.34 In England, the Government has confirmed its commitment to retain the current RPI+0.5 per cent formula for social rent increases for the rest of this Parliament.

and

3.5 As mentioned above, no solely residential REIT exists in the UK. In large part, this is due to the low yield that this sector generates which is insufficient to attract investors.

Quite frankly, if I could invest my savings at RPI+0.5% I’d snatch your hand off, so I wonder whether there might be a role for someone non-rapacious (a union consortium?  A cooperative?) to set up a housing investment REIT seeking its funding from small savers.  TUC please note!

Alcohol Fraud

I’m not sure I understand why this is such a problem but HMRC looks to be working with industry to counteract it.  What they’re not doing, it seems, is looking at the impact on small firms:

Q39. If you are a small business (less than 20 employees) please provide details of the costs and impacts of this measure?

No small firms scoping meeting in advance of the consultation document?  No Small Firms Impact Test work done yet, then?

My only feedback on this consultation, then, is that it looks as if it might have left itself open to judicial review by not doing enough work with small firms at this stage.   You also might think that, given there have already been unsuccessful judicial review proceedings in this area of law – which included the allegation that the consultation and impact assessment were inadequate –  it might have been tactful of HMRC to have done rather better this time around.

Taxing remote gambling

This one is a no brainer. My only comment would be that I wouldn’t be too fussed about any responses  from industry on the difficulty of establishing a customer’s location: they already do it, as I discovered to my cost when I had a hot tip on a horse while I was on holiday in the States and found my bookie’s account was blocked – because it could already detect where I was.  Who knew that my harmless flutter would have been actively illegal in Wisconsin!

Finally there’s the closed consultation on the tax treatment of herbal smoking products.  I couldn’t really have responded to this one, because what’s being consulted on is the design of the tax, whereas what I would have wanted to respond on was the fundamental design of the policy.

Why are we taxing herbal smoking products?

Well, why do we tax tobacco?  For one thing, tobacco is both addictive and actively harmful to its users.  And so we use the price mechanism to try and dissuade people from using it – and it’s also, of course, a good little money-raiser.

So why would we want to tax herbal smoking products?

Are they actively harmful and addictive?  Doesn’t seem like it, although I’ve never smoked any and I have no particular knowledge or expertise.  Or are we actually arguing that, hey, there’s a dangerous thing that we’ve managed to price some people out of using, but they use something else instead, so we’re losing money, so we’ll tax the other thing as well???????

This is the politics of the madhouse.  But it’s not one of the elements up for consultation, because the decision is made, because

It is not intended to cover whether such changes should be made but rather how the transition can be made easier, and to provide a better mutual understanding of this segment of the market.

Now, I’m not normally a Little Englander, but see page 7, chapter 3 of the consultation, the “Legal Background”:

3.1 At present UK legislation excludes “herbal smoking products” (which do not contain tobacco) from excise duty. This contravenes European Directive 2011/64/EC (“the Directive”) which states that:

“Products consisting in whole or in part of substances other than tobacco but otherwise conforming to the criteria… shall be treated as cigarettes and smoking tobacco”

Well what genius thought that one up?  Honestly!

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