h1

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!)

h1

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* 

h1

The oncoming storm

April 6, 2017

HMRC has a long record of enforcing compliance with direct taxes by hitting taxpayers with a bigger and bigger financial stick until they engage. Readers with long memories may recall the old method of estimated assessment, where a tax return was obtained by estimating income and profits and, if no return was received, estimating next years’ higher and higher and higher until finally we had little old ladies with tens of thousands of pounds of alleged income in tears on the doorsteps of accountants.

More recently there were cases of absurd penalties racking up under the C.I.S. system. And there is of course the notorious hundred pound penalty for failure to submit a tax return on time. This began as the lesser of £100 or the tax due: now it is simply £100 even if your tax bill as a result of the return is zero.

It is my contention that HMRC has very little understanding of the ecology of taxpayers with earnings at or around the nil rate band limit. This was evidenced in the last few years in the VATMOSS debacle (this blog, ad nauseam) where the tax authorities failed to engage with the very smallest digital entrepreneurs, principally because they had no idea that such businesses existed in the first place. The HMRC stakeholder model makes it hard for such people to engage because on an individual basis it takes up too much time and energy to deal with HMRC one-on-one, and none of the existing stakeholder organisations represent such businesses: the entry level for the Federation of Small Businesses, for example, at £99 for a start up or £172 thereafter, is prohibitively expensive if one is earning 10,000 a year.

So if we accept that HMRC’s pattern is to use disproportionate financial penalties on small businesses and it has little understanding of the very lowest earner, it is easy to see how the disastrous affair of the tax credits outsourcing program came to be. The PAC report published today goes into full detail but there are a couple of additional points worth noting.

Firstly the outsourcing of work which ought rightfully to be done by the civil service. It has always been thought morally dubious (and in my opinion rightly) to outsource the collection of tax to a profit making entity. How is it not incorrect, therefore, similarly to outsource the payment of small amounts to the poorest members of society?

Secondly there is the question of control of contracts and external work. As you will know, I am not sanguine about the possibility of Making Tax Digital for Business working as intended and this is largely because HMRC have over the years lost their in-house expertise in dealing with computerisation. Combine this with the rumoured walking away of their own consultants because of the changes to IR35 rules, it looks as though the problems with tax credit payments are merely a foreshadowing of a shit storm heading HMRC’s way.

h1

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.

h1

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!

h1

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.

 

h1

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.