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A no brainer.

December 6, 2012

“Anyone with a home worth over £1million now facing a visit from elite tax inspectors” Well, up to a point, Lord Copper!

Let’s have a look, shall we?

The announcement was of a further 100 staff for the “affluence unit”, the bit of HMRC that looks at the tax affairs of people with more than a million quid. As the Telegraph article says

The unit, comprising 200 investigators and technical specialists in six locations across the UK, focuses on people who are evading or avoiding tax.

And, looking for the official announcement that was the initial impetus for this non-story, I see that Danny Alexander announced the unit was expanding from 200 to 300 staff, and with a remit to look at people with £1 million rather than, as before, £2.5 million.

OK then.  So how many millionaires are there?  The Treasury press release estimates half a million but – going back to The Telegraph, where we started – that seems to be a pre-crash figure and their current estimate is 280,000.  I’m not saying I prefer the Telegraph’s figures to the Treasury’s, you understand!  But let’s be generous and take the lower figure.

So we have 300 HMRC staff looking into the tax affairs of 280,000 people.

280,000 divided by 300 is 933.333 according to my calculator.  So let’s round it down and say each of these HMRC staff deals with the tax affairs of 900 millionaires.  Yes, according to the Telegraph’s own figures each worker in the Affluent Unit will need to spread their investigative powers over 900 millionaires.  According to the Treasury’s, over perhaps twice that.  Where on earth will they find the time to go nosing around blameless individuals whose houses have just drifted up in value?  It’s scaremongering, forget about it.

What is more interesting is the announcement that HMRC will have more resources in the autumn statement.  It’s here, in line 32 of the policy decisions:


 £ million
 Head 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
+
32 HMRC investment Spend -10 -80 -25 0 0 0

Ten million in the current year, eighty million next year, £25m in the final year of the coalition and then zilch.  Hmmm… David Gauke’s written ministerial statement on December 3rd clarified this a bit: the 100 staff for the affluent unit are in there, plus some warm words about transfer pricing and centres of excellence.  But the figures are a bit off:

 A further £77 million will be provided to HMRC in this spending review period to further expand its anti-avoidance and evasion activity focused on offshore evasion and avoidance by wealthy individuals and by multinationals.

Well, 10+80+25 = 115 in my book, so if HMRC are getting 115 million and using 77 million on anti-avoidance and evasion, what are they going to use the other  38 million on, do we think?  I’m sure it’s hidden in the small print somewhere but I haven’t come across it yet – anyone?  (maybe they’re upping the £42 they can spend on each business for RTI by another, erm, sixteen quid apiece?)

But look here, at the ARC union website.  Now, ARC stands for Association of Revenue and Customs senior staff and it’s the branch of the FDA which covers senior staff in HMRC, tax inspectors, lawyers, senior managers and a bunch of other professions, economists and the like.  And they have a paper, Reducing the UK Tax Gap – Proposals from ARC. (which isn’t exactly prominent on the site, but if you look at the entry for December 3rd you’ll find it in the “notes for editors” from a press release they apparently put out on 30th November, presumably by leaving it in the statutory locked filing cabinet in the basement office marked “beware of the leopard”!)

What interests me is the suggestion that you could put resources into HMRC’s legal services:

Additional legal resources, 150 trained lawyers and 50 legal assistants, to accelerate litigation of the Tribunal backlog and accelerate yield. Cost £35m. Projected yield £2000m

One of the things that worries me about the extra hundred staff for the affluent unit is, where are they going to come from?  Because trained tax professionals don’t actually grow on trees, and HMRC has always been rubbish at planning for the future and making sure it has enough trained tax professionals coming online to replace natural wastage from retirements and resignations.  You can’t just go out and hire a hundred trained tax professionals – largely because the accountancy profession, where you might find people with at least analogous skills – pays a damned sight more than HMRC.

But you could go out and recruit a hundred and fifty lawyers tomorrow.  Because lawyers train themselves, or at least pay for their own training, and there are supply and demand issues in the legal profession which there aren’t in tax at the moment.  So you couldn’t find 150 trained tax lawyers – they get shedloads more than HMRC tax lawyers, I’m told.  But you could get 150 criminal lawyers, trained litigators, and start taking some of the backlog of tribunal cases to tribunal as fast as the tribunal could accommodate them.

ARC think an investment of £35m could bring in two thousand million.  And HMRC seem to have £38m left over, so it’s a no brainer, surely?  Why on earth not?

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

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Consultation on vulnerable beneficiary trusts

November 9, 2012

Trying to catch up with the flurry of October/November consultations, I see I missed one that closed yesterday.  I’m hoping that, closing on Thursday, they’ll still be able to consider responses that they receive on, erm, Friday!  Anyway, this is what I sent.  I’m not sure whether there’s anything in the changes to tax treatment of trusts for people who are unable to manage their own financial affairs that is, by and of itself, offensive – I’m aware that it’s the changes to the benefits themselves (replacing DLA with PIP) which are considered offensive by people with disabilities.  But there are two things that jump out at me about this consultation.  One is the governmental, or rather departmental, muddle.  If you have different definitions of disability or vulnerability in different departments and for different purposes, should you – in the twenty first century, for goodness’ sake – expect a government to be able to get its act together and define what it means for ALL its purposes, not just for some?  Or, if that gives too much of a cliff edge between categories, shouldn’t you at least let the tax treatment follow the definitions used for other purposes rather than making people faff about considering a whole new set of tax requirements for something that isn’t really anything to do with tax at all?  And, second… the consideration of equality seems to be rubbish.  I say “seems to be” because, to be charitable, it’s possible they’ve done a ton of great work behind the scenes but just written it up really badly.  But to me it  reads as if they’ve gone “Oh, the DWP did all that.  Just stick in an “it’s all right, isn’t it?” question and leave it at that.”  Tell me I’m wrong.

Anyway, this is the response I sent.

I appreciate that the closing date for this consultation was in fact yesterday but I hope you will nevertheless be able to include it in your considerations. This is an individual’s response and will also be published, with commentary, on my blog at http://tiintax.com. Please note there are some questions where either I consider I do not have sufficient expertise to contribute to the discussion or else I have covered the question separately in narrative and I have therefore excluded those questions (so the numbering below doesn’t follow, but IS the numbering taken from your consultation document)

Q2: Do respondents have suggestions for defining a ‘vulnerable person’ for tax purposes other than by reference to orphaned minors and those with a severe physical or mental disability? (Responses may include approaches and concepts found elsewhere that could be included into the tax code either in combination or in isolation.)

It seems quite plain to me that tax is the least of the matters which a vulnerable person ought to be concerned with, and that therefore the best way of implementing the objective of this consultation is for the tax treatment to “follow” – in other words, that the legislation defining people to whom these tax exemptions should apply should follow the other defining legislation.

In other words, government should get its act together and define vulnerability for all purposes, or at least work under the presumption that meeting a definition for one purpose would also meet it for all other government (or at the very least for tax!) purposes.

In drafting terms, you might say something like “A vulnerable person for these purposes is someone in the Vulnerable Persons list,” and then have a separate command paper or other statutory instrument kept up to date with the definitions found elsewhere in the law. So the first “vulnerable persons list” might read
– persons in receipt of enhanced rate PIP
– persons [defined as in the enhanced criminal record certificates legislation]
– persons listed in the [relevant provisions of the] Safeguarding Vulnerable Groups Act 2006

Q3: In relation to those suggestions, what practical issues do respondents envisage applying them in the context of a self-assessed tax; and how could they be overcome?

In practical terms, there are three things government should do

1. not require self assessment from a vulnerable person but from their trustees
2. not require self assessment from the trustees of a vulnerable person except at (say) five yearly intervals or when there is a material change in circumstances, and
3. set up and resource fully an assistance unit within HMRC devoted to providing vulnerable persons and their trustees with direct assistance in self assessment, including but not limited to a dedicated mailing address and the provision of the telephone number, email address and other contact details of a named person in HMRC who will provide them with assistance

Q4: Do respondents agree that including recipients of the enhanced rate daily living component of PIP within the vulnerable person definition would achieve certainty in the same way the existing reference to DLA does?

Yes, but would restrict the number of people included in the vulnerable persons group as that is one of the design objectives of moving to PIP. This should NOT be one of the design objectives of this legislation, so the definition needs to be broader, and therefore to “follow” other definitions of vulnerability.

Q6: What are respondents’ views on whether the proposal for PIP might lead to a suitable test, or part of a test, for assessing whether someone should be able to benefit from access to the tax treatment for vulnerable persons’ trusts? (Responses should have regard to the characteristics that distinguish a vulnerable person.)

PIP is intended to apply to fewer people than the current benefits regime and therefore the definition of a vulnerable person would be unreasonably restricted if this were the ONLY qualification for treatment as a vulnerable person. See response to 2, above – in my view the definition should follow any other definition in current legislation, so that a person defined as “vulnerable” for ANY government purpose should also be defined as vulnerable for tax purposes.

Q7: Is the existing ‘mental incapacity’ test suitably targeted? If not, why not?

No opinion, but didn’t you consult on this very recently, in the consultation on removing the offensive language (“lunatic”) from the Taxes Acts? Is it necessary to revisit at this point, and if so I strongly suggest you re-examine the responses to the previous consultation.

Q8: What alternative approach would respondents propose and why? (Responses need not be limited to suggestions that make use of MCA05.)

See above. Follow the definitions in other legislation so that there is no separate “hurdle” for tax.

Q10: Do respondents see any reason why the ‘application of capital’ conditions should not require the vulnerable beneficiary to benefit from every application of the capital during the lifetime (or other relevant period) of the vulnerable beneficiary (with consequent changes to the provisions disregarding trustees’ general statutory powers of advancement)?

As a lay person, I’m surprised this question needs to be asked. But, for the avoidance of doubt, no!

Q11: Do respondents see any reason why the ‘application of income’ conditions should not be harmonised so that trustees are prevented from paying income to non-vulnerable beneficiaries during the lifetime (or relevant period) of the vulnerable beneficiary?

As for Q10!

Further comments

I am surprised that the consultation has reached this stage – where you are publishing draft legislation – without the equality impact assessment being at a more developed stage. The statutory requirement is for departments to give “due regard” to equality while making changes and the phrasing of the EQIA suggests work to examine the potential equality impacts has not yet been conducted. Presumably this is merely unfortunate phrasing of the consultation and you have already given regard to equality in putting forward these proposals for consultation? In particular I am aware from the press that there is considerable controversy over the changes to benefits which have led to these proposals – surely in order to give due regard to equality YOU would need to consider the equality impact of THESE changes and not merely rely on the EQIA published by DWP and referenced at 8.8?

Tax Impact Assessment. Again, the equality impact assessment seems nugatory, no consideration is given to any HMRC changes (such as the possibility of providing more or better assistance to affected persons and trusts in dealing with self assessment) and the consideration for monitoring and evaluation does not seem to allow for the possibility of effective *review* of any changes to see whether they are effective.

Regards

Posted in Consultation, Equality, HMRC | Tagged , | Leave a Comment »

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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?

Posted in Consultation | Tagged , | Leave a 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.

Posted in Avoidance, Consultation | Tagged , | Leave a Comment »

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RTI is coming. Eep!

September 6, 2012

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

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

  1. government IT procurement and/or
  2. banks

as far as you could throw them?

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

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

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

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

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

OK.  So far, so good.

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

  • Casual workers
  • People receiving tips via a tronc

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Yes

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Q14. Should we consider charging late payment penalties quarterly?

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

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

No

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

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

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

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

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

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

Regards

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

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This is not a consultation

September 3, 2012

There was another consultation which closed last week, on the Office of Tax Simplification’s proposal that there should be a “disincorporation relief”.  This is aimed at the one and two person businesses which were advised by their accountants to form themselves into companies to take advantage of the lower rate of corporation tax and who now find themselves mired in the red tape of running a company and would like to get out of it.

It’s a worthy idea, I’m sure – but a damn fool way of legislating it.  If you want to ascertain the views of small businesses, you don’t find out by sticking a formal consultation document onto the HMRC website.  You might just as well put the condoc in the bottom drawer of a filing cabinet in a disused basement office marked “beware of the leopard”.

Here’s what I sent, although I made a mistake in the third paragraph where I said that the audience for the consultation wasn’t specified – the desired consultees are in fact listed in 1.4:

The Government is interested in views from a range of audiences, including individual businesses and their representatives, as part of this consultation. It is also interested in views from insolvency practitioners reflecting the links to the Companies Act.

But then, since my email (sent to the address cut and pasted from the condoc) never actually reached its destination as the address is “not found”, it probably doesn’t make much difference either way.

Delivery to the following recipient failed permanently:

disincorporation@hmtreasury.gov.uk

Technical details of permanent failure:
DNS Error: Domain name not found

So, waves hopefully to HM Treasury, (you DID pay your broadband bill this month, right?) and…

This is an individual’s response and will also be published in due course, with commentary, on my blog, http://tiintax.com.

I’m afraid I’m completely confused by this consultation. You say in chapter 7 (7.2) that “the consultation is a call for evidence regarding how to help small companies disincorporate”, but I cannot see how you are going to acquire such evidence. The consultation is written in a technical register suitable for communicating with fellow tax professionals and not in the plain English you would use to communicate effectively with micro businesses.

You do not specify at what readership the consultation is aimed, but you appear only to have published it on the government website where – if you’ll forgive me – it’s only likely to be read by “the usual suspects” – professional and interest groups (I am attempting to respond to all the government’s tax consultations as part of a blog project so would include myself in the “interest group” category here). But what you’re not going to do, is reach the small businesses who would be affected by any disincorporation relief.

Given the costs involved (both for the government and for professional and interest groups) in conducting a proper consultation exercise I have to say that I feel this initial stage of consultation would have been better served by an alternative methodology such as the government’s own Small Firms Impact Test. I would be interested to learn whether any such group was in fact convened?

As I said, this isn’t a consultation, this is box-ticking.

Posted in Consultation, SFIT | Tagged , , , , , | 2 Comments »

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Whose job is it anyway?

August 29, 2012

A while ago Taxation magazine wondered why they bothered to include the articles summarising the Finance Bill debates: articles that (I have to say) are some of my favourites.

I do begin to wonder why we bother to cover the Finance Bill at all, when MPs say so little of relevance.

The original reason for covering it was to find points which might be relevant for a Pepper v Hart argument in the future. Best of luck with that.

Perhaps readers could let us know how (if at all) they would like us to cover the Finance Bill next year?

For me the interesting thing about their coverage of the Finance Bill debates is how little actual debate there is. There’s point scoring, headline chasing and some party political posturing. But no actual substantive debate, not in the sense anyone outside of parliament would understand it.

Perhaps that’s a good thing, though? After all, the changes following on from Tax Policy Making: A New Approach mean that the Finance Bill shouldn’t come as a surprise to anyone any more.  The changes will have been subject to consultation: will have been refined and improved, the legislation itself exposed for technical review so that the Finance Bill itself is as near perfect as it can be, right?

Well, up to a point, Lord Copper.

After all, who responds to consultations?

“Stakeholders”, that’s who. Professional associations, interest groups, lobbyists. But where is the public interest in this? In the not-a-mansion-tax consultation, one of the questions was (I paraphrase) do you think we need the annual charge as well as stamp duty  or have the poor dears suffered enough! Who is representing the non-expert ordinary decent taxpayer?

Um… That’s the MP’s job, isn’t it, and have we accidentally shut them out of the process?

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To regulate or…

August 20, 2012

How much does it  cost to pass a piece of legislation?  Any idea?  No, I don’t know either.  I suppose it must vary according to whether the legislation is debated in both Houses of Parliament, the length of the debate, the numbers involved…?  How much of the costs of the upkeep of the Lords and Commons would you apportion to the legislative process?  What about statutory instruments?  They can either require a positive or negative process – in some circumstances they have to be positively passed, but in some they go through on the nod unless someone actively objects.

I’d be fascinated to know if anyone has any figures on the bare costs of  making legislation, any legislation, as opposed to any costs and benefits imposed or accruing from the legislation.  But whatever the cost IS, common sense tells us that there is one.

So there has to be a benefit from making legislation, or else why would we (as a country) incur the cost in the first place?

This is the question that seems to be have been entirely overlooked in the consultation on withdrawing the requirement to make a self assessment  return, which closed last week.

Essentially, if you are sent a Self Assessment Return, you have fallen into the HMRC sausage-machine and will need to fill the return in and send it back or you’ll be ground up by the machinery and spat out at the other end after penalties and determinations and pursuit of imaginary (estimated) debts.  So it’s a good thing that there’s an “out”.

But there already IS an out – HMRC has the power, under its “care and management” of the tax system, to say, actually we sent you this one by mistake, don’t bother.

The question that OUGHT to have been addressed by the consultation was whether this was enough or whether there was a need to replace the HMRC discretionary power with a legislated, mandatory provision.  Unfortunately what the document seems to me to address is whether it’s better to have legislation or – nothing.  Ask the question that way round, and you get an entirely different answer.

Asking whether we can rely on HMRC to exercise its discretion with common sense, even-handedness and some human compassion would have been a revealing question.  How disappointing, then, that the Department chickened out of asking it.

Here’s the response I sent:

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

1. If HMRC already has the power under its “care and management” provisions as stated in the consultation document, then I cannot understand what advantage is there to legislation?  The government is committed not to regulate unnecessarily and on the evidence of this consultation document I cannot see that a case has been made that legislation is either necessary or desirable.
2. Should there be a deadline?  No.  People don’t know what they don’t know.  If people don’t understand the requirement to file and don’t comply, they won’t know there’s a deadline they have to meet to explain that they don’t think they need to comply until they’ve passed it!
3.  Is a sanction needed if people lie to get the notice rescinded?  Well probably, but is legislation required to introduce a NEW one?  Wouldn’t the circumstance be covered by the existing power to make a discovery assessment, ie HMRC would discover an amount hadn’t been assessed by reason of the taxpayer’s negligence or fraud.  This looks like regulatory creep to me.
4. The impact assessment is wrong: the state that currently applies is that HMRC *can* rescind the requirement under their care and management powers.  The impact assessment tests the proposal against the concept of HMRC being UNABLE to remove a requirement to file once a self assessment return is issued.  What it should, of course, be testing against is the status quo, the current flexibility being in HMRC’s hands.
5. The question to be addressed – both in the IA and in the consultation – surely is whether there is any need for LEGISLATION, rather than whether there is any need for FLEXIBILITY.  The consultation document says there is already flexibility, and does not make a case for there being legislation to codify how the flexibility might be exercised

Sorry and all that!

Posted in Consultation, HMRC | Tagged , , | 1 Comment »

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Use the mike

July 31, 2012

Yesterday I went to Sheffield station to buy some railway tickets.  My mother is deaf, so she doesn’t like to transact on the phone, and she’s in her eighties, so she’s not comfortable transacting on the internet.  So we jumped in a cab and went down to the station so she could renew her senior railcard and buy the tickets for us both to go down to London next month to see the Queen’s Diamonds.

There’s a sound system in place, so when we finally made it to the counter she set her hearing aid to the T setting and was able to hear the clerk (although she couldn’t, then, hear me, standing next to her, and had to switch back and forth).  But after she’d done the railcard transaction and we’d selected the dates and times we wanted to travel, the clerk told us the price.

“Sorry, I’m not hearing you,” I said.  The clerk gave me That Look – you know the one.  The “are you stupid or something” look.  And repeated what she’d said, at exactly the same volume.  Just move the mike, I thought – I could hear the guy at the next counter, perfectly loud and clear, because he had the mike an inch from his mouth and the volume turned up.  But this lady obviously didn’t think using the mike was necessary.  “Sorry, I still can’t hear you,” I said, and again got The Look and another repetition, this time with an eyeroll.  My mother, being of the “don’t make a fuss” generation, simply put her credit card into the machine, paid the amount we couldn’t decipher, and we checked it all later.  No big deal, right?

Well, have you ever tried to get your employer to make a reasonable adjustment to your working conditions on account of a disability covered by the Equality Act?  If the simple action of getting someone to use correctly the equipment that’s already there is a problem, imagine what it would be like trying to educate your employer on what their duties are and your reasonable requirements might be, while you were feeling ill in the first place.  I’m exaggerating?  I’ve just written and then deleted (because they aren’t my stories) a paragraph detailing three different examples I know of from my personal acquaintance of people who have had grotesque difficulties getting different employers to abide by the law in the last year; partly because, when you’re ill, you’re not really in a good place to provide a teachable moment to your employer in the first place, let alone the assertiveness to insist they comply with the law that’s in place for your protection.  It’s easier to be quiet, don’t make a fuss, make do.

Living with a disability must be hard.  Working with a disability is hard enough when you acquire the disability after you acquire the job, are a valuable source of knowledge and ability for your employer, and know and exercise your rights.

Well, what about Remploy, the business that employs workers with disabilities in an inclusive environment?  Oh, yea, being shut down.  Because, apparently, there are better ways of supporting people with disabilities in mainstream employment.

OK.  But what IS that support?  Well, if you were watching anything except the Olympics last night, you’d have seen either the Dispatches programme: Britain on the Sick or the Panorama programme, Disabled or Faking It?  Both programmes showed DWP film of people who had been prosecuted for faking disabilities but reminded us that this amounts to less than half a per cent of the people actually claiming disability allowances.  The real problem identified by both programmes was the mechanism the government has put in place to assess whether people needed to be “on the sick” or were “fit for work”.  Dispatches concentrated on ATOS and secretly filmed a GP taking the ATOS assessors’ training.  Panorama concentrated on the claimants – including the gentleman found fit for work while he was sectioned under the Mental Health Act!  Lucy Mangan spoke for me and, I believe, for millions watching, when she wrote in the Guardian:

‘Why don’t you just stop it,” you wanted to say. “Just stop doing this cruel, pointless, terrible thing to people. Stop adding to the sum of human misery in the world and start working for our betterment instead.”

Because it was all about finding people were capable of work – if they had one finger they could push a button, if they could sit or stand they could work a checkout, if they could theoretically propel themselves in a wheelchair they were mobile, even if they didn’t actually have a wheelchair.  And while I see the government’s argument that it’s better to think about what people can do rather than what they can’t do, none of this amounts to a hill of beans if there isn’t a job for them to move into, an employer willing to take on a one-fingered, invisible-wheelchair-using person.
One final thought.  Chris Grayling said that “there are no targets anywhere in the system“.  In other words, ATOS don’t have a fixed target of people to find fit for work (or, unfit for financial support).  This is a pusillanimous equivocation.  There may not be a “target” – find 12% of them fit for work or we sack you.  But there is an “average“: the average number of people found fit for work is 12% and if you’re outside of the average you’ll be audited.  And then look at table 1 on page 36 of the 2010 Budget Costings document which shows the expected exchequer impact of “reforming (sic) disability living allowance”.   Next year we’re taking £360 million from sick people and, the year after, £1,075 million.
Well, not in my name.  If this makes you, too, into an #angrycitizen, take a few moments to sign the epetition here.  And write to your MP.

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