Archive for the ‘TIINs’ Category

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Quick and dirty Budget analysis #2

November 24, 2017

Ten months ago I wrote about using the tools that the government already has – the impact assessment process that results in the TIINs published with tax legislation – in order to achieve a simpler tax system. In particular, why don’t Members of Parliament use the information in TIINs to challenge the inclusion of changes which have no exchequer effect, relive no administrative burden and remove no government costs. At the very least, I argue, such measures ought to be carefully scrutinised to see if the policy objective is a sensible one and is likely to be achieved by the changes suggested.

Here, then, we have the 2017 Budget OOTLAR and some TIINs for tax changes which will bring in no extra money.

Income Tax: encouraging more high-growth investment through Venture Capital Trusts (Page 62 of OOTLAR) This simply updates the regulations controlling how Venture Capital Trusts must invest to retain their tax advantages. Does this need to be legislation? There couldn’t be, I don’t know, a handbook or something?

Taxable benefits and vehicle excise duty: regime for measuring carbon dioxide emissions (Page 87) I’m sorry but this one makes my blood boil. There are rules about carbon dioxide emissions for company cars that govern its treatment for vehicle excise duty and company car tax.  At present you test emissions using something called NEDC. From September this year there’s a new test, something called WLTP. Currently the legislation doesn’t specify which test you use. If this is passed, it will.

I mean, really?

Seriously?

Apparently car makers want “certainty”. Well, why not make cars that produce emissions which are clearly under the threshold whichever way you run the test? This is a ridiculous and unnecessary measure and at the same time a classic example of how the tax system becomes overcomplicated – and why tax simplification is a good thing.

The point isn’t to legislate for the benefit of car manufacturers. The point is to legislate for the citizens of the country, those who will be advantaged by lower carbon emissions from their cars. Sod the certainty – make your cars pass the test whether you test it with one set of initials or another.

Pensions tax registration (page 90) This looks to me like a piece of “gasman cometh” legislation – you know the Flanders and Swann song? Where the gasman comes on a Monday morning and disturbs the skirting boards, the carpenter hammers through a cable…

Here the Pensions Regulator has a “new authorisation and supervision regime for Master Trust pension schemes” and this bit of nil exchequer effect regulation is required to let HMRC have power to refuse registration of pension schemes that don’t meet the new requirements.

This one bears all the signs of having been completed in a tearing hurry five minutes before the Budget paperwork was put to bed, including font changes in the document, and I wonder if the whole measure was put together in five minutes when someone spotted the hole in the web of powers between the two departments.

Of course a better solution might have been to coordinate properly and make the tax relief dependent on the approval of the pensions regulator, and the pensions regulator’s word be final?

Corporation Tax: amendments to the corporate interest restriction rules. (Page 93)  Oh this one is good: “this measure makes technical amendments to the Corporate Interest Restriction (CIR) rules to ensure the regime works as intended.” In other words, someone found a hole in the rules and we need to tinker with the system to plug it? OK, but personally I’d stipulate that in return the person from the Treasury who signed off on it in the first place and their equivalent in HMRC have to go and do routine compliance work till they bring in, what, five million or so?

Corporation Tax: double taxation relief and permanent establishment losses (page 96). More wacky font changes – another last minute decision? And another “reinforces” the policy?

Sigh. I’ll do the other half some other time: this is just too depressing!

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Quick and dirty Budget analysis

November 23, 2017

So here is OOTLAR, the Overview of Tax Legislation and Rates, published with the Budget documents.

Some quick numbers: there are 48 TIINs published in it.

TIINs with nil or negligible exchequer effect:  26

TIINs with a scorable exchequer effect: 22

Let’s start with two oddities, TIINs where the field for “exchequer effect” is simply left blank. First of all, Offshore trusts: anti-avoidance rules (page 49 of OOTLAR) where the policy objective “restores an objective of the rules relating to the taxation of income arising and gains accruing to offshore trusts…”

OK, so it’s anti-avoidance legislation. So why does it have no exchequer effect? Under the blank table of exchequer impact are the words “This measure supports the Exchequer in its commitment to protect revenue that was set out in the costing for the package of reforms of the non-dom regime…announced at Summer Budget 2015…”

Is this… revenue that was already scored in 2015???

If so… what the hell is it doing in the 2017 Budget documents? After a mere two years (and, surely, before many returns affected by the changes can have been submitted) they’ve already found a hole in the legislation?

What I think ought to have happened? How about a systematic review of the original legislation and its impact (and its TIIN). If the government committed itself to proper post-implementation review, it might be a bit more careful about getting it right the first time – or explaining it better if it needs to “tweak”.

Moving on, there’s Annual update to the Energy Technology List for first year capital allowances (page 171 of OOTLAR) which accompanies a proposed statutory instrument to consolidate information about what is and isn’t eligible for the energy saving scheme. As the field for exchequer impact helpfully tells us the “Office for Budget Responsibility has included the impact of this measure in its forecast at Autumn Budget 2017” perhaps it’s simply a proof reading error that the table of impacts is blank rather than completed with “Nil”?

Next: I’m looking at the ones where the exchequer effect is actually listed as “nil”.

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Dreary me

November 2, 2017

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—

  1. (a)  the amounts of the transactions;
  2. (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
  3. (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—

  1. (a)  recording and preserving digital records in a digital form;
  2. (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
  3. (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.

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Legislative v administrative

June 12, 2017

There’s a hung parliament.  Things are moving quickly: in my head, I imagine someone taking on a new job, running “legislative affairs” like Josh Lyman  in the West Wing.  Someone whose job it is to ring round the new MPs to see if they will stand for this policy or that, as each new idea for the Queen’s Speech has to be fought through separately.

Leaving aside my fantasies about there being someone competent and grown up behind the scenes, let’s look for a moment at what a hung parliament means for taxes?

Three things.  First of all, there’s unlikely to be any huge legislative change.  It’s entirely possible that the proposals to make it compulsory for businesses to keep their records on an app or computer programme and update HMRC four (five?) times a year, MTD (“Making Tax Digital”) for short, will fall.  Why would anyone back MTD when it is going to be as popular as a cup of cold sick with small businesses once they learn how it will affect them?  Kick it down the road and make it Someone Else’s Problem, would be my instinct.

Second, the difficulty in making legislative change is unlikely to apply to actual tax rates: there are different rules.  But then why would a “continuity” government want to change the rates they themselves introduced five minutes ago?  They may have to give sweeties to their supporters (abolition of APD for Northern Ireland, would be my best guess from the weekend press).

But the third thing is that administratively, things will carry on much as before.  The rule for the Civil Service is to carry on doing your job until someone tells you differently.  So the idiotic decision to carry on with the “building our futures” plan and move HMRC into big lumps instead of a distributed network of local offices will probably carry on.  There will be a new Minister, after all.  (Jane Ellison lost her seat so there will be a new Financial Secretary to the Treasury but at the time of writing I can’t see an announcement of who replaces her) so there is no-one with a vested interest in saying “no” and the inertia of “keep calm and carry on” may let this go through.

I think that’s a shame: you may not. But what IS a shame is that there will be no will to change the way policy is made. When the coalition government came in there was a will to do things differently and the political space to think them through . No-one had a vested interest in continuity but in Getting Things Done. So we had Making Tax Policy Better and the invention of the TIIN. Sigh. Ah well, business as usual, at least for a while.

 

 

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The Finance Bill

April 17, 2017

Well now we know that the Finance Bill will receive its second reading on Tuesday, 18th April.

What happened to the first reading, do I hear you ask? No, I didn’t know either, but the Parliament website helpfully tells me here that the first reading is literally just someone reading it out before it’s printed ready for discussion – a formal, one might even say ceremonial, stage.

There is, however, a particularly useful briefing paper, here, which explains the background to the second reading, the change of date for the Budget and the package of paperwork which supports the Bill.

Here’s the thing.  A lot of legislation and regulation comes before Parliament.  Not many MPs are experts in any particular subject: tax perhaps has more than many other subjects.  MPs who are not experts should be able to rely on the briefing papers that come with the bill to ensure they understand it and that it is worthy of being passed into legislation.

But they have to read them.

Seriously.

As I have said before, there are twenty measures in this Finance Bill which raise no revenue, remove no admin burden and save HMRC nothing.  Why, then, are they included in the Bill at all?

No-one is, to be realistic, going to object to the entire Finance Bill tomorrow.  The real work comes in the committee stage, next.  Let’s just hope that the MPs involved in the committee stage actually read the material that comes with the clauses.  The very least we can expect from our legislature is that those twenty measures don’t pass on the nod.

 

(Late edit: I’m indebted to a twitter correspondent for this link, to the Order Paper for tomorrow, which shows the Bill will be subject to a “split committal” – there’s a motion to deny a second reading on the ground that it “is a wholly inadequate response to the economic challenges being faced by Scotland and the UK” and there’s also some split of the Bill which, frankly, I still don’t quite understand,  between clauses “committed to a Committee of the whole House” with the rest of it… “The remainder of the Bill shall be committed to a Public Bill Committee.”  No doubt all will become clear.  Or at least clearer.  Watch this space!)

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Writing to your MP

April 12, 2017

My MP is Nick Clegg, the former Deputy Prime Minister.  He has a pretty good office set up, so that when constituents write to him there is usually some kind of action taken. I took my own advice and wrote to him about MTD, specifically about the TIIN not supporting the change and asking him to make this point in the debates on the legislation.

What his office actually did, of course, was send my email on to the Treasury and then send me the reply.

Here are some extracts from that reply:

I am pleased that your constituent agrees that the overall direction of travel towards a more digital tax system is the right one.

I have already written about that one: practically everyone who replied to the consultation used the tried and trusted formula of “yes, and, but-

The Government has listened carefully to the wide range of views put forward about the MTDfB proposals. Most commentators were positive about the vision of a fully digital tax system that matches what we are increasingly used to from interactions with other service providers.

Yes, that’s the “yes” part of the argument. Yes of course the UK should invest in a modern digital HMRC. Give HMRC the money to improve its service and we’ll applaud.

However the speed of implementation, and the capability of those in scope to adapt, alongside the costs of doing so, were all key areas of feedback.

This is the point at which the letter stops being a response to the points I actually raised and becomes a generic. I asked about the TIIN not providing evidence that the rewards of mandation justified the costs.

In response, the Chancellor announced at Spring Budget 2017 a significant change to the timetable, which will give unincorporated businesses (including landlords and the self-employed) more time to prepare for the changes. Those below the VAT threshold will not have to keep digital records and update HM Revenue and Customs (HMRC) quarterly until April 2019. As well as giving them (and their agents) more time to prepare, it will also ensure two full years of testing of the new system and services before they become mandatory for this group. The Government has already responded to other areas of feedback, such as exempting those with an annual turnover below £10,000 from mandatory use, making free software available for the smallest businesses with the most straightforward affairs, and accepting the continued use of spreadsheets (as long as they fully meet the key MTDfB requirements) as a form of digital record.

Sorry, but this is more boilerplate blah, not responding to the actual point at all.

Let me also set out why we are proceeding with these important reforms. The Government is investing significant sums to improve the tax system for all taxpayers, and deliver a modern digital service. There is a growing appetite for this, with millions already using their digital tax accounts to view their liabilities and payments, to claim back overpaid tax, or renew their tax credits.

Now we’re getting somewhere: we’ve had the “yes” and a bit of the “and” – now let’s see if there’s any response to the “but…”

While most businesses want to get their tax right, the amount of tax not collected due to taxpayer error and carelessness is now around £8 billion a year. This not only costs the Exchequer, but it also causes businesses cost, uncertainty and worry when HMRC has to intervene to put things right. MTDfB will reduce the tax gap caused by error by requiring businesses to keep a digital record of their income and expenditure, using software or an app, and to update HMRC quarterly with a summary of that data.

Will it, though? Will recording in an app or online actually cut down on errors and mistakes or will it add more and interesting ways to make errors? And where does the figure of £8 billion come from and how is it calculated? At the same time as Nick Clegg was sending on this correspondence, HMRC were responding directly to me on my FoI request for the underlying computations producing the figure for tax allegedly lost. In summary: they still say no.

Your constituent suggests that MTDfB should be a voluntary scheme. These reforms will deliver a better and more modern customer experience for businesses, where they can do everything they need to digitally. They will have greater certainty over their tax affairs, confidence that they have got things right, and a clearer in-year picture of their evolving tax position, allowing them to plan their cash flow more effectively. More timely digital record keeping will lead to fewer errors, thereby reducing the likelihood of an unwanted HMRC intervention. A voluntary scheme would deliver only a fraction of these benefits.

Would it, though?  If MTD is really going to be a better way, wouldn’t people want to gain the alleged benefits by joining it?Or are we not talking about benefits to the taxpayer at all, but this mythical seventeen grand all small businesses have lost down the back of the sofa?

I would like to reassure your constituent that quarterly updates do not amount to quarterly tax returns. The software will produce a summary of income and expenditure for the quarter using the information that the business has already recorded, and prompt them to send that to HMRC. The update process will be light touch, not at all equivalent to the current annual tax return. There is no requirement for the update to be done by an agent, no penalty for inaccuracy in the update, and no requirement to pay alongside the update.

Are you reassured? I’m not reassured, not even a little bit.

HMRC is introducing the changes gradually, and piloting them thoroughly before mandatory use begins in April 2018 for unincorporated businesses above the VAT threshold. HMRC is running a large-scale pilot and plans to test with several hundred thousand businesses by March 2018, including those who do not currently use software at all, or who may be less confident in moving to digital.

March 2018 is just next year. Where is the software? Where do people sign up? How long will the trial last and when will the results be out? How will success be measured and who will do the measuring? There just plain isn’t *time* to do a proper trial before mandation kicks in.

At Spring Budget 2017, HMRC published an updated impact note for Making Tax Digital (MTD). The changes will reduce error on an ongoing basis by around 10%. MTD will contribute an additional £1.9 billion to the public purse over the next 5 years and just under £1 billion per year thereafter.

They’re called TIINs. This one doesn’t show that the benefits justify the cost. (It really doesn’t. It shows them as the same, with the costs front loaded and the theoretical benefits off some time in the fuzzy future. You wouldn’t buy a fridge on that basis, let alone an intrusive system that will make digital slaves of half the nation.)

We recognise that there will be costs in the transitional period for some businesses, while also recognising that all businesses are different. Transitional costs may be lower for businesses already using digital tools, or where they are eligible to use free software. Businesses that have limited existing digital capability may need to purchase hardware and software, so initial costs may be higher, but net savings will start to be made from 2021-22 onwards. HMRC will ensure that the transition to digital is as smooth as possible and is committed to making MTDfB work for its customers, modernising its services for the benefit of all UK taxpayers.

Boilerplate blah, nothing to do with anything I had asked.

HMRC will start to ramp up its communication activity to raise awareness amongst the business community during the live trial. Agents and the software industry will be key partners in achieving this. As the different start dates for different sizes of business approach, HMRC will ensure those affected by the changes are aware of any new obligations. As with any change to the way people interact with the tax system, HMRC will focus on making sure customers have the right information well in advance of any changes coming into effect.

Because HMRC has a long history of being good at this kind of thing, right? I mean, right??

Please pass on my thanks to Ms Bradley for taking the trouble to make us aware of these concerns.

JANE ELLISON

*Clutches head in hands and weeps* 

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How to prepare a TIIN: the tax impact assessment

February 10, 2017

You may remember that I asked HMRC for the current guidance on how to prepare a TIIN (this was published here on my blog) but that the guidance referred to further guidance on how to do the tax impact assessment part of the process.  I have now received, by way of a further FoI request, the attached tia guidance

Note that the “redacted” areas are where the names of the particular officials responsible for different policy areas have been redacted.  Apparently the “more” areas refer to links to further internal guidance which was not considered to be covered by the scope of my FoI request.

More interesting, though, is the response I had to my question of why this guidance is not part of HMRC’s routine publication schedule, particularly as the TIIN is the tax version of a Regulatory Impact Assessment, and the RIA guidance and instructions are routinely published.

We have not published this guidance routinely for two reasons. Firstly it does not affect the computation of the tax that a customer pays and is therefore of interest only to a small community. Secondly, as you point out, it mirrors cross government impact assessment guidance for internal HMRC use and is not intended to materially differ from it, except to the extent that the impact assessments provided for tax provisions are presented in TIINs, and to explain to HMRC staff how to engage the right processes to generate the impacts.

Hmmmm… I am tempted to point out that another possible reason could be that other government departments’ impact assessments are subject to external scrutiny.  As impact assessment programme manager in HMRC, my job for several years included going to cross governmental meetings and saying (in effect) no, hands off, tax is different!  These days?  I’m not so convinced…