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Today’s round up

October 5, 2012

We have three consultations closing today.

Let’s start with The Use of Rebated Fuel for Gritting in Rural Areas.  OK then: there’s a kind of fuel (“red diesel”) used in farming etc which has a lower rate of fuel duty applied.  It’s dyed red so that it’s easy to see whether you’re using it or not. Got that?  Well…

In recent winters, during periods of extreme weather, HMRC have, by way of a temporary relaxation, allowed tractors being used to grit rural roads to use red diesel. HMRC is now considering whether to formalise this approach.

This looks so obviously sensible to me that I’m tempted to say, well, what the heck are you consulting about, then?  Just carry on being sensible and don’t muck about “formalising” it.  We’re supposed to want to simplify the tax regime, remember, and avoid unnecessary regulation?

But the consultation document is clearly written and, in particular, has the tax impact assessment written in a way I haven’t seen before, where they simply answer the seven questions involved:

What are you doing?

Why are you doing it?

Why are you doing it this way?

What will it raise?

What will it cost customers?

What will it cost the public sector?

What are the other impacts?

as a readable narrative that actually makes sense.  Bravo!  Here’s the answer I sent:

I’m not responding to your list of specific consultation questions because I neither drive, use red diesel nor live in a rural community. That said, as a citizen stakeholder with a particular interest in consultations, I think this consultation asks the right questions of the right people and I applaud the decision to make its existence public rather than conducting it “informally” without bringing it to the attention of the wider public.

My personal response would be that neither legislation nor any other form of regulation of this is necessary and you should continue to operate under HMRC’s powers to manage the tax system. However if there are any unintended consequences (which I see you are seeking to assess in your final three questions) then perhaps you could proceed by way of an extra statutory concession, if you’re still creating new ones, so it’s clear under what circumstances you’d expect to see it operate.

Kudos to the team involved.  Next!

Well, next we have Inheritance Tax: Simplifying Charges on Trusts Now, see, I have problems with the underlying concept of this.  Because it seems to be all about making life simpler for people who have stuck their assets into a trust in order to avoid (legally) the full weight of inheritance tax.  Remember, in spite of what the Daily Mail and the other tabloids would have you believe, inheritance tax doesn’t affect most of us – you have to leave £325,000 before your estate has to pay anything at all and most of us outside London have houses worth less than that.  And, don’t forget, a married couple gets twice that, because the nil rate band is per person, so houses up to 650k are safe from the taxman.  And, don’t forget as well, that YOU don’t pay inheritance tax, your estate does – and, as I personally don’t believe in inherited wealth – I can’t really see the panic that sets in when people with a couple of million contemplate the possibility of forty per cent of it going back to the public purse after their death as being particularly, well, serious.

So trusts are used to avoid it, and there are rules to stop everyone putting everything into trust, so you have to pay a charge when you put the asset into the trust and then every tenth year after that – and this consultation is about whether it’s possible to simplify the calculation of the charge.

Hmmm.  It’d be a lot simpler to charge a flat rate 20% on entry and then 10% every ten years.  Let’s do that, eh?  No?

Well it’s true that I don’t know enough about trusts and how they work to make any useful contribution to the discussion on this – the problem is, that I don’t trust anyone who does to have the interests of the taxpaying citizenry as a whole in mind rather than the narrow interests of those rich enough to exercise the privilege of tax planning.

Here’s what I sent anyway.

Can I first of all say that I believe that this consultation needs to balance the interests of the wider taxpaying population against the narrow interest of those wealthy enough to exercise the privilege of tax planning via trusts. As one of the former rather than the latter, I’m very much against any simplification which gives a relaxation of the regime. To that end I’d be in favour of achieving simplicity by making the tax charge on entry into a trust a flat rate 20% and keeping the exit and periodic charges at the same rate but without any adjustments for reliefs or historic values or other adjustments. In other words, simplify the whole regime so that any distribution is charged at the same flat rate (whether capital or revenue) and the periodic and exit charges are also flat rate on the current asset value. Presumably calculating what this flat rate should be to arrive at roughly the same charge as if the trust did not exist would be do-able? If trusts are entered into for legitimate, non-tax reasons then a result which gives roughly the same result as you would get without the trust is eminently reasonable. And if trusts are entered into for tax planning reasons… why on earth is it a legitimate object of policy to facilitate legal avoidance?

Finally, your tax impact assessment says you have no evidence to suggest the measure will have any adverse equalities impacts: I cannot agree. You say there are only some 900 trusts affected by ten yearly or exit charge calculations each year. You have not given due consideration to equality if you have not considered the privilege accorded to these 900 taxpayers in contrast to the treatment of the rest of the population.

And finally, we have the technical consultation on Delivering a cap on income tax relief.  This, you will remember, is the proposal to stop rich people claiming all the reliefs that exist (on their investments in start up companies, for example) so that they reduce their income down to nothing and pay no tax for the year.  There was a bit of a furore over the inclusion of charitable donations in this and the proposal has now been revised to exclude charitable giving from the cap.  This seems fairly reasonable to me, although I would point out that in a democracy we have this thing called a government, which we elect, which is charged with collecting a contribution from everyone and then deciding on where the priority areas for spending are – the NHS or the army?  Street cleaning or child support?  The arts or sciences?  Bread or roses?  Allowing millionaires to opt out of this and decide to fund their own priorities is… well, Not Cool.

Nevertheless, I haven’t really got anything to add to the actual consultation, per se.  The impact assessment is really good, too, until you get to the end…  well, anyway, here’s what I sent to them.

Since this is a technical consultation I find I don’t have any useful insights to contribute in response to the specific questions on page 16 of the condoc. However I have a few comments in response to your final question, on the tax impact assessment.

I thought the TIA was exemplary in its clarity, particularly in the impact on individuals and households and in the consideration of equalities impacts. Well done.

However I think I might have to take issue with your assessment of the possible impacts on small businesses. I’m not clear from the consultation document how many of the reliefs now to be capped are designed to enable the funding of start up enterprises which are likely to come into the category of “small”. The section on “other impacts” in the TIA rather glosses over any substantive analysis of the effect on small firms and I wonder whether you have done any proactive consultation (with small firms who have benefited from early trade losses reliefs or qualifying loan interest relief, for example?) to make sure these proposals won’t have any unintended consequences. In an era where we are constantly being told we are in such a financial crisis that benefits, pensions and public sector salaries need to be frozen or cut and that austerity plus growth is the only policy that will save us, I would find it very strange if the proposal were to be legislated without some clearer assurance that this change will not impact negatively on growth by impacting on the flow of finance to start ups.

Posted in Consultation, Regulation, SFIT | Tagged , | 1 Comment »

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Catching up

October 5, 2012

Sorry I’ve been quiet: first couple of weeks of my PhD studies and I’ve been running around trying to get my act together.  However let’s catch up on what’s going on in the wonderful world of tax consultations.  And I see we have a number of consultations closing today, as well as a nice collection to keep us busy over the next few weeks.

And, given the government’s inability to produce a list of its consultations in order of the date they close (why?  Why?  How hard could it be??) I thought I would publish here for your delight and delectation the ones I’ve found that are coming up.

5  Oct  Use of rebated fuel for gritting activities in rural areas
5  Oct  Inheritance tax: simplifying charges on trusts
5  Oct  Delivering a cap on income tax relief: a technical consultation –
9  Oct  Amending the Stamp Duty Land Tax Transfer of Rights Rules
9  Oct  Stamp duty land tax: sub sales
10 Oct  Setting the strategy for UK payments
12 Oct  Decommissioning Relief Deeds: Increasing tax certainty for oil and gas investment in the UK Continental Shelf
15 Oct  Foreign currency assets and chargeable gains
15 Oct  Lifting the lid on Tax Avoidance Schemes 
15 Oct  Foreign currency assets and chargeable gains
17 Oct  AT treatment of small cable-based transport
22 Oct  The attribution of gains to members of closely controlled non-resident companies
5 Nov  Life insurance policies: time apportionment reductions
8 Nov  Consultation on vulnerable beneficiary trusts
23 Nov  Information powers (Informal consultation)
23 Nov  Implementing the UK-US FATCA Agreement
5 Dec  VAT: exemption for education providers

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Catching up

September 27, 2012

I’m not sure whether to be cheered or depressed at the fact that my reader stats have remained about the same, in a week when I haven’t been posting (on account of it being the first week of my PhD studies, of which more later).  Anyway…

I see that there was a consultation which closed last week on the HMRC ambition to “clarify” their extra-statutory concession A19.  Now this gives me problems on several levels.  First of all, the completist in me goes “hang on, I thought the aim of this blog was to reply to ALL of HMRC’s consultations this year?”  I know there have been a couple lately where my response has been along the lines of ‘I’m not going to respond to this one because it’s too stupid…’, but the A19 one I didn’t see.  At all.  I mean, I can see it now, on the page for lapsed consultations but where was it on the tax tracker???  Did I miss it, or was it never there?  I mean, if (as it says on the “lapsed consultations” page) it opened on 3 July, why isn’t it on the tracker page under July?  Oh, and while we’re on the subject, the DirectGov page for “all” government consultation websites lists an HMRC site and an HMT site, but NOT the tax tracker site!  No wonder people – well all right, no wonder I, at least – get confused!

Don’t worry, though – next month the DirectGov page will be overtaken by the Gov.uk site… which is in beta testing now.  Here’s what I sent them by way of feedback today…

I seem to remember that at one point there was an aspiration to have all government consultations available from one webpage. At least direct.gov has a link to all government *consultation* pages on one page – well, except the tax tracker! – but the beta version of gov.uk doesn’t return any hits for consultation that seem relevant. Is the aspiration still in existence, and will it be met by gov.uk?

The automated response says they’ll, er, contact me if something changes!

So let’s have a look at A19.  Well, to start with, why on earth are we having a consultation about “clarifying” the wording of an extra-statutory concession?  An extra-statutory concession is where HMRC uses its powers to administer tax to achieve a sensible answer where the strict application of the law throws up something hard-edged and unpalatable – so for example there are rules that say if companies are controlled by the same people they only get one small companies rate.  You can’t split up your billion pound business into a thousand little companies and say they’re all entitled to small companies rate.  And for a married couple you add together all of their companies.  But there’s an extra statutory concession that lets you off the strict application of this, so that if a plumber marries a hairdresser their companies don’t necessarily get aggregated (but if a plumber marries the owner of her biggest supplier, a plumbing supplies company owner, well, tough)

Now I admit I thought that all of the extra statutory concessions were being reviewed with a view to either legislating or abolishing them, but I see that the latest technical note I can find on this (2010) says:

The House of Lords’ decision in the Wilkinson {note} case clarified the scope of HM Revenue & Customs’ (HMRC) administrative discretion to make concessions that depart from the strict statutory position. HMRC is therefore reviewing its concessions. Although it is likely that the majority can remain as they are, some are thought to be beyond the scope of HMRC’s discretion. Of these, some can be legislated to preserve their effect; others will need to be withdrawn. {Note :R v HM Commissioners of Inland Revenue ex p Wilkinson [2005] UKHL 30}

Nevertheless, the point remains – if we’re talking about an extra-statutory concession, shouldn’t our first thought be whether we need to have the concession at all?  But no:

The consultation is designed to explore the option for a revised version of Extra-statutory Concession (ESC) A19. It is not intended to cover whether ESC A19 should exist or the scope of concessions, but rather how HMRC may be able to improve the clarity of this particular concession ensuring it continues to be applied appropriately.

Ok… define “clarity” and “appropriately” in that last sentence, please!

Essentially the concession says that, where HMRC has messed up by not making use of information that taxpayers or their employers have sent to them, then HMRC won’t pursue them for tax they didn’t know they owed.  Which is pretty clear, no?

Well, no.  Apparently HMRC need to define “information”… because they aren’t going to guarantee that they can be bothered to look at correspondence from employers, perhaps?  Anyway, if the concession is changed, they will only accept “information” from employers and from the DWP on specified forms or the RTI equivalent.

But from the taxpayer… the proposed definition is

1. Direct communication from a taxpayer (or someone authorised to act on their behalf) informing HMRC about a change in income, allowances, benefits or personal circumstances.

You know, I think a tweet directed at @HMRCgovuk would count as information for those purposes.  Test case, anyone?  “@HMRCgovuk I just gift-aided £1k to @somecharity, love @FBlogs”

The plain fact is the ESC exists to protect unsophisticated taxpayers from HMRC errors, and for HMRC to seek to change it by introducing the weaselly concept of “taxpayer responsibilities” is monstrous.  Look, particularly, at the last paragraph of this:

Taxpayer responsibilities

As set out in the HMRC Charter HMRC expects individuals to take responsibility for getting things right even if they have authorised someone to act on their behalf.

HMRC expects individuals to:

 Tell it about any changes in their circumstances that will affect their payments or claims.

 Check their tax code to ensure the information included is correct and up to date.

Sometimes where there has been a change in personal circumstances, it might not be clear whether it has an effect on the amount of income tax an individual has to pay. If an individual is unsure as to whether a change of circumstance affects their tax code they should contact HMRC.

Now I’m an ex-tax Inspector and I spent much of this afternoon on the phone with HMRC trying to sort out my mum’s P800 which turned her overpayment into an underpayment by means of a mystery “adjustment” which we eventually deduced was on account of her making too many gift-aided charitable donations – yes, when pensioners helpfully tick the box to help the charity get gift aid, HMRC are happy to pursue them for the last penny.  But there are always, as Donald Rumsfeld famously remarked, the “unknown unknowns”.  How would someone like my mum know that she didn’t know that she had to pay more tax before she could tick the box?

Maybe the consultation will produce a sensible outcome and the concession will remain as it is.

But if it doesn’t, maybe we should all check with HMRC before we do *anything*.  Because it seems to be our responsibility, if we’re unsure whether a change of circumstance affects their tax code, to contact HMRC…

“Hello?  HMRC?  I’ve just started a PhD.  Does that affect my tax code?”

Posted in Consultation, HMRC | Leave a Comment »

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Simples

September 21, 2012

I give up.

I mean, wouldn’t you expect an office called The Office of Tax Simplification to do just that?  To simplify tax, the tax system?

Right.  Well have a read of their framework document, which sets out what they are actually allowed to do and how they do it.  Basically it’s an independent office (but it’s set up by and in the Treasury and the Chancellor is responsible for it and for taking or not taking its advice) and it got right down to business:

An immediate task of the Office will be to decide, in conjunction with an informal group of potential Committee members, whether there should be a single Consultative Committee to steer the work of the Office or whether an individual Committee for each of the Office’s inquiries is preferable. Any Committee(s) constituted will meet regularly throughout the year or inquiry and minutes of Committee meetings will be published on the Office’s website.

Yes, Minister.

My reading of it is that the politicians thought it would be a good idea to do some work on simplifying the tax system – and they were right, for once – but they got Sir Humphreyed to death in the setting up of it.

Because it’s very clear that the Office can’t do any strategic thinking, about the whole tax system – how it works, how the bits fit together, how it might work better – and instead is bogged down in looking at little “projects” fed to it by, presumably, the Treasury.

Which is how it comes to produce something like its Review of Tax Advantaged Share Schemes and thus the consultation document  for the consultation which closed last week (18th).

I’m going to quote some bits of the consultation document.  Here’s the background.

The four schemes are:

Share Incentive Plan (SIP) – an ‘all employee’ scheme under which employees may purchase ‘partnership’ shares out of their pre-tax (gross) salary, be awarded ‘matching’ or ‘free’ shares by their employer, or reinvest dividends earned on SIP shares into ‘dividend’ shares.

Save As You Earn (SAYE) – an ‘all employee’ savings and share option scheme under which employees can save out of taxed earnings and use their savings to purchase shares at a discounted price.

Company Share Option Plan (CSOP) – a scheme under which selected employees may be awarded options to purchase shares.

Enterprise Management Incentives (EMI) – a scheme targeted on small and medium sized businesses carrying out certain trades, under which selected employees may be awarded share options.

Separate rules and requirements, limits, and qualifying conditions apply for each scheme. (my emphasis)

Four schemes, each with their own rules, got that?  Right.

Now we have a report from the OTS making some recommendations for simplifying them.  Ok… There are three categories of change discussed in the consultation document: those which the government has accepted, where the consultation is aimed at checking how to carry them out, those where the government isn’t sure, where they want further details before they make a decision, and those where they want to do “further investigation”, the outcome of which they’ll announce in the “autumn”, with further consultation to follow if appropriate.

Got that?

Well there’s more.

There’s also “other work”…

1.11 The focus of this consultation is the recommendations made by the OTS in its report on tax advantaged employee share schemes. However, there are a number of other consultations, reviews or further work planned or currently taking place in relation to employee share schemes, or employee ownership more generally. These are:

 The second stage of the OTS’s review of employee share schemes, focusing on non tax advantaged employee share schemes and share based incentives.

 EMI measures announced at Budget 2012. These include an increase in individual EMI limits to £250,000; an extension of capital gains tax entrepreneurs’ relief to gains made on shares acquired by exercising EMI options; and development of the guidance available for start-up companies wishing to use EMI.

 An HMRC consultation on extending access to EMI for academic employees, which will run alongside this consultation on the OTS’s recommendations.

 A review by the Department for Business Innovation and Skills on promoting employee ownership in the private sector.

 An internal review by HM Treasury to examine the role of employee ownership in supporting growth and options to remove barriers, including tax barriers, to its wider take-up, which will conclude ahead of the Chancellor’s 2012 Autumn Statement.

And, you know what, that was the point at which I lost the will to live. So, no, sorry, for the third time I’m not going to respond to a consultation. In fact, for the first time, I don’t think I’m going to even finish reading the consultation.

Because, know what?  If this is simplification, then I’m a meerkat.

Posted in Consultation | 2 Comments »

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Tax is not regulation. Discuss.

September 19, 2012

All right, I admit it, I’m baffled.  Well, more than usually baffled.  I mean, I know I haven’t been in HMRC for three whole months now, but when I was last there the rules were that tax changes were excluded from the Impact Assessment process because they had their own, the Tax Information and Impact Note.

So, er, why have we published an Impact Assessment for the proposed changes to the Gift Aid scheme?  Have we decided it doesn’t count as a tax?  If it’s not a tax, is it a regulation?  Or what?

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It’s academic

September 18, 2012

Next week I’ll be starting a PhD at the Law Department of the University of Sheffield.  My current topic title is Tax Simplification and Better Regulation, and so the question of what is an academic and how we recognise and reward academics is one which I expect will be increasingly close to my heart.

So, full disclosure made, let’s now turn to the consultation on Enterprise Management Incentives: Extending Access for Academic Employees.  Woo hoo!

OK, well the government is quite clear it doesn’t want any of your faffy-abouty dissertations around the subject.

1.15 The Government is not seeking views during this consultation on broader issues, such as:

 whether there are employees other than academics for whom the present EMI working time requirement should be relaxed;

 the limits that apply to the value of EMI options that may be held by an employee or granted by a company;

 the requirement that EMI options may only be issued to employees of a qualifying company or group; or

 the features or requirements of any tax advantaged employee share scheme other than EMI.

So there! “This consultation is only concerned with the limited issue of allowing access to EMI for certain academic employees who do not currently meet the working time requirement.”

Basically what it seems to be about is a scheme to let small companies attract and retain talent by awarding shares to their employees without having to pay tax and national insurance on them.

EMI is a popular and successful scheme which each year enables around 20,000 employees to obtain options over shares with a total value of around £250 million, and provides tax advantages on exercise of these options of around £200 million.

But – to prevent the scheme being used as an avoidance device – there are rules to ensure your employee is an actual employee (and not a potential tax avoiding investor who “works” for you for half an hour a month at the minimum wage).  And these rules seem to mean that academics who do work for this kind of company sometimes come up against problems because of course their contract with their academic institution will usually mean most of their time is already spoken for.

You can see the point.  What we want is for scientists to take their brilliant ideas and turn them into brilliant businesses as well.  So let’s not faff about: give them the relief.  Agreed?  Good.

All right then.

So why are we doing it by way of a formal written consultation?  Why aren’t we doing it under the HMRC “care and management” powers – simply tell HMRC staff to stop faffing about trying to find ways that an academic working for an EMI scheme might NOT qualify.

Or why aren’t we setting up an expert working party with some actual academics who are or have been involved in EMI schemes to thrash out the definitions, like we’re doing with the creative industries consultation I wrote about yesterday?

Why haven’t we got any idea of the scale of the problem being addressed  – the impact assessment says helpfully that:

This measure is expected to have a cost, the magnitude of which will depend on the outcome of this consultation.

Why haven’t we got anyone in HMRC or HMT who looks at these documents before they go out and says “look, Fred, Freda, I see what you’re getting at, but have you seen what they’re doing in the Creative Industries team?  Couldn’t you try something like that?”

So this is another consultation I don’t propose to respond to.  Because when your first question is

Can you provide details and evidence on the typical working patterns and arrangements of academic employees engaged by EMI qualifying companies – for example, whether this involves a regular and permanent weekly commitment of time, or whether working time is concentrated at particular times of the academic year?

wouldn’t it occur to you that there are people who would know?  And wouldn’t it be a good idea to ask them?

How much does it cost to do a formal consultation, do you think?

Posted in Consultation | Tagged , , | 1 Comment »

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Bread AND roses

September 17, 2012

I’ve always thought the suffragists and the wobblies had it right about bread and roses:

Our lives shall not be sweated from birth until life closes;
Hearts starve as well as bodies; give us bread, but give us roses.

In other words, it’s not just the “bread and butter” financial issues that campaigning organisations need to think about but the “roses”, the things that could otherwise be put aside with the derisory label “pink and fluffy” – like equality issues, support for the arts, anything outside of the narrow horizon of simply keeping body and soul together.

So when we have a government that thinks we need to cap benefits to reduce taxes and frames its agenda in terms of an unprecedented financial crisis it’s good to see any consideration being given to the roses of, say, the television industry.

But I can’t get excited about the consultation into creative sector tax reliefs.    The consultation is into applying something like the tax scheme that works for film production to three other areas: animation, “high end” television drama, and video games.

In contrast, the government will give Arts Council England £360m this year,  around thirty per cent less than the £400m+ it has had for the last five or six years.  Against that, the amounts shown in the tax impact assessment (in millions) for the three categories of business covered by the consultation are relatively small:

Animation Television Video Games
2012-13 0 – 0
2013-14 -5 – -10
2014-15 -10 – -25
2015-16 -15 – -25
2016-17 -15 – -25

Considerably less, in fact,  (max of £15+£25m in one year) than the government has already taken from the Arts Council.

So why did I not respond to the consultation?  Not because the numbers are small – lots of the consultations we’ve looked at so far have been in the why the heck are you spending time and money asking about it if it makes no difference category.  Not because I don’t care about the subject – it would be hard for more than the three people involved to get truly passionate about, say, the taxation of unauthorised unit trusts or time apportionment reductions on life insurance policies.  I didn’t respond to this one because… well, because it’s OK.

I mean, the general principle of giving tax breaks to creative endeavour seems OK to me – whether or not you agree we have money to give to the arts, it seems sensible not to take too much from them, like not eating your seed corn.  Bread AND roses, right?

And I think they’re asking the right people – even though the amounts involved are ludicrously small in context, there are three working parties of industry representatives working with the Treasury and HMRC.  And they seem to be asking them the right questions: working on things like coming up with a workable definition of a distinctively British television programme, or how to avoid giving tax breaks for video games which are pornographic, or how do you define “animation”.

So, just this once, I’ll pass, thanks.  Keep calm and carry on!

Posted in Bit of politics, Consultation | 1 Comment »

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Wouldn’t it be nice…

September 14, 2012

…if we treated our paralympians and other fellow citizens with disabilities or terminal illnesses the way we treat our tax avoiders?  I’ve just written a long post, below, in response to a consultation about the General Anti-Avoidance Rule Notion.  I just wanted to pick out one small aspect of that suggestion, the proposed definition of abuse.

Tax arrangements are “abusive” if they are arrangements the entering into or carrying out of which cannot reasonably be regarded as a reasonable course of action, having regard to all the circumstances…

This is called the double reasonableness concept: it’s not enough that the action is reasonable, it also has to be reasonable to regard it as reasonable.

Wouldn’t that be a great way of re-testing disabled people to make sure they’re still entitled to disability benefits?  Say something like

Disability assessments are “abusive” if they lead to an action such as the removal of benefits which cannot reasonably regarded as a reasonable course of action, having regard to all the circumstances…

Just a thought.  (but the consultation on the tax GARN closes today.  You’ve still got time to drop them a line at study.gaar@hmrc.gsi.gov.uk suggesting they pass on their double reasonableness test to the DWP…)

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

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Garn!

September 14, 2012

I’m having trouble finding the work of literature in which I first encountered the word “Garn!” but I’m reassured by Wiktionary listing it as a cockney word that “expresses disbelief or mockery” (and hinting it was probably Pygmalion).   Having established its existence – garn, you didn’t believe I was making it up, did you? – I propose forthwith that we stop calling for a General Anti Avoidance Rule (GAAR) and instead talk about the General Anti-avoidance Rule Notion – GARN.

Because I don’t believe we’ll ever have one.  Not a rule that actually works, anyway, where “works” is defined as “making a difference”.  Look, for example, at page 33 of the consultation on A General Anti-Abuse Rule, the Tax Impact Assessment, where the Exchequer impact is given as follows:

The GAAR will support the Government’s aim of reducing tax avoidance and will both raise and protect revenue. The revenue impact will reflect the targeting on artificial and abusive avoidance schemes, but will depend on the final design of the proposal. Any final Exchequer impact will be assured by the Office for Budget Responsibility.

Uhuh.  Now, you may recall that I obtained the internal instructions on how to prepare a tax impact assessment under the Freedom of Information Act (go here to see the full instructions) but let me just quote the bit about what to say in a formal consultation document about the Exchequer Impact:

If the measure is not yet scored so a 5-year scorecard costing has not been published, don’t enter one. Instead enter a statement giving an indication of the order of magnitude of the costing, and stating that the final costing will be subject to OBR scrutiny.  (my emphasis)

Well, I see a reference to the Office for Budget Responsibility (“OBR scrutiny”) but what indication is there of the order of magnitude of the problem and the amount of any tax to be raised or saved as a result of introducing these proposals?

Anyway, this is what I sent to the policy team: the consultation closes today so you’ve still got time to send an email to study.gaar@hmrc.gsi.gov.uk if you’d like to add your two-pennorth.

This is an individual’s response and is also being published, with commentary, on my blog at http://tiintax.com

First of all, Graham Aaronson’s report says that “tax planning is an entirely appropriate response to the complexities of a tax system such as the UK’s” and section 2 of the condoc says “The GAAR should not affect what the Report describes as “the centre ground of tax planning”.” I wonder therefore why you are tinkering at the edges rather than trying to simplify the tax system so that avoidance and the “centre ground of tax planning” is engineered out of the system altogether?

However I appreciate that isn’t within the scope of this consultation so I will address the specific questions you have asked.

1. Do you agree that the GAAR should be limited to the taxes and duties set out in clause 1(3) of the Draft GAAR initially?

No: but then I feel the best options, in order of preference, are a radical simplification of the tax system to engineer out avoidance, or if that cannot be effected, a broad-spectrum GAAR. In this case the GAAR itself is so narrowly drawn it will make little or no difference that its scope is also limited. It’s a fly-whisk, when you need an elephant gun.

2. Do you agree that the GAAR should be capable of counteracting UK tax advantages obtained under double tax agreements?

Yes

3. Do you agree that (1) the proposed “main purpose” rule serves as a useful filter, when coupled with the concept that arrangements must also be “abusive” and (2) a specific exclusion for arrangements without tax intent is not required? If you think a specific exclusion is required, please explain why.

I disagree: “purpose” is irrelevant. If an arrangement produces an abusive tax consequence I personally don’t care if the abuse was accidental! (And, in case it’s not obvious I’m being sarcastic here, let me be plain and say I think you’re tying yourselves in knots unnecessarily. The concept of “abuse” should be decisive enough a test.)

4. Do you agree that the proposed “double reasonableness” test operates as intended to counteract only artificial and abusive schemes (such as those described in Annex B)?

Yes. (And, incidentally, wouldn’t it be a good idea to have a similar test introduced into – say – matters like removing disability benefits from people. So the government would only stop paying mobility allowances to someone with a missing limb if they could show it was reasonable to believe that it was reasonable for the person to do without it!)

5. Do you agree that the counteraction provision in the draft GAAR is appropriate?

Yes. I assume if HMRC had sufficient grounds to penalise avoiders they would take action under that appropriate provision and the GAAR would not come into effect at all – that it’s “belt and braces” – the GAAR will be the braces, but the belt will be tried first.

6. The Government is continuing to develop its analysis regarding the appeals processes in relation to counteraction and consequential adjustments under the GAAR, and welcomes views which may inform detailed proposals to be published later in the year.

No comment

7. The Government would welcome views on the options set out regarding commencement, how transitional arrangements should be dealt with, and whether there should be different rules for different taxes where appropriate.

Good grief, we’re talking about ABUSIVE arrangements here! It should apply from the date it’s announced – preferably 1 October 2012 – and to any transaction completed after that date, just as it would if you were introducing retrospective legislation to close an obvious tax loophole. No, there’s no need for transitional arrangements – send the message, tax abuse stops today.

8. The Government welcomes views on clause 5(1) of the Draft GAAR.

No comment

9. Do you agree that it is appropriate for particular weight to be given in the legislation to the GAAR guidance and the opinion(s) of the Advisory Panel on the arrangements?

Not unless the makeup of the Advisory Panel is radically changed! At the moment it reminds me of that line in 1066 and all that, about the barons wanting to be tried by “a jury of their peers, who would understand”! At present the panel seems to consist purely of legal tax professionals. It needs to have some members who are there to represent the law-abiding taxpayer such as union or other civil society group representatives; there to represent the interests of the non-avoiding taxpayer base.

10.The Government welcomes comments on whether particular issues arise in relation to Self Assessment (where the relevant taxes operate within a Self Assessment regime) or within the existing administrative rules for those taxes that do not operate within a Self Assessment regime.

11.The Government invites comments on the general proposal that the GAAR should as far as possible operate within existing administration rules for the taxes involved; and on what adaptations may be necessary to existing administrative rules to ensure that the GAAR operates with as little as possible additional administration cost and burden for taxpayers, advisers and HMRC. Is there a case for having a new type of assessment given the cross-regime range of the GAAR?

No comment

12.The Government invites comments on whether time limits should be set for each of stages two, three and four and if so what those time limits should be.

Yes: probably one to three months. The work needs to be resourced to risk, so HMRC will need to allocate appropriate resource to push these cases forward. And the tax avoider will have little or no incentive to cooperate if there isn’t also a time limit for them to respond or lose the case by default.

13.The Government welcomes comments on the proposals relating to the Advisory Panel.

See answer 9. The Advisory Panel needs to have lay members.

14.The Government would welcome views on the proposals for producing and updating the guidance.

The government already has rules in place around guidance – that it should be ready when legislation is published, that it should be compiled in collaboration with the affected taxpayers, that it should be in plain English – if it follows its own rules it won’t need to make more!

15.HMRC would welcome comments or evidence that can improve the TIA assessment of impacts, costs and yield of the GAAR proposals.

The Exchequer Impact does not follow the internal guidance to give the order of magnitude of the problem. What amounts are expected to be raised and/or saved as a result of the introduction of the GAAR? Without that information, it’s hard to see whether the GAAR will amount to a hill of beans.

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Nothing to look at, move along please

September 13, 2012

No bloggery today, although instead I urge you to go over to the Guardian’s Public Service pages.  There you will find an interesting piece on why civil servants leave, and an “expert panel” live two hour discussion in the comments thread.  Warning: includes me.  Apparently I’m an expert now.  Well, at least an expert in Not Being A Civil Servant, anyway!

 

[Update Friday 14th: there’s a roundup of the event here.  Warning: contains me!]

Posted in About me | Leave a Comment »

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