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RTI is coming. Eep!

September 6, 2012

You may remember that, in 2010, the idea was floated that we should update the pay as you earn system.  Why should employers have to calculate how much tax to deduct from wages and salaries?  Wouldn’t it be neat if you could build some kind of machine – or, OK, some kind of app – that would work it out?  Plug that into the banks, and the employer could just transfer your whole salary to you and the bank could siphon off the bits of that money that go to HMRC using the magic machine/app.

The newspapers put paid to that one pretty quickly!  And, frankly, would you trust

  1. government IT procurement and/or
  2. banks

as far as you could throw them?

So, er, no.  Or indeed “hell no!”  But the PAYE system was still in dire need of updating – so then there was RTI.

RTI, for the uninitiated, stands for “real time information” – the “minor” change to PAYE that means employers will have to tell HMRC what they’ve paid when they pay it (and not six months or a year later).

Oh, and there’s an administrative burden “saving” to employers, because they won’t have to fill in P60s and P45s at the end of the year or when people change jobs any more; all the information will go seamlessly to HMRC when the salary payment is made.

Which, if you’re an employer with a payroll that’s computerised and a who pays via the bank, well, might actually be true.  The impact assessment thought there might be a billion quidsworth of savings.  Particularly if you don’t, er, quantify any costs!

RTI is, in fact, already here – for the small number of employers taking part in a pilot scheme.  And more employers are being added – did you know that?  And ALL employers will (or at least should) be in RTI by autumn of next year.

OK.  So far, so good.

But there’s a certain amount of, what we might politely call, “making it up as you go” involved here.  Taxation magazine pointed out on 22 August  (sorry, it’s behind a paywall) that there will be problems involved in paying

  • Casual workers
  • People receiving tips via a tronc

and various other special cases, because the RTI return has to be made at or before the time of payment.

So it’s Saturday night and you’re a pub landlady and your barmaid just called in sick and you call the two students who work odd shifts for you on standby.  They’re going to expect their wages in their hand when they go home at the end of their shifts, aren’t they?  So are you going to spend your night filling in their RTI details on your laptop so you can make them a legal payment… or are you going to go cash in hand and take your chances?

So you’re a restaurant and the tips go into a jar and the head waiter divvies them up on a Saturday night.  Is he really going to sit down and enter all the details of the payees into his laptop before he goes home?

But more worrying to me is the abolition of the Simplified Deduction scheme, which was known as the “nanny” scheme – a simpler set of deduction instructions for people who found themselves employers but who weren’t actually businesses, like people who directly employ a nanny or a cleaner (rather than paying them via an agency).  This one worries me a lot, particularly because of trend in providing services to people with special needs because of age or disability by giving them a budget and asking them to arrange their own services.  These are not people who will be immediately comfortable with running a PAYE scheme to pay for the carer who gets them out of bed in the morning.  In the equality section of the RTI TIIN published in March this year it said:

Care and support employers are individuals who employ carers to provide services to a disabled or elderly person in their home. This group of employers will join RTI from April 2013 and HMRC will offer them the option of monthly paper filing of information. They will also be able to use HMRC’s free updated Basic PAYE Tools which are available for all employers who employ nine or fewer employees, allowing them to submit RTI via the internet. HMRC has also provided funding to the Low Incomes Tax Reform Group (LITRG), to help them develop online guidance for care and support employers.

which, frankly, looks to me like an enormous exercise in Missing The Point Entirely!

In this context then you can see that I might not be too fussed about a consultation document that is concerned with penalties to be imposed for failure to comply with RTI.  In my view it’s absurdly premature to talk about penalties for failure to comply with a scheme that you’re making up as you go along.  Introduce it, work out the kinks, give it a couple of years to see what the compliance rate looks like… and THEN see what sanctions you need for the few who play fast and loose with the system.

Nevertheless, that isn’t the question being asked.  But here’s what I said in reply.

This is an individual’s response and will also be published, with commentary, on my blog, http://tiintax.com. I have followed the question schedule set out on page 35 of the consultation document.

Q1. Do you have any comments on RTI and error penalties that will help us support businesses and promote timely filing under RTI?

I think it is wholly premature to be talking about penalties at this stage in the process, when there are enormous outstanding questions about how the scheme will operate at the margins. At the moment HMRC should be concentrating its resources on “support” rather than punishment. “Care and support” employers, in particular, should be exempt from penalties except in cases where a criminal penalty could be sought – in other words where the department can produce evidence of deliberate default rather than failure to understand and apply the system.

Q2. How best can we support employers in understanding their obligations under RTI and implementing the new system?

Not via penalties! An advertising campaign, dedicated support teams, face to face training and assistance – all the kind of support services that HMRC used to be able to provide via its local office network, its employer support teams and its advertising and comms team. Otherwise there’s a serious risk that micro employers will move to cash in hand payment by default.

Q3. Is there a better or simpler way, than banding by potential filing defaults, of recognising the size of the employer but also the amount and regularity of the information to be supplied under RTI?

I would make an exception for cash payments of less than £X, where X is something like the minimum wage x say 5 days and the employer is a micro business. So the pub paying its casual staff on a Saturday night has a couple of days grace to get the RTI return made without being hit with an automatic penalty (but would still be hit if the RTI information isn’t provided within say a week) – so the crisis can be covered and RTI dealt with as part of the normal working week even if it is a couple of days behind.

Q4. Are there particular adjustments that should be considered to take account of more frequent payments?

It depends really on whether your aim is to make everyone move to electronic submission and payment. Someone who is reporting on paper should be allowed to make monthly returns – but presumably you won’t want large employers to make paper returns mischievously. So this is as clear a case as I can envisage of a case where the government’s own policy to exempt micro businesses should be followed.

Q5. Should a penalty be charged as soon as a return is late or would employers prefer penalties to be charged later, perhaps each quarter?

Um – “prefer”????? What are we talking about here? If we’re working in a world where you ask people how they “prefer” to pay penalties, isn’t there some kind of presumption that penalties will be routine? And yet I thought it was clear HMRC policy that penalties would be just that – they would be PENAL – and only apply to people actively subverting or avoiding the system, not to people confused by the system or making an honest mistake?

In which case this is a nul question. You don’t get a choice about a penalty! But my preference, in my capacity as a citizen stakeholder, would be for defaulters to be charged penalties as soon as the return was late – if it’s genuinely aimed at getting them back on the right track then they need to know straight away that their actions have consequences.

Q6. Do you agree that only one late filing penalty should apply to each PAYE scheme each month, regardless of how many returns are late that month?

Yes

Q7. Should the RTI late filing penalties include a further penalty if a return is outstanding at the 6 and 12 month points?

No. You ought to be well beyond late return penalties and into corrective action by HMRC at those points.

Q8. What are the benefits and downsides of phasing the introduction of automatic late filing penalties for RTI along the lines set out above?

It’s absolutely vital that late penalties are only applied to the very largest employers and in the case of deliberate default first, and then phased in by size of payroll, not reaching the micro business employer until the system is fully mature. And arguably never reaching the “care and support” employer at all.

Q9. Should consideration be given to including a default that does not attract a penalty along any of the lines set out above?

No. A “default that does not attract a penalty” needs to exist in the system, but this is a case where HMRC shouldn’t be judge and jury but should be required to charge a penalty via a tribunal process rather than automatically. So I would exclude micro businesses from any automatic penalty regime while leaving the option of HMRC taking offensive cases via the tribunal system.

Q10. We would be grateful for comments on the detailed design options set out above. In particular, how should we encourage employers to use the nil return facility where there is no information to be returned? Is any additional incentive or sanction needed over and above the fact that a late filing penalty may be issued if an expected return is not received?

This baffles me, I’m afraid! If RTI is predicated on a return being made whenever a payment is made, how would HMRC know that any payment had been made in a “pay period”? What IS a “pay period” for these purposes?

Example: I’m thinking of taking on a casual employee to do work on my garden. I’d think about taking on a student and employing them as-and-when I have work available. So I might pay them a tenner every week for an hour’s work in the summer, but once every six weeks in winter – but then a one-off £50 when I needed some help lifting and carrying. What would be my “pay period” – or are you assuming that this kind of casual arrangement would be “cash in hand” and not touch the sides of RTI in 99% of cases?

Q11. What are the pros and cons of charging penalties for late filing and late payment at the same time?

It’s one of my pet peeves about the tax system that the two aren’t linked – it’s absolutely no use to anyone to establish a requirement to pay £x, a penalty of £y for not returning the requirement to pay £x… and then never bothering to collect either of them!

Q12. We would be grateful for comments on these models, or any combination of the elements included in the models. We would especially welcome ideas to simplify them, but which still support and encourage compliance with the RTI information obligation.

See comments above on the need to exclude micro businesses. In accordance with the government’s stated policy on the small firms, micro businesses should be exempt from regulatory change unless there’s a really good reason not to.

Q13. We welcome comments on these proposals. (This refers to the changes to the existing late payment penalty model).

It would be in keeping with what I understand of the RTI proposals, as well as a welcome simplification for everyone, if late return and late payment penalties were merged. Why doesn’t the submission of a return also trigger the submission of a payment? Employers should no longer be able to use their PAYE scheme as a cash flow tool. It’s not their money – it’s their employees’.

Q14. Should we consider charging late payment penalties quarterly?

As above, the late payment should trigger the penalty; the penalties shouldn’t be “banked”… and anyway, they should be merged with the return penalties.

Q15. Should we consider allocating employers to a quarterly stagger period for both late payment and late filing penalties under RTI?

No

Q16. Are there any particular easements that we should consider for new employers?

You need first to provide information, training and support. Until those are in place – and I don’t believe they are at present, and I don’t believe HMRC has the resource to provide them on a continuing basis – then no penalties should be chargeable.

Q17. Do you have any views on applying interest to late payment and late filing penalties under RTI?

I think penalties should be clear, simple and immediate. And collected. There should be no need to apply interest if you apply active collection methods.

Q18. Do you have any views on applying a late payment penalty as well as interest where further sums become due for a period?

I don’t think it’s a good idea. There should always be the possibility of drawing a line under the past and moving on. So if someone fails to make an RTI return and payment it should be clear to them they’ll be charged a proportionate penalty and it should be collected immediately – and if possible (depending on the “payment period”) before the next return and payment are due.

Regards

Posted in Employment, HMRC, RTI, TIINs | Tagged , | 1 Comment »

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Unit trusts

August 21, 2012

So there”s a lot of reading to do before HMRC are interested in your views on the taxation of unauthorised unit trusts. The consultation document tells you to go and read the first consultation, published in June 2011 and which closed in   September of that year first – because summarising  it would be too much like hard work?  The twin aims are to reduce tax avoidance and to achieve administrative simplicity but it is, in my view, another of those reviews which makes the fundamental error of considering only “commercial users of UUTs, administrators and industry professionals” as stakeholders, rather than seeking the opinions of the wider citizen stakeholder.

Well, for what it’s worth, this is the response which this citizen stakeholder sent before the consultation closed yesterday.

This is an individual’s response and will in due course also be published, with commentary, on my blog, http://tiintax.com
I am not commenting on the technicalities of the legislative proposals, but the impact assessment is curious for this stage of the consultation. It does not quantify any costs or benefits from the proposed changes.  While I can see that you might not have precise figures for either the amount of the tax gap you think will be closed by the anti-avoidance element of this proposal or for the administrative burden saving for affected firms, I would have expected to see some indication at least of the order of magnitude involved.  Will you be saving billions of tax and millions of admin burden?  Or thousands and hundreds?  Or is it the other way round – protecting fourpence but saving the industry forty million?  It is hard to say the case for change is made without this information.
I can’t help but notice that you have reverted to talking about “third sector” organisations rather than “civil society organisations” and wonder whether this has any significance in context – I would be interested to know whether there are any third sector or civil society organisations which are also UUTs or TTFs or otherwise could be considered first order stakeholders in this change?
I am particularly curious about the request for specific information on admin burdens – surely the method of quantifying admin burdens is in the control of HMRC as owners of the original database of legislative admin burdens and how each is scored – so are you not able to tell from the proposed legislative changes which burdens will be removed or replaced?  Or are you talking about a wider set of costs to business than the specific list measured in the admin burden database?
Finally you say that “it is not expected that affected customers would include small firms”.  I find that extremely hard to imagine, as the test of “small” for the purposes of the small firms impact test is, surely, the number of employees?  I can see that an UUT might have extremely large sums of money at its disposal: but would it have a payroll of more than 20 employees?  If not, then it is a small firm according to the small firms impact test, isn’t?

Posted in Consultation, HMRC | Leave a Comment »

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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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Your Friday moment of zen

August 3, 2012

Here is the 49th edition of the HMRC “Working Together” publication, for tax agents and professionals.  Which of these pearls of wisdom have I invented?

  • Advice: don’t put your computer password on a whiteboard
  • Advice: don’t put your computer password on a post-it note on the computer screen
  • No, don’t put the post-it note with your computer password under the keyboard either
  • It’s radical but it just might work – HMRC have a year long trial in place of some new technology called… email
  • There’s a list of HMRC contacts… but it’s on the ICAEW website
  • There’s a trial going on of a fabulous way of getting HMRC letters answered faster… by putting secret code words in the heading (for example: “complaints”)
  • The Working Together process has been so successful… that they’re discussing abolishing it.
[answer: erm… none of them, actually]

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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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Red RAG

July 27, 2012

So there’s this thing called a “capability review”.  You get someone external, neutral and dispassionate to review a government department – and, in particular, its management – and assess its capability.  Could it cope with a crisis?  Could it react appropriately to change?  Does it have the confidence of its staff?  Does it have the confidence of its Ministers and of the general public who pay its wages?

It happened three times.  Once in 2006-7, once again in 2008-9… and now the third and final round, covering 2011-12.  (No, I don’t know what happened to 2010 either.) But the Institute for Government have crunched the numbers and raised some interesting questions about the answers.

Because, oh look, this is going to be the last time we do capability reviews (because Gus O’Donnell, who invented them, has retired now?)   And, oh look again, we had someone external doing the first two but the last one was based wholly on self-assessment.  And, knock me down with a feather, it turns out that not one department awards itself a “red” rating on the red/amber/green “RAG” rating system – where green is “strong”, amber is either “well placed” (amber/green), “development” needed (plain amber) or “urgent development” needed (amber/red), and red is “serious concerns”.

Yes, not one department has serious concerns about its own capability. Excellent news?  Or more a case of, altogether now, “well, they would say that, wouldn’t they?”  (Note in passing the first comment on this report of the results, suggesting that DECC’s apparently poor performance might correlate to their being the only department to use an external assessor this time around)

So what of HMRC?

After the MoJ they showed the most improved score in the third round.  They reported a clear green for “build capacity/develop people” and “collaborate and build common purpose” while achieving the lowest score across Whitehall in the separate staff survey.  In other words… the senior management thinks it’s doing marvellously, and its staff and customers beg to differ.  Its action plan, though, tells us that the external assurance was provided by the non-execs on the Board:

The Board has been very involved in this Capability Review, with all non-executive directors playing an assurance role throughout the process. We provided challenge during the review and support the final report and scores.

Oh, these guys??? Well that’s all right then! {sarcasm mode off}

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Not quite a smoking gun. But still terrifying.

July 10, 2012

Here on Storify you’ll find my take on the Channel 4 Dispatches story last night, as it happened, on Twitter.

The programme looked at HMRC’s Non-Execs – the Board members who aren’t civil servants, aren’t there in a management role, and are there to keep the organisation on track.  As it says on the HMRC website:

HMRC looks to its Non-Executive Directors to:

  • bring guidance and advice
  • support and challenge management about the department’s strategic direction
  • provide support in monitoring and reviewing progress

and it found that a couple of them had business interests that you could categorise as in the “interesting” end of the tax avoidance spectrum.  One was director of a company which was located in Guernsey… and as I said on twitter at the time

“We are not in Guernsey for tax reasons”? I also have a rather nice bridge I could sell you if you’re interested…?
The other was director of an estate agency group and the programme managed to find some staff in one of the group companies who helpfully advised him on how to avoid stamp duty on a big ticket purchase.
It wasn’t exactly a smoking gun, no.
To me, the worrying thing was the flood of comments (which I’ve collected in the storify link) essentially saying that HMRC is corrupt and why should I pay my taxes when HMRC is corrupt.
If I were on the Board of HMRC today what would absolutely terrify me would be the thought that the public have started to perceive of HMRC as corrupt.
It isn’t, of course.
Yes, I am absolutely confident it isn’t.  Or at least I saw no evidence of corruption in the areas of the department with which I came into contact,  my 25 year career in the Department only ended in March and I don’t believe a culture of corruption can have taken hold in a mere three months.
But I do think there is a problem, and it’s this.  Business interests have become the arbiters of HMRC’s success, rather than the interests of the citizen and the wider polity.
Look at the HMRC’s non-execs:
  • Ian Barlow – KPMG
  • Colin Cobain – Tesco
  • Philippa Hurd – ITV
  • Phil Hodkinson – HBOS
  • John Spence – Lloyds TSB

and then compare them with, for example, the BBC’s Board of Trustees

The BBC includes former employees of the organisation, academia, politics and economics as well as big business.  HMRC’s non-execs are, in contrast, almost painfully non-diverse.  Where is the trades unionist (how about Liz (Baroness) Symons who was the first female General Secretary of the FDA union?)  The former employee (how about Liz Bridge, former Tax Inspector and now construction industry taxation expert)? The economist (how about Richard Murphy)?

Are we really moving towards a society where tax is to be compulsory for the little people but optional for big business?  Where tax policy making will be outsourced (and not to citizen groups)?  Where the only people who are qualified to guide, advise, support and challenge HMRC are – bankers?

Posted in Bit of politics, HMRC | Tagged , , , | 1 Comment »

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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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h1

More smoke. A few mirrors, too.

July 2, 2012

Hey, did we notice the HMRC Annual Report and Accounts coming out last week?

OK then, let’s all turn to page 11 and have a look at the Tax Gap.  Now this, as any fule kno, is the gap between what ought to be paid, and what HMRC actually manages to trouser.  The definitions of “ought” and “trouser”, of course, we will leave for some other time when we’re feeling particularly pedantic.  Or brave.

But look at the figures at line nine or ten on page 11:

Tax gap – difference between all the tax theoretically due and tax actually collected

2009-10

7.9% (£35bn)

2008-09

8.1% (£39bn)

Yes, the gap has gone down from £39bn to £35bn.  Woo, and indeed hoo.

And now look at the line above it, where we see that my former colleagues brought in £13.9bn – and I’m going to repeat that, that’s nearly fourteen billion pounds – from compliance activity, the bread and butter work of saying “these ‘ere accounts don’t look right to me, squire…” with all the follow up high and low tech investigation and collar-feeling that might entail.  (Pause here for a moment to remind ourselves that this money is being brought in by my former colleagues, the people whose salaries we’ve frozen, pensions have cut and numbers have decimated, and who return eleven times what we invest in them.  Not that I’m biased, or anything.)

And then look at this year’s figure.  Is it more, or is it less?

This year, there was £8.2 billion of cash collected from compliance and £8.48 billion of revenue protected.

Revenue protected?

See note 12:

12 From 2011-12 onwards we will differentiate between two types of additional revenue brought in from compliance activity:

• Cash collected: The total amount of tax that HMRC collects from activity to tackle those individuals and businesses that have not paid the tax that is due as a result of tax enquiries identifying evasion; and

• Revenue protected: The value protected by activities including: seizing illicit goods, preventing erroneous payments, deterring future non-compliance, addressing avoidance loopholes etc.

So 8.48 billion is theoretical tax; tax that we might have collected from Fred because Fred was frightened off using the loophole that Harry thought he’d identified, because HMRC came down on Harry like the proverbial ton of bricks and fined him as well?  So not real money, then?

How much of the previous year’s figure was real money and how much was fairy money, too?

The ‘additional revenue’ measure employed in 2011-12 is slightly different to the ‘compliance yield’ measure reported in 2010-11. Comparing the two measures requires both positive and negative re-calibrations which, for 2010-11, had no overall net effect. Therefore the two measures are broadly comparable.

I would rather like to see the “positive and negative re-calibrations” involved in comparing the two figures but I already have two, or is it three, FoI requests outstanding and I don’t want to be a nuisance.  But I’m sure everything is clear cut and above board.

I also have a rather nice bridge I could sell you, if you’re at all interested in real estate?

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