Today is the start of the Tax Research Network annual conference online. It’s also the tenth anniversary of the founding of the Office of Tax Simplification which they are celebrating with a webinar. And today the Public Accounts Committee is hearing evidence from HMRC on their work on the Tax Gap…
My question is, don’t these people talk to each other????
Me? Oh, I’m not logging on to any of them: I’m taking my mother for an X-ray. Let me know if I miss anything
The Office of Tax Simplification has a vision of the future of tax guidance. Funnily enough it makes no mention of the previous review (the Good Guidance Guide, also known as the Anderson review) nor for that matter the Guidance on Guidance, a booklet with a yellow cover (sunflowers, I believe) which was current in my day. Maybe it’s a spinal reflex: every ten years or so someone says Something Must Be Done about Guidance, writes a report, and adds it to the shelf.
Not that I’m saying guidance has stayed the same. From manually updated HMRC manuals and printed pamphlets for taxpayers, to Tintax (electronic manuals) for HMRC staff and the grudging move to online for taxpayer guidance, to todays whizzo talk of pop-ups and voice operated search functions, and government mandated web pages with a paragraph of text written in a register with a reading age of nine, we are clearly in a dynamic system.
Which is why it’s disappointing that OTS’ review is so… static. Set up a panel of the Great and the Good. Get a Senior Manager to be in charge. Consult on whether we want HMRC guidance to be binding… It IS the twenty-first century, you know! That’s just not how things are done any more.
So here’s what I’d do. First, watermark all existing HMRC guidance with something that says “this guidance was written before G-day so may be difficult to follow. Seek advice” or words to that effect.
Second, leave HMRC manuals out of this. As I have said elsewhere, HMRC manuals are written to instruct HMRC staff how to administer the tax system, not to advise taxpayers how to interact with the tax system. It’s available to citizens under the Freedom of Information Act – that doesn’t mean it’s written for citizens to use, any more than police radio is intended for easy listening just because your radio might pick it up.
Third, make use of metadata – a webpage might well only have one paragraph of text on it, but with minimal work it should also be able to tell you when it was written (and by whom), where to go next for more detail, and have a clickable link to archived previous versions.
Fourthly, integrate guidance vertically as well as horizontally. By “horizontally” I mean across levels of expertise – taxpayer, practitioner, specialist. And by vertically I mean that even the simplest guidance should also be capable of further exploration (a “for more detail click here” link) that takes you from taxpayer to practitioner to specialist guidance and ultimately to the actual legislation. Don’t get me started about the state of the legislation online, but seriously the government buys its own legislation back from commercial firms because it can’t be arsed to update it properly and talk about don’t spoil the ship for a ha’p’orth of tar.
Yes, set up a supervisory panel… of retired teachers and other similar volunteers. Not the “tax community” who are big enough and ugly enough to argue their own corner with the revenue. No, the voices that aren’t being heard here are the taxpayer community, the actual citizens affected by this, who may have strong views on how they want to find out about the legislation that affects them.
And then write the new stuff collectively. Or, rather, keep guidance divided into three parts. The simple instruction/write according to gov.uk standards so a nine year old can read it/drop down and pop up help that comes with the HMRC forms, fine. That’s a customer service function. Fund it. Let HMRC write it. It will pay for itself. The HMRC guidance for its staff? Leave it alone: let HMRC keep it, use it, update it, and publish it under FOI. But don’t mistake it for taxpayer guidance. No, that’s the third layer: the “can I claim for a painting under the plant and machinery rules” “is there still a tax exemption for keeping a horse” “how do I claim for research and development” level of guidance.
Which – it’s the twenty first century after all – we should wiki.
Yes, you read it right. Use the wikipedia model. When I was last an HMRC policy worker, we actually had a wiki, sharing internal advice across different government departments. My staff wrote the guidance on how to produce a TIIN and kept an eye on any edits, but it was helpful for the people who “owned” the policy on, say, equality to be able to edit or expand on or add links to the relevant bit of the guidance rather than one person have to know everything about everything.
Set up a tax guidance site on the wikipedia model. How to stop people trolling it? Sign in via your taxpayer ID (the government gateway or equivalent) How to tell whether it’s accurate? It’s a dynamic system but it’s hallmarked with the date and time and name of the last person contributing, and with specific rules about how a page may be edited and why. It’s very far from perfect but then so is HMRC’s existing guidance. So, yes, let’s have a collaboration between the tax profession, HMRC and the interested taxpaying population. But let’s do it twenty-first century style.
It’s Plough Monday, the start of the new working year (the first Monday after Twelfth Night and Epiphany). So here’s a nice piece of intellectual work for you, a research question: how much does it cost to pass a piece of legislation?
No, not the cost of administering the law after it has passed or preparing it before it is presented to Parliament. How much does it cost to print and promulgate a Bill, to give it a First Reading, to discuss it in the House of Commons, to call a vote, to discuss it in the House of Lords… how much does the parliamentary process cost, and then how much does it cost to, what, courier it over to the Queen for her to sign? (How does that part actually work?)
What I am getting at is, this is a fixed cost which doesn’t seem to me to have been factored into the impact assessment process.
An impact assessment – for tax, a TIIN – should tell you how much a piece of legislation will raise in taxes or cost in tax foregone, and how much administrative burden it will impose or relieve for those it impacts, and how much it will cost or save the administering department.
What it won’t tell you is that base cost of passing the legislation in the first place.
Why should we care?
Well, there are several measures in the latest OOTLAR where the TIIN shows no cost or benefit to the general population, the taxpayer or the department, and that the impact is on only a handful of businesses.
For example, Income Tax: Venture Capital Schemes: relevant investments (page 69 of OOTLAR) says it will affect “a maximum of 100 individual investors” and “fewer than five companies have been affected by the provisions since November 2015”.
I understand that, following the Wilkinson case, there was a change in HMRC and the Treasury’s approach to extra-statutory concessions, so that a number of useful but trivial exceptions from strict application of tax law have either been lost or have been legislated.
It seems to me, though, that HMRC ought to have a base figure for the cost of the legislative process (divide the annual cost of running the Houses of Parliament by the average number of days it takes to pass a piece of legislation, say?) and a clear power to set and promulgate extra statutory concessions where certain rules are met.
What kind of rules? What about the total costs and benefits of the change are smaller than the cost of passing a piece of legislation? Perhaps an overall limit of one (two? five?) ESCs a year so that they don’t become an easy way out of messing up your drafting in the first place? Perhaps a “one in/one out” rule so that they don’t become another overcomplicating factor (three pages of tax legislation accompanied by a thousand pages of ESCs is an undesirable an outcome as a thousand and three pages of tax legislation, after all). Perhaps an “affects no more than x number of people/businesses, impacts of no more than y cost on any one business” rule?
But in any event: more options appraisal, less legislation, more ESCs.
What do we think?
Bonus weekend conspiracy theory blog entry: try this out for size.
First datum: there’s a suggestion the OTS are going to put forward plans to “simplify” the tax system and get rid of the VAT threshold “cliff edge” by reducing the VAT threshold to a “hobby business” kind of level of £20k or so. (Without the evidence of my own eyes I refuse to believe they’d suggest anything so peculiarly stupid, but let me say in advance that it would be a “brave decision, Minister” if they did).
Second datum: HMRC wanted us all to be compelled to keep digital records and show HMRC our workings four times a year. After some pushbacks they have had to be content with compelling digital record-keeping only for VAT and for businesses above the VAT threshold.
Put these together, and you have a perfect storm of stupidity: a vast increase in administrative burden, AND an extension of MTD to everyone who runs a serious but not yet successful business.
It’s too stupid an idea to be true, right? I mean, right??
Dreary, dreary me. Well, not intrinsically me, you understand, but how I feel after the soul-sucking experience of looking at the Making Tax Digital (MTD) regulations.
Yes, we’re at that stage now. HMRC has given up trying to make us swallow the whole elephant of MTD and instead is pushing it at us one bite at a time. The primary legislation is in Finance Bill (No 2) 2017 (where the MTD section essentially says HMRC can make MTD regulations) and now the secondary and tertiary regulations are out for consultation here and in four attachments. Honestly, I wasn’t going to look, because it’s dreary. You know it is. Dreary, joyless, pettifogging and unnecessary. Look at this, from the Income Tax (Digital Requirements) Regulations
6.—(1) Subject to paragraph (3), “digital records” for a business means records of each of the transactions made in the course of the business, including—
- (a) the amounts of the transactions;
- (b) the dates of the transactions, according to the basis used by the relevant entity for recording transactions for the purposes of income tax; and
- (c) the categories of transactions into which the transactions fall, to the extent those categories are specified.
Please. Get a life.
If this regulation is passed, businesses affected will have to keep records of the amounts, dates and categories of their transactions in “functional compatible software”. Lost the will to live yet?
Functional compatible software is defined in the regulations too:
“functional compatible software” means a software program or set of compatible software programs the functions of which include—
- (a) recording and preserving digital records in a digital form;
- (b) providing to HMRC quarterly updates and as applicable, end of period statements or Schedule A1 partnership returns in a digital form and by using the API platform; and
- (c) receiving information from HMRC using the API platform in relation to a relevant entity’s compliance with obligations under these Regulations;
“The API platform” is nonsense: one might as well say “the language” or “the alphabet” without specifying which language (Greek? Mandarin?) or which alphabet (Cyrillic? Or Japanese – kanji or kana?)
So the Statutory Instrument will also have to define “the API”? Well, it defines “API platform”:
“API platform” means the application programming interface that enables electronic communication with HMRC, as specified by notice made by the Commissioners;
which I take to be drafters language for “HMRC haven’t written it yet but they’ll tell you when they have”?
Dreary, pettifogging stuff.
But I’m an impact assessment specialist, so of course I turned to the impact assessment, or at least I tried to. Where is the TIIN?
The Income Tax (Digital Requirement) regulations end with the words:
EXPLANATORY NOTE
(This note is not part of the Regulations)
The Regulations [ ].
but there IS no explanatory note attached, so there is no indication of whether a TIIN was completed or where it might be found, and there is no actual TIIN attached.
The Income and Corporation Taxes (Electronic Communications) (Amendment) Regulations end with the words
Consent by the recipient is not required.
[TIIN]
Here’s what ought to happen. Governments say that they will not regulate unnecessarily, only where there is some “market failure” which means the government has to step in.
Does the government need to step in to force businesses to keep their records electronically in a way which will enable them to be sent to HMRC and for HMRC to read them? No Socrates, it does not: all that is required is for HMRC to build an electronic system which is demonstrably better than the current method of making returns of business profits and businesses will use it. Only then would it be reasonable to compel the last few recidivists to join in.
So, in a democracy, these regulations should be scrutinised by MPs before they are passed, and only passed into law if they are a reasonable way of achieving the policy objective.
MPs should do this by looking at the cost/benefit analysis in the TIINs and forming a view on whether the costs are justified by the benefits. They are hamstrung from doing this by the failure to publish a TIIN with the regulations. They should decline to rubber stamp something so… dreary. Joyless. Pettifogging. Unnecessary.
I challenge MPs to do their job. I will write to my MP and ask him to do his. I challenge you to do the same with yours.
I never worked in the Large Business section of HMRC so my ignorance on the inner workings of the section is largely an exotic fruit with the bloom still upon it. However we all have a stake in making sure that the revenue authorities play fairly in treating both large and small businesses equitably and efficiently so we all have a stake in the way HMRC deals with its Large Business customers.
What is a “large” business? In HMRC’s world, it is one with either a turnover of more than £200 million, or else it is part of a large multinational group even if its UK “footprint” is relatively small.
Currently HMRC uses a process called “Business Risk Review” (BRR) to divide large businesses into sheep and goats – they are assessed as either Low Risk or Not Low Risk, with “Low Risk” being rewarded by less contact with HMRC, fewer questions, less frequent reassessment of the risk. Six criteria are used to divide the sheep from the goats:
Inherent risk
Behaviour
You can easily see that, although low risk/not low risk is a binary, it is not a pejorative binary: being “not low risk” need not be because a business is trying it on in some way, but simply because it is E X T R E M E L Y L A R G E or particularly complex.
A more granular risk classification will help HMRC focus resource on the highest risk businesses, and increase the behavioural influence of the BRR process within business.
Here’s the consultation: it opened on 13th September and closes at quarter to midnight on December 6th.
Here’s what I think. First of all: why? Why change at all? What policy or practical issue are they trying to solve here? Does the current classification system not work? Is it taking up too much time or resource, is someone complaining about it, is there an actual need for change? I don’t see it in the consultation document. I honestly don’t see it at all.
Secondly, let’s look at paragraph 3.2 on page 10 of the document, where there is a flow chart setting out the BRR process. Look at the final point, where HMRC asks itself whether “HMRC can trust the customer to set the agenda for interactions with them”. This seems to me fundamentally misconceived. Of course a business or an individual has a perfect right to abstain from contact or cooperation with HMRC, in exactly the same way as we all have the right to remain silent if asked questions by a police officer. If a police officer turns up on your doorstep and asks you questions you are perfectly entitled to tell them to go away or not say anything at all. If they want to question you badly enough, they are entitled to arrest you, but then you are entitled to have a lawyer present while being questioned, and to answer “no comment” to anything you are asked – and neither guilt nor innocence should be inferred from silence. Rights are only rights if they are exercisable. But it is not up to the individual to decide whether or not they will be investigated by the police, questioned or arrested – it is the police’s decision whether or who or how to investigate.
So HMRC can offer a cooperative relationship to large businesses if they fulfil certain criteria, but it is not up to the business to “set the agenda for interactions” with HMRC and I am astonished that such a phrase has appeared in the consultation document at all. HMRC should run the show, decide what risks the taxpayer presents and how they will address them.
But if HMRC is, indeed, running the show, it is not at all clear to me how a more “granular” approach to risk assessment will be of benefit to anyone. At present the low risk/not low risk categorisation does not imply any wrongdoing on the part of the business being assessed. If they were assessed as one of “low risk, low-moderate risk, high-moderate risk, high risk and significant risk” would that not introduce new opportunity for conflict? Is “high-moderate risk” a pejorative designation? Would it be better to be “low-moderate risk”? Do the classifications depend on whether the risks are inherent or behavioural? What good does it do anyone to classify risks like this?
Again, if you were arrested, would it help to know you were considered low-moderate risk offender rather than a high-moderate one? Would it help you, would it help the police, would it help anyone?
Don’t do it, would be my response to this consultation. Or at least, if you must, explain why.
I don’t get it.
I’m a micro business, so this tweet from HMRC is directed at me, right?
Are you a micro business? You need to be aware of a new UK accounting standard and how it affects your tax returns https://t.co/IFi1SNGb5Y
— HM Revenue & Customs (@HMRCgovuk) October 2, 2017
What definition of “micro” business are HMRC using these days? I mean, it used to be that a “small” business was one with 50 employees or fewer and a “micro” was one with fewer than 10 employees. This seems to be the definition used in this Parliamentary briefing from last year, which tells us that, of the five and a half million businesses in the UK, fully four million are micro businesses like mine, which have no employees at all
If you’re an agent or micro business, HMRC’s guide to FRS 105 will help you identify any new tax considerations https://t.co/IFi1SNGb5Y
— HM Revenue & Customs (@HMRCgovuk) October 3, 2017
Why, then, is the HMRC twitter feed telling those four million people that they need to check whether FRS105 applies to them? What the hell IS FRS105?
As far as I can tell from following the links, it’s a change to the generally accepted accounting practice (GAAP) used to prepare accounts. If you look here, you’ll see HMRC helpfully tell you
Because of the changes to the UK Financial Reporting Standards (FRS), over the next few years UK businesses will see changes to the accounting practice used to prepare financial statements. In particular, many UK businesses will be required to apply one of the EU-endorsed IFRS, FRS 101, FRS 102 or FRS 105.
The purpose of these 3 papers is to assist businesses that will be applying FRS 101, FRS 102 or FRS 105. In particular, it provides an overview of the key accounting changes and the key tax considerations that arise for those businesses that transition from old UK GAAP to the new standards.
Clear? Well maybe, if you’re an accountant, but to this retired tax inspector it conveys almost no meaning, and to the couple who run my local coffee shop and the woman who runs the local chiropodist? Nothing except another thing to ask their accountant about, if they remember.
Why are HMRC pointing “micro” businesses to changes in accounting standard? It has taken me the best part of an afternoon to work out that, no, I don’t need to worry about it personally. Isn’t there a principle of “think small first” that is supposed to exclude the very smallest businesses from tax changes altogether where possible? Surely this ought to apply to communications too? This is not a change that a business with no employees and uncomplicated affairs needs to be concerned with at all, in my view. A business with an accountant? Well, their accountant ought to be up to date, but saying “If you use an accountant to prepare your accounts, make sure they are up to date with the changes to accounting standards here” would be an insult to the accountancy profession and its maintenance of its own professional standards.
Has HMRC learned nothing from the VATMOSS fiasco at all, where a group of micro businesses – kitchen table businesses – were all but wiped out by changes that weren’t intended to apply to them and which weren’t mitigated because HMRC had no idea these micro – nano? – kitchen table? – businesses even existed. Wouldn’t it be nice in this instance if HMRC had written an introduction to the changes which made it clear most unagented businesses don’t need to be worried, and then tested it out on a group of genuinely micro businesses? And then stopped mithering people on its twitter feed about something they will, with luck, never need to be concerned with at all?
…and then suddenly you look around and see that you haven’t posted for a month, because – overwhelmed by the futility of it all – you realised that there wasn’t anything to say. And yet, and yet…
There was a point where there were no open consultations from HMRC at all. For perfectly sensible reasons (change of Budget date, the enormous administrative changes going on in HMRC and, of course, the reduction in flow of legislation from clearing the decks for Brexit) but still a bit concerning. Maybe no public consultations, but were there still those cozy chats with “stakeholders”? (Was there an “annual stakeholder conference” at all this year? Or has it happened and been kept wery, wery quiet?)
But normal service has resumed. We are back to consultations: four of them, in fact, if we are to believe the gov.uk consultations page, sorted for “open consultations” from HMRC…
There are more than three: 8 policy papers + MTD regs + ESC con doc
— Rebecca Cave (@TaxwriterLtd) September 14, 2017
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So gov.uk’s “consultation” page manages to list consultations like, oh, the Forestry Commission’s plans to change public access to open access land at Harwood Village in Northumberland, (See here) but not “eight policy papers” from HMRC?
Sigh. What was I saying about the futility of existence?
It’s August, Parliament is not in session, Big Ben’s bongs are silent: yet there are still 62 open consultations listed on gov.uk. Less is more, guys, please! (At least, in the sense that we want less legislative activity and more administrative competence from our government, not that we want fewer consultations on what legislation they DO introduce, of course.)
However there are currently zero, count them, zero consultations listed from HMRC. Hurrah! and, is this unprecedented? Enquiring minds want to know! The sole HMT consultation is on developing the supply of capital for “innovative firms” (Bank of Dave, anyone???)
However – should you still be sitting in an office somewhere idly reading blog entries and pretending it’s work – there is another way you can contribute to the government’s developing policy and administrative agenda: yes, you too can Help Make Gov.uk Better by joining the panel of service users contributing to their research.
Yes, I’ve joined.
No, they still haven’t found a way of listing consultations in the order in which they close. Sigh.
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