Posts Tagged ‘small business’


Citizens are stakeholders. Discuss.

September 7, 2012

I have blogged before that I think there’s something fundamentally awry in the tax consultation process.  While it’s entirely laudable that the government wants to make tax changes in a considered way, taking account of the views of people who know about the subject, I think they need to look again at Tax Policy Making: A New Approach and be explicit with us.  There’s little or no debate on the Finance Bill any more, partly because all the supposed kinks in the wording have been worked out in the consultation process – but then that means there’s little or no input from MPs in their capacity as representatives of the Ordinary Citizen – or their capacity as stakeholders for Great Britain’s fiscal and economic health and welfare.  So is the point of the New Approach just to give those affected by a tax – the people who will pay it – a chance to say something about how it’s designed?  Or is it also intended to give those affected by the outcome of a tax – the people who pay their own taxes and who rely on the tax base to provide them with the common services the country uses tax receipts to provide, but who may not pay this particular tax?  Bluntly, are we trying to crowd-source (free of charge) the paid work that policy-making civil servants in the Treasury and HMRC used to do?  And are we doing so by asking the turkeys how to administer Christmas?

So I’m replying to all the tax consultations I can, even the ones where I’m not invited to do so – because I believe that the citizen is a stakeholder in all these matters.  And the other consultation which closed yesterday, the consultation on Life Insurance: Qualifying Policies said it only wanted to hear from “Insurance companies, Friendly Societies and Advisers involved in the sale or management of Qualifying Life Insurance Policies”.  Tough.

Here’s what I sent:

This is an individual’s response and will be posted, with commentary, on my blog,

You say that the people who should read the consultation are “Insurance companies, Friendly Societies and Advisers involved in the sale or management of Qualifying Life Insurance Policies”. I believe that the government’s intention in Tax Policy Making: A New Approach was to establish a methodology for making good tax policy which included consultation as its key element, and as a matter of principle I believe that all citizens are stakeholders in the design and operation of the tax system and therefore have a stakeholding in its development.

I have concentrated on the tax impact assessment as the best way of understanding the expected outcomes of the policy change and I see that the measure is expected to have a negligible impact on the exchequer and on the wider economy and I wonder therefore what the scale of the problem identified – of life insurance being used as a tax exempt savings vehicle – might be and whether it is cost effective to legislate. It seems very strange that, at this stage in the consultation process, you are not able to give a ball park figure of the kind of tax loss you are looking to stem and it is hard to see a justification for the enactment of legislation without this.

I also see that there is expected to be a “relatively small number” of individuals and households affected but no indication is given of how these investors fall on the spectrum of protected characteristics under the equality legislation. Is this a type of investment with a broad spread of investors where the closure of the opportunity to invest and gain higher rate tax relief will impact across the board or is it used primarily by any particular group? I am surprised you feel you have given due regard to equality issues without this information, particularly since the number of providers seems small enough that I would have expected there to be little difficulty in having or obtaining good quality information.

Nor am I at all clear what you think the impact will be on small firms. You admit there will be several providers who are small firms within the meaning of the government’s small firms impact test – have you held specific discussions with them on whether their customers are more or less likely to make use of the proposed limit? I’m not at all clear from the tax impact assessment therefore that the case for legislation is made.


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:

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,

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.


Response on behalf of Mark Prisk. Sort of.

July 20, 2012

You may remember that, on 26 June, I published an Open Letter To Mark Prisk about the small firms impact test, in which I wondered whether he actually knew that such a thing existed, and that he was the Minister responsible for it.  I suggested that he ask his officials to arrange for him to sit in on the next SFIT focus group that was organised, and that he might find it was a long time in coming.

Because I thought it was only polite, as well as publishing it as an open letter I also sent him a copy via his Department, BIS, the Department for Business, Innovation and Skills.  Here is the reply I received yesterday

Dear Ms Bradley

Thank you for your e-mail of 26 June to Mark Prisk about Impact Assessments and the Small Firms Impact Test. I have been asked to reply and I apologise for the delaying in replying to you.

I was very interested to read your perspectives on the SFIT – and indeed other aspects of regulatory and tax appraisal mentioned on your website. As you will be aware from your previous career, assessing the impact of new regulatory proposals on small firms is not straightforward, and we are always looking to improve our approach both domestically and in the EU. I am sure that the independent scrutiny of IAs through the Regulatory Policy Committee should in the medium term help drive up the quality of appraisal. We are of course always interested in new research or initiatives in this area that would be helpful in improving how things work in the future.

You’ll also be aware that aside from appraisal the Government has taken a number of other actions to minimise new regulatory burdens on small business, including the micro-business moratorium and parallel initiatives at the EU level.

Many thanks again for your email. I hope the new novel is also making good progress.

Yours Sincerely

Well, let’s look at the work of the Regulatory Policy Committee for a moment then.  Their latest report (which covers the calendar year 2011) is published here (although you may find that the link on their website doesn’t actually work but you can get at it via google).  And a quick word search of the document (no, I’m not claiming to have speed read all 63 pages, sorry) finds no entries for the terms “small firms impact”, “small firms” or “SFIT”.  The RPC’s own website explains that

The RPC assesses impact assessments against well established guidance set out by the BRE IA Guidance, IA Toolkit, One-in, One-out Methodology, and HM Treasury’s Green Book.

and we all know that the SFIT – the small firms impact test – is a mandatory part of the “well established guidance” – you can find it in the IA toolkit, with a link to the BIS page here.

Does the RPC think that checking whether impact assessments contain a reasonable assessment of the impact on small firms is part of their remit?  I’d be interested to know.



Self defence?

July 19, 2012

I am grateful to Ian Brownhill for his article on the Justice Gap blog with the news that the government is changing what happens if you are accused of a crime.  From this autumn, if you are accused and found innocent, you will no longer be able to claim reasonable costs of your defence but only an amount equivalent to the amount which would have been paid out if you’d been on legal aid.  So no fancy forensic work and no high profile barrister and you might at some point have to make a Sophie’s Choice between keeping your house and keeping out of prison.

Where does this come from?  The legislation is in The Costs in Criminal Cases (General)(Amendment) Regulations 2012.  So, yes, I thought I’d have a look for the impact assessment.  And, no, there isn’t one.  This is what the Explanatory Memorandum says:

10.1 The impact on business, charities or voluntary bodies was set out in the final Impact Assessment that was published with the Legal Aid, Sentencing and Punishment of Offenders Act 2012 which can be found at funds.pdf

OK, so there’s no impact assessment for this particular statutory instrument, but the impacts were taken into account in the IA for the enabling legislation.

Let’s look there, then.

What is the problem under consideration?  Why is government intervention necessary? Individuals who are found not guilty (or acquitted) in criminal cases and who have paid privately for their defence may have their expenses reimbursed, including legal costs, from central funds.  The central funds budget is a Ministry of Justice budget.  The problem under consideration is that central funds spending has exceeded its set budget, which cannot be extended because of the Government’s fiscal deficit reduction objectives.  Government intervention is required to maintain central funds within budget.

All right, that’s plain enough.  There’s no more money.  The budget is fixed.  The problem is how to stay within a fixed budget with a fluctuating and presumably increasing set of costs.

The impact assessment should then go on to consider the options available to meet that objective. (para 58 of the IA toolkit:)

it is Government policy to regulate only as a last resort, having demonstrated that satisfactory outcomes cannot be achieved by alternatives, self-regulatory or non- regulatory approaches. These options should be considered during this step.

What do we think?  “The government should give them more money” is one obvious option that’s ruled out by the way the question is framed; what we’re looking at is ways to stay within the set budget limit.  Well what about using money that we get from elsewhere?  Fines and penalties, for example?  There was a spare 59.5 million from the Barclays fine that was only going to be used to lower the fees the other bankers paid for self-regulation, as I recall – couldn’t we use that?

The impact assessment doesn’t contain any options other than cap the fees or do nothing.  Hmmmm.

It also suggests that the amount to be raised by making the change is about fifty million a year – hey, Barclays could pay for this year and we could set a higher budget next year?  No??  Just a thought!

Legal Aid Clients and Providers: An estimated loss of up to £50m in nominal cash from central funds payments. £10m of this is from companies being excluded from central funds on the basis that they might be able to buy insurance. £40m is from paying only legal aid remuneration rates. The burden would be shared between providers and clients depending on whether clients choose to pay their provider over and above legal aid rates.

All right then – this is the important bit.  The change means that companies can’t claim back their expenses any more but are expected to have (or obtain) insurance, which saves around £10m a year.  The remaining £40m is shared between providers and clients.  Track that thought, it’s important.

Because impact assessments are all about the impact on businesses.  The theory is that if the state makes you and me fill in a form on a Sunday afternoon, well, we’re annoyed but we haven’t lost anything financially.  But if the state makes a business fill in a particular form, then – the theory goes – the business has suffered an “administrative burden” – has been forced to pay someone to spend some time doing something that doesn’t earn them profits.

And that’s why impact assessments are all about the costs and benefits to business – you and I, as citizens, may think that it’s unconscionable that we wouldn’t be reimbursed our legal fees were we to be falsely accused of something but, in Impact Assessment terms, that doesn’t matter.  What does matter here, I think, is that the government hasn’t followed its own rules.

Part of the impact assessment, as I’ve said before, is to look at the impact on small businesses.

Now, it says clearly that the burden of this change will fall on both “clients and providers” – both the people wrongly accused and the people who defend them.  The people who defend them who might be solicitors or barristers, in small or large firms.

Because what is a “small firm” for the purposes of the small firms impact test?  It’s a firm with fewer than 20 employees.  Not partners, not members; employees.

How many solicitors are in small firms within that definition?  I don’t know, but I’d suspect a large number.  How many barristers?  I don’t know, but I’d suspect nearly all of them.  And the government has made this regulatory change without taking that into consideration.

Look at clauses 56-60 on the impact assessment for the main legislation.  Most of it is about the removal of repayment provisions for companies accused of wrongdoing: the only consideration of small firms who are legal services providers is in paragraph 60:

Small firms which are legal services providers may be affected by these proposals if their income and/or levels of business is lower in future.

Well big hairy woo – how many of them might be affected and in what way?  We don’t know and we don’t care, seemingly.  But look again at the explanatory memorandum to the actual SI making the change:

11. Regulating small business

11.1 The legislation does not apply to small business.

I put it to you that this is nonsense.  The statutory instrument fixes “the amount to be paid to the accused”: how many wrongly accused people are also small business owners (one man or “micro businesses” in the jargon)?  We don’t know, and MoJ doesn’t care.  How much of the impact of this change will affect legal services providers who are also small businesses?  Again, we don’t know, and MoJ doesn’t care.

Yes, I agree, I’m finding a piece of legislation I don’t like and trying to find a way of overturning it on a technicality.  But for heaven’s sake, the government makes these rules to regulate its own conduct, because it knows that some of its members and servants think it appropriate to say “Yes, Minister” when they ought to be saying “are you sure, Minister?”

One final thought.  I had a not tremendously helpful response from BIS to my Open Letter to Mark Prisk on the subject of the small firms impact test.  It tells me that “independent scrutiny of IAs through the Regulatory Policy Committee” ought to drive up the quality of IAs in the medium term.  I did look on the RPC site for their opinion on the Central Funds IA but couldn’t find it, and to date they haven’t answered my phone message or email asking them for  a link.  But if you look here, at their last annual report, and turn to pages 60-62, you’ll see the MoJ has a less than stellar record of having not one impact assessment scored as “green” on the RPC’s red/amber/green ratings grid at its first attempt, and it only managed to get two of its twenty eight listed IAs through the “green” hurdle on the second attempt.  Maybe a nice little judicial review of whether this legislation should be sent back and its impact on small firms given proper consideration might encourage them to pay more attention in future?


Closed consultations

July 4, 2012

Since one of the objectives of this blog is to respond to all the government tax consultations (I had seriously thought I could look at ALL government consultations, but have you SEEN how many there are!) it’s conceivable you’re wondering about the ones that closed last week which I haven’t mentioned so far.

Here’s a quick round up.

Above the line R&D credit. Essentially the government will refund some of a large company’s research and development costs in order to encourage investment in R&D. I have nothing to say – it’s a laudable aim, a well written consultation, and includes a decent impact assessment. Stand up, R&D tax credits team, and take a small round of applause.

REITs (Real Estate Investment Trusts).  There are proposals to change the REITS regime to encourage investment in social housing.  This, again, would have been an exemplary consultation if it had included an impact assessment showing the estimated costs and benefits of the change.  Without that, in my view, the case for change is not made.

Incidentally, in passing I note that

2.34 In England, the Government has confirmed its commitment to retain the current RPI+0.5 per cent formula for social rent increases for the rest of this Parliament.


3.5 As mentioned above, no solely residential REIT exists in the UK. In large part, this is due to the low yield that this sector generates which is insufficient to attract investors.

Quite frankly, if I could invest my savings at RPI+0.5% I’d snatch your hand off, so I wonder whether there might be a role for someone non-rapacious (a union consortium?  A cooperative?) to set up a housing investment REIT seeking its funding from small savers.  TUC please note!

Alcohol Fraud

I’m not sure I understand why this is such a problem but HMRC looks to be working with industry to counteract it.  What they’re not doing, it seems, is looking at the impact on small firms:

Q39. If you are a small business (less than 20 employees) please provide details of the costs and impacts of this measure?

No small firms scoping meeting in advance of the consultation document?  No Small Firms Impact Test work done yet, then?

My only feedback on this consultation, then, is that it looks as if it might have left itself open to judicial review by not doing enough work with small firms at this stage.   You also might think that, given there have already been unsuccessful judicial review proceedings in this area of law – which included the allegation that the consultation and impact assessment were inadequate –  it might have been tactful of HMRC to have done rather better this time around.

Taxing remote gambling

This one is a no brainer. My only comment would be that I wouldn’t be too fussed about any responses  from industry on the difficulty of establishing a customer’s location: they already do it, as I discovered to my cost when I had a hot tip on a horse while I was on holiday in the States and found my bookie’s account was blocked – because it could already detect where I was.  Who knew that my harmless flutter would have been actively illegal in Wisconsin!

Finally there’s the closed consultation on the tax treatment of herbal smoking products.  I couldn’t really have responded to this one, because what’s being consulted on is the design of the tax, whereas what I would have wanted to respond on was the fundamental design of the policy.

Why are we taxing herbal smoking products?

Well, why do we tax tobacco?  For one thing, tobacco is both addictive and actively harmful to its users.  And so we use the price mechanism to try and dissuade people from using it – and it’s also, of course, a good little money-raiser.

So why would we want to tax herbal smoking products?

Are they actively harmful and addictive?  Doesn’t seem like it, although I’ve never smoked any and I have no particular knowledge or expertise.  Or are we actually arguing that, hey, there’s a dangerous thing that we’ve managed to price some people out of using, but they use something else instead, so we’re losing money, so we’ll tax the other thing as well???????

This is the politics of the madhouse.  But it’s not one of the elements up for consultation, because the decision is made, because

It is not intended to cover whether such changes should be made but rather how the transition can be made easier, and to provide a better mutual understanding of this segment of the market.

Now, I’m not normally a Little Englander, but see page 7, chapter 3 of the consultation, the “Legal Background”:

3.1 At present UK legislation excludes “herbal smoking products” (which do not contain tobacco) from excise duty. This contravenes European Directive 2011/64/EC (“the Directive”) which states that:

“Products consisting in whole or in part of substances other than tobacco but otherwise conforming to the criteria… shall be treated as cigarettes and smoking tobacco”

Well what genius thought that one up?  Honestly!


Open letter to Mark Prisk

June 26, 2012

Dear Mark Prisk

Did you know that you’re the Minister responsible for the Small Firms Impact test?  I just thought I’d ask.  Only I’ve always thought that the small firms impact test is a really good idea… that no-one knows about.

The Small Firms Impact Test (SFIT) is a mandatory part of the impact assessment process, which means it’s something that civil servants in other Government departments have to do when they’re thinking of bringing in new regulations, and that your civil servants over at BIS are supposed to check up on, to make sure they’re doing it right.  It hasn’t been specifically excluded from the TIIN process that applies for tax changes, so we infer it applies to tax changes too.  It would, after all, be daft if it didn’t, and I can’t see anyone persuading Treasury Ministers to stand up in Parliament and say “we’ve decided we don’t need to do SFIT for tax changes”, can you?

So, what is it?  It’s the idea that you should “think small first” – when you’re designing a new regulation, you should think about the impact on small businesses first.  Well, duh, right?

Yes, but there’s a methodology.  Really.  What you’re supposed to do is, early on in your thinking, get together a focus group of small business owners and managers, and ask them whether the idea you’re floating would affect them.  That way any consultation document you send out will be informed by the real concerns of real businesses – and you’re in much less danger of missing something.

Sounds simple, right?  But then how are you going to do it?  I mean, how are you going to find small business proprietors who have got the time and energy to come and talk to civil servants about something that might or might not affect them, way off in the future, when the idea is only at the early stages?  And you want them to talk to you without immediately rushing off to the press and going “sky falling in!  Government has decided to do something stupid again!”  And, to be honest, they’ve got better things to do with their day like, you know, running their business.

The problem is even worse if you’re HMRC, because what small business wants to come and talk to HMRC about how they run their business if they don’t have to?

So to do it right, to do it well, you need to invest in the process.  You need to hold the focus group outside of London most likely – awkward when you’ve centralised the policy teams in Parliament Street.  You need to hold the focus group outside of business hours, because in business hours a small business proprietor needs to be running their business!  You might find it easier to hold the meeting outside of a government building, or even hire a professional company to recruit people for you and facilitate the meeting.  And, as we all know, this all costs money – and can you imagine the headlines in the Daily Mail?  Civil servants claiming train fares to go to a function room and talk to business owners, maybe even over a cup of coffee?  For something that might not even come off?  Because of course one measure of success would be that a stupid idea got stomped on at an early stage – but you’re not going to want to claim that kind of success in the media, are you?

Well, maybe there’s another way of doing it.  Use email, or twitter?  I know your own twitter account hasn’t sent a single tweet yet, but there are lots of MPs who are happy to use the technology and maybe one of them would show you how.  But, again, you can’t get that kind of confidential early-days idea-floating discussion with someone on twitter – one “what do you think about this?” and the twitterati will eat you up if they think you’re asking something stupid.

So how DO you get the Small Firms Impact Test done?

I imagine if you ask your officials they’ll tell you it’s all working wonderfully well.  I imagine, though, that if you ask to sit in on the next SFIT focus group meeting – ANY meeting, any department – you’ll find your diary stays empty for a long, long time.  Because, to be honest?  I’m not confident anyone actually does it at all.

Which is a shame, because it’s a good idea.


And that brings me to my next consultation response, which was to the third consultation which closed on Friday, the consultation on “Simpler Income Tax for the Smallest Businesses”.  This one was written in the usual HMRC “talking to accountants and tax professionals” register rather than in the kind of language affected businesses might be able to understand.  I thought it was a wasted opportunity, and if I were Mark Prisk I’d be asking my officials to bring me the account of the SFIT meeting that led to it.

Here’s what I sent:

This is an individual response to the consultation and will also be published over the next couple of days (with commentary) on my blog,

It is disappointing that you don’t seem to have involved small businesses in the consultation in a more imaginative and direct way.  Did you do a preliminary “small firms impact test” scoping meeting as recommended in the BIS guidance on the small firms impact test?  I suspect not, because the document itself seems over complicated and technical: aimed at accountants, not at the smaller businesses themselves.

In my view (as a new micro business) it will be unhelpful and add unnecessary complexity to offer a range of options – what a micro business wants is clear direction on what they have to do, written in a language they can understand (have you SEEN the first page on on Capital Allowances?  I’m a retired tax inspector and *I* couldn’t follow it!)

Simplified expenses are, according to the TIIN, going to increase receipts by 20m p.a. ie to have a negative impact on taxpayers and it isn’t really clear in the relevant chapter why that would be.  Surely it will make a difference to whether people want to go ahead with the change if they understand where the “winners and losers” will be.

Similarly there are 300m of receipts which appear to disappear from introduction of the cash basis – again, why is this?  Again, it might make a difference to the response if it was clear who would gain from the change.  Or if it’s a horribly complicated individual judgement, then you should have included in the impact assessment the costs of making these one off calculations: I suspect that if you did so there would be no clear case for change on this basis.

Impact on individuals “depends on the degree of alignment” with other measures such as universal credit – I found this to be totally unsatisfactory.  Government changes aren’t a force of nature – get on and align them!

Impact on HMRC has not been properly assessed and I couldn’t see why not?  Surely, again, this is an essential element of the cost/benefit analysis.

In summary, then, I think that the Office of Tax Simplification has identified an area where some change could be extremely valuable but that your consultation document has not taken account of the impact on small firms and as a result the case for change is not made.