The Great Simplification Act

April 1, 2017

As we are all now aware, there will be a Great Repeal Bill to sort out the complexities of the interaction of EU and UK law as part of the process of Brexit. Basically a short bill that says something like “all EU law is now transposed into UK law” and then donkey’s years of statutory instruments and faffy-about bills to un-transpose the bits we don’t want.

Sources tell me that, since we’re doing a big sort out anyway, the government has decided this is the ideal time to sort out tax simplification once and for all.

VAT is the obvious example: fiddly rules to distinguish food from, well, recreational food (whether a jaffa cake is a cake or a biscuit for instance) will be incorporated into UK law in the Great Repeal Bill and then quietly squashed in some nicely boring SI that no-one except the really serious policy wonk will bother even to read.

So the Great Repeal Bill is likely to include a footnote which says “*and all tax law” so that HMRC can quietly sort out this tax simplification thing in a series of SIs that go through on the nod while parliament is getting itself into a lather over the Brexit stuff.

My sources tell me the ultimate shape of the tax system after the legislative process has run its course is likely to be rather similar to the Unitary Tax proposals which were put forward a couple of years ago but never found their way into legislation, although there are some suggestions that tax competitiveness will require business taxes to be aggressively lowered with compensatory aggressive increases in personal taxes. However a further roll out of Making Tax Digital should sort that out, because if sole traders each have seventeen grand down the back of the sofa as HMRC’s tax gap figures suggest, then presumably larger businesses have commensurate quantities of overlooked turnover.

We could well end up with a three line tax code and, instead of having the longest tax code in the world, wind up in the Guiness Book of Records for the shortest. HMRC guidance would similarly be reduced, particularly after the restoration of the death penalty for promoters and users of avoidance schemes. The current draft is a record-breaking four words long and is circulating for comment amongst stakeholder groups already, the main controversy being over whether or not to include the third word and the punctuation mark. If you have any comments on the draft guidance (reproduced in full here: “Pay your fucking taxes!”) please send them through the usual channels.


Pensions: WASPI women, check your tax account

March 11, 2017

Look, I’m one of the women who lost out when “pension age equalisation” turned out to mean levelling women’s retirement age upwards instead of men’s downwards, so I’m a bit sensitive about pensions, right?  And I’m a tax maven, so when the personal tax account was introduced I signed up (at gov.uk here) and found I could also check my NI record.  So, out of curiosity, I did, although I was pretty sure that, after working more than 40 years, I had enough years’ NI contributions to qualify for the full flat rate state pension that will be in place by the time I collect mine.

This was widely reported to be a flat rate of £155 a week and I confidently expected that to appear on my personal tax account.

It doesn’t.

It’s explained, fairly clearly, here, or at more length here, that it’s not just the number of years you’ve been paying NI contributions that count but also whether or not you’ve been contracted out.  Put simply, I was “contracted out” for much of my career so my starting amount is less than the flat rate.  If I want to get the full rate when I retire I have to pay contributions for a few more years.  And, no, that’s not unfair – I’m already benefiting from those contracted out contributions as part of my occupational pension.  But it IS surprising.  Most of us get our news from the media, and I had heard “flat rate”, “35 years” and assumed I was OK.

So now occasionally I tweet that people in my position would be well advised to check their own personal tax account to see how many years’ NI contributions are recorded and what their state pension is likely to be.  No more surprises!

I thought I would make this a blog post, though, because it’s a bit too much to explain in 140 characters or fewer, and I also wanted to put in the links.  But also because every time the subject comes up there are a few pensions experts who turn up and tell me either that I’m wrong, I’m stupid, or I’m whining.  This does not amuse me.  Please stop it.  If a reasonably well educated reasonably intelligent retired tax inspector can be confused by the pension rules, it’s a fair bet that there are other people in a similar position.  I’m not saying the contracted out rule is unfair, I’m just saying it’s worth knowing it exists.  So if I tweet this at you in future, please accept it in the spirit in which it’s intended: happy to help (if it’s helpful) and please stop telling me I’m a whining crybaby if it’s not.  Sheesh!  Pensions experts, eh?  Tax mavens are MUCH nicer!


The day after the Budget…

March 9, 2017

Was it a good Budget?  A significant Budget?  Steady as we go, or radical change?

I’m not sure it was any of those things.  The overall pattern seemed to me to be one of self-imposed constraint – the austerity narrative, as evidenced for example in the soundbite about each family owing £60k+.  As I said on twitter:

In the context of this self-imposed constraint, then there was some tinkering around the edges.  A few million to set up GPs triage units in A&E.  Well yes, but where are the GPs going to come from?  A more radical Budget might have looked to recruit hundreds more GPs by offering to waive their student loans if they worked for a couple of years in these triage units after qualifying, for example.

A few million foregone by postponing the mandation of MTD for businesses below the VAT threshold for a year?  Well yes, but that still doesn’t answer the arguments against mandation in the first place, and makes it even more urgent that the government releases the calculations underlying their ridiculous claims for the tax they think small businesses are having it away with.

Another few million to set up T-levels, to give parity of esteem between technical qualifications and A-levels?  Hmmm… education policy really does need some work on the “parity of esteem” issue, particularly the devaluing of apprenticeships from the genuine qualification for a skilled trade to, well, a different way of describing entry-level call-centre workers.  A bit of virtue-signalling in the Budget isn’t a bad idea per se, but it’s again in the “tinkering” end of the problem-solving spectrum.

The main focus of the press this morning seems to be on the “tax hike on the self-employed”, the 1% increase in National Insurance.  There’s a big issue with employment status, self-employment, incorporation, and limited and unlimited partnerships.  The same thing done by the same people via different legal vehicles can have absurdly different tax results.  But they can also have absurdly different consequences in other ways: rights to sick pay, health and safety requirements, responsibility for National Minimum Wage, holiday pay.  To put it crudely, the argument is that self employed people take more risks and have the chance to make more money, setting the risk of triumph or disaster against the boring security of a weekly wage.  But life is more complicated now: does working as an Uber driver really give the possibility of sufficient reward to outweigh the foregoing of holiday pay and the NMW?  So it’s right that the government should do something to remove perverse incentives from the system: it shouldn’t cost so much to employ someone that you have to strong-arm them into claiming self-employment.  There should, in my view, be a clear choice between security and risk: why shouldn’t a firm have two contracts available, where you can work fixed hours for a fixed salary or take the risks and rewards of delivering a fixed outcome and make your own way towards delivering it?

I gather there will be a consultation.  Let’s hope it covers all the issues, across all the affected departments.  But fiddling about with the NI levels?  Tinkering at the edges.

Finally (and leaving aside all the annoyances in the way the budget documents were actually delivered, a major irritation to anyone trying to work on them but of zero interest to the general public) have a look at this, the “scorecard” of policy decisions  from the budget announcements.  Now, I could be mistaken of course, but I interpret this as the amount the government thinks the things it has announced in this budget will bring in by way of tax etc (the +ve numbers) and the amounts it thinks it will pay out in spending or else in tax foregone or rebated (the -ve numbers).  And doesn’t that mean that this budget will result in a net figure of one thousand seven hundred and ten million extra expenditure in 2017-18?  That’s some tinkering, and some edge.



2017 Spring Budget – here we go!

March 8, 2017

At present I’m poised at my computer, watching Guto Bebb in the Commons (and why is that man not an internet meme yet?) respond (as Wales Minister) to Wales questions.  Then it’ll be PMQs, followed by the Budget.  I shall keep this post open and add anything that occurs to me as we go along, so if you follow this blog and get notified when a post is updated, you might want to turn off the updates temporarily for the afternoon.

Also, I shall have twitter open in another window.  Shouting at the tv, but when the tv shouts back!  Onwards and upwards!

Update: 12:40 Chancellor has been going ten minutes.  You may not know this, but the “interesting” stuff in a Budget often isn’t in the speech itself but in the documents published “alongside” it, which by convention aren’t published till the speech itself is over.  Theoretically they should hit the “send” button on their internet publishing as soon as the Chancellor sits down, but you will find anyone commentating on the budget obsessively hitting “refresh” on these two pages for some time afterwards, I predict.  Watch this space.

Update 12:50 There’s the MTD announcement and it’s disappointing.  It will still be compulsory for businesses to keep their records digitally, but the smallest businesses (between £10k and the VAT limit of £80+k turnover) can have an extra year before it’s compulsory.  Not cool, sorry – and costed at £200m (I think) so there clearly is some granularity to the government’s data on this theoretical £945m gain from digital recording.  I wonder if we’ll get to see it???

Update 1:00 Here’s the IR35 announcement and it’s a bit feeble.  Instead of grasping the nettle of equalising NICs for different ways of working he’s confirmed the abolition of class 2 NICS but put the class 4 NICs up by 1% next year and another the year after.  It’s a start, but really the distinction between employees and the self employed is a nettle that could do with being grasped more firmly.

Update 1:10 The interest rate on the new NSI Bonds available from April will be 2.2%, available on savings up to £3,000.  It’s not much, but it’ll cover a lot of small savers.  But of course the “competitive” banking system means it won’t remain the highest rate available for long, will it, right?  I mean, right???

Update 1:35 Well that’s it for the actual speech.  Now I’m going offline for a while to look at the documents (when they turn up) on the website.  You can turn automatic notification back on if you like: I’ll put up a new entry if I have anything notable to say.


’twas the night before Budget…

March 7, 2017

It’s the night before the Budget. Why does HMRC have four open consultations on the gov.uk website?

Let’s look at them, shall we?

Withdrawal of extra statutory concessions 2017 is a call for evidence that was issued in January and closes at quarter to midnight tonight.  Unless you’re really interested in the withdrawal of extra-statutory concessions, I suggest we leave that one well alone.

Hybrid and other mismatches – draft guidance is some technical guidance for HMRC staff and for businesses on how the legislation on, er, hybrid and other mismatches will work.  It’s complicated stuff coming out of the OECD BEPS project and I really feel as if I ought to buckle down and make an effort to understand it…

However in the real world…

Simplifying the administration of Alcohol Duty published 16 February, closes 26 April.  This seems like a private conversation between the alcohol industry and HMRC but is being conducted in public for the sake of transparency.  Again, I feel as if I ought to care enough to read it through, but again…

Finally we have:

Sanctions to tackle tobacco duty evasion and other excise duty evasion launched on 17 February and closing on 10 May (according to the website) or 12 May (according to the document). Sigh.

Incidentally I notice that the list of “who should read this” starts with “The general public”.  Seriously?  Then how are they communicating that they would welcome views from the general public?

More to the point, what is it doing sitting on the website today, the day before Budget, when you’d expect there to be a clean sheet of proposals ready for the Chancellor to start overwriting the tax rules again?

Could the answer lie in the paragraph on “getting to this stage” where it says that “at Budget 2016 the government announced that they would consult on sanctions to tackle the illicit trade in tobacco and duty evasion.” And, lo, before the next Budget… so they have.







The scores on the doors

March 6, 2017

In February the Bristol East MP Kerry McCarthy asked whether HMRC had “assessed the effect” of MTD on “freelance workers in the creative industries” and “other specific sectors”.

The answer from Jane Ellison refers her to the impact assessment which, she says,

estimated the impacts averaged across the entire unincorporated business population, using established models, consultation feedback, stakeholder engagement and internal insight.

Well yes, up to a point.  There are three different fields in the impact assessment which might be relevant to the question.  First of all, is there any assessment of how much extra tax might be expected from different sectors?  Is there a particular group whose tax behaviour is causing particular concern?  We don’t know, because HMRC won’t give us the analysis of the tax figure.

I assume, though, that the question was angled more towards the costs imposed on businesses by the requirement to keep digital records.  This is contained in the “administrative burden” figure, sometimes referred to as “red tape” – the cost of compliance with government regulation.

This is deep into policy wonk territory, of course, but there is a neat summary of the figures and how they’re arrived at here.  Essentially HMRC spent half a million pounds in 2005 on getting KPMG to conduct a research project producing a “standard cost model”: assessing a baseline figure of how much it cost averagely competent averagely compliant businesses to fulfil the obligations the tax system placed on them.  The result is better thought of as a score than an actual amount: it’s how HMRC scores its work on reducing the admin burden on business.  It reduced the burden by ten per cent overall between 2006 and 2011 – but that is an average.  It doesn’t mean that any one business would have felt a reduction of ten per cent of its costs from dealing with its tax.  A lot of the result came from changes to the construction industry scheme, for example, so contractors and subcontractors in construction would have noticed huge changes: other industries may not have felt any benefit at all.

So Kerry McCarthy’s question isn’t answered at all by reference to the admin burden figure: the standard cost model doesn’t tell you whether the creative industries, or any other specific industry, will gain or lose by a change.

The more interesting field in the impact assessment, for these purposes, is the “other impacts” section.  In a government divided into departments, with different departments having different priorities, the “other impacts” section is a kind of checklist.  If the government says it wants to reduce its carbon footprint, for example, it can add a “carbon impact” assessment to the list of things that all departments have to think through before they introduce a regulatory change.

In this instance, it’s the small firms impact test – or, as it’s now called, the small and medium business assessment or SaMBA which is where the answer to Kerry McCarthy’s question might lie.  This is where you might expect to find some granularity about how the policy might impact differently on different kinds of businesses…

…except if you look at the latest instructions HMRC staff are given on how to do this (taken from these instructions) it says

Small and Micro Business Assessment:

Small businesses (up to 49 FTE employees) – including micro-businesses (up to 10 employees):

  •   why they are included in the change
  •   what amelioration you have considered, and
  •   what consultation you have carried out.

So what does it actually say in the SaMBA in the MTD impact assessment…?

Small and micro business assessment: the MTDfB changes will improve the quality of record keeping, reducing the likelihood of mistakes (and attendant risk of unwelcome and costly HMRC compliance interventions) and help businesses to manage their cash flow more effectively. In the longer term, we anticipate a reduction in administrative burdens for these businesses.

The government recognises by their very make-up that this group includes businesses which are likely to be more affected by one-off transitional costs and digital capability issues, and may therefore find it more difficult to move to the new digital requirements.

In the consultation the government said that it wanted to consult on financial support to help some businesses make the transition to MTDfB. It sought views on the support required and what form this should take. Final decisions will be made before legislation is laid later this year.

Does this sound as though they have done some serious research into how different types and sizes of business will be affected?  As if they have the granular data that would allow them to answer the question on how creative industries will be impacted?

No, I didn’t think so either.


Let’s talk about Impact Assessment

February 16, 2017

I have seen this Independent article circulating on social media quite a few times in the last few days: Louise Haigh MP talking about the government’s “cavalier attitude” to equalities in not conducting an equalities impact assessment before announcing the closure of some 78 Jobcentres. The DWP helpfully agrees it “will be conducting a full impact assessment as part of our planning”.

Let’s unpack this a little.

First of all, what do we mean by an “impact assessment”?  The kind that I know most about is the Regulatory Impact Assessment.  This is an examination of the costs and benefits of bringing in a new regulation.  For tax, this is now conducted as part of producing the TIIN, tax information and impact note, which contains the table of impacts produced as part of the TIA (tax impact assessment).  See the instructions on how to prepare a TIIN and the TIA which forms part of it, published on this blog here and here.

However because there was a helpful modernisation back in the noughties, when the word “regulatory” was dropped so the process became known as “Impact Assessment” (IA), there is now some confusion about the different forms of assessment that are required for different types of impact.

Mostly, assessing different specific impacts is folded into the process of producing a (regulatory) impact assessment, under the “other impacts” section.  This is also true for a TIIN: the list of “other” impacts contained in the latest TIA instructions includes two different tests each, unblushingly, called PIA: the Privacy Impact Assessment and the People Impact Assessment.

Equality Impact Assessment is different.  There is actual statute involved, whereas the IA, RIA, TIIN etc are basically justiciable via the concept of “legitimate expectation” (there’s clear, public, commitment to undergoing the process so theoretically you could bring a judicial review to try to overturn a decision which was made without undergoing that process).

There are two big caveats, though: equality legislation requires equality to be considered (given due regard) when reaching a decision but this doesn’t require the publication of a formal equality impact assessment document.  And government is allowed to consider, yes, this will screw this particular group of people over, but – balancing the conflicting priorities of government – we’ve decided the overall policy objective is more important than the impact on [X] group of people so we’re just going to do it anyway.

So, dammit, DWP can probably get away with thinking about whether unemployed people with no money and multiple issues like disabilities can make it across towns without buses or bus fares to log onto the computers they don’t have to apply for the jobs that don’t exist and deciding, well, yes, but they have *all day* to walk miles and we’ll save money.  And do it any way.

What the legislation does require, however, is that they decide to screw their customers before they make the decision to close down the services they need, and not just assess how badly they’ve screwed them over after they’ve done it.