MPs urge government to avert tax digitisation ‘disaster’

UK tax professionals and business representatives have welcomed an influential parliamentary committee’s call for implementation of the Making Tax Digital project to be delayed until at least 2019, in order to address serious shortcomings that could result in “collateral damage” and a loss of taxpayer goodwill.

The cross-party Commons Treasury Committee’s report is a “damning indictment” of the government’s plans as they stand, said Mike Cherry, national chair of the Federation of Small Businesses. But HM Revenue & Customs defended the plans, telling Tax Analysts that it welcomed the committee’s “support for the digitisation of the tax system.”

Read more: My news story for Tax Analysts 14 January (paywall).

Read the Treasury Committee report: Making Tax Digital.

Northern Ireland’s political stalemate puts tax devolution on hold

The prospect of corporation tax rate-setting powers being devolved to the Northern Ireland Assembly has been diminished by a political crisis following the resignation of Martin McGuinness as deputy first minister over a botched renewal heat incentive scheme.

The Corporation Tax (Northern Ireland) Act 2015 permits the Northern Ireland Assembly to set the rate of corporation tax for profits of some trades and activities of Northern Ireland companies. But the power cannot be exercised until the U.K. Treasury is satisfied that the Northern Ireland Executive has demonstrated that its finances are on a sustainable footing. The Executive had committed to a Northern Ireland rate of 12.5 percent from April 2018.

Read more: My news story at Tax Analysts, January 13 (paywall).

MPs urged to seek expert briefings on new UK tax laws

Members of the UK Parliament should consult tax experts before scrutinising finance bills and should do a “more rigorous” job of examining new measures, according to Andrew Tyrie, chair of the House of Commons Treasury Committee.

Finance bills are examined in detail by a House of Commons Public Bill Committee, known as the Finance Bill Committee, once MPs have debated the general principles of the bill during its second reading. “It is astonishing that, alone among committees formed to look at each piece of legislation, the Finance Bill Committee does not take evidence from those best informed about the subject, before beginning its detailed line-by-line consideration. This should be put right,” Tyrie said in a statement published on January 11 …

“Dumping poor-quality tax legislation onto the statute book on a quiet day in committee” should no longer be an option for the government, Tyrie added.

Read more: My news story for Tax Analysts, January 12 (paywall).

MPs to question HMRC officials on office closures

The Commons public accounts committee will quiz HMRCs officials later this month on the tax authority’s plans to close most of its offices and move to regional centres, after the National Audit Office reported that HMRC’s original plans proved unrealistic and “carried too high a risk of disruption to its business.”

HMRC is reconsidering the scope and timing of the move, the NAO said. It should now “step back” and consider whether its strategy “still best supports its wider business transformation and will deliver the sustainable cost savings it [has] set out to achieve in the long run,” said Amyas Morse, head of the NAO. Read more:

My news stories for Tax Analysts, 11 January (paywall):
UK government remains committed to HMRC office closure strategy

National Audit Office report, 10 January
Managing the HMRC Estate

Public accounts committee inquiry and call for evidence, 10 January
The HMRC Estate inquiry

Commons debate on urgent question, 10 January (see below)
HMRC Estate

It is important that people understand how the tax system works

It’s well known that the UK system is complex, and even experts have difficulty understanding aspects of it. But for most people, at least, personal taxes ought to be relatively simple. Where would I go for guidance if I didn’t know the first thing about income tax?

The obvious answer may be the website of HM Revenue & Customs (HMRC), or rather the HMRC part of GOV.UK. (Oh, please note my disclaimer about external websites!) My aim here is not to provide specific tax advice but to share a thought about the tax system and how well or how little it is explained and understood. And how that understanding might be improved.

If you are relying on GOV.UK for guidance you need to take particular care because, as many tax professionals will tell you, GOV.UK does not provide the same level of detail as HMRC provided on its old website. The government has tried to make the information more accessible, and while the guidance may be shorter and easier to read it may not cover your particular circumstances. And it may be out of date, because tax is changing all the time. There are many other sources of guidance and I’ll mention some of them in future posts.

Start here at GOV.UK and you would go to money and tax, and follow several links to “income tax” to arrive at an overview. (Or you might start on the HMRC pages and go to income tax for a  different starting point).

Item 5 on the overview page allows you to “check you’re paying the right amount” of income tax. And you can estimate how much income tax you should have paid in any tax year. There is a long list of people who can’t use this particular tax checker – and as HMRC says, other checkers are available.

Let’s assume you are eligible to use this checker, and that you were an employee in the tax year ending 5 April 2016 and you received salary of £30,000. You had no other taxable income or allowable deductions in that year.

The checker tells you that you should have paid income tax of £3,880. This is £30,000 less the personal allowance of £10,600, leaving £19,400 taxable at 20%. These figures are clearly shown in the calculation, but the calculation does not include national insurance contributions (NICs). In this example the NICs would be:

  • Employee NICs (£30,000-£8,060) x 12% = £2,633
  • Employer NICs (£30,000-£8,112) x 13.8% = £3,021

So on the face of it, for an employee with straightforward circumstances setting out to use the HMRC guidance to understand his/her tax bill, the income tax part is reasonably clear but the NICs aspect is not so clear (and it may even be missed altogether).

The employer’s NIC bill is met by the employer, of course, while the employee’s NIC may go largely unnoticed on the monthly payslip. But the amounts are significant, and this is one reason for the growth in self-employment (real or bogus) in recent years.

Public CbC reporting will do little for public confidence, UK tax professionals say

Public country-by-country (CbC) reporting alone will do little to increase public confidence in relation to tax, and it is inevitable that the public will continue to regard large businesses as tax avoiders irrespective of the level of disclosure, according to a leading UK tax practitioner.

A member of the public will see CbC data very differently from someone with a detailed understanding of transfer pricing principles, but is “unlikely to be interested,” said Ray McCann, a tax partner at the London law firm Joseph Hage Aaronson LLP and vice president of the Chartered Institute of Taxation, sharing his personal view with Tax Analysts in response to the Responsible 100 tax transparency initiative. “Instead, it will be [the] views of the lobby groups that will grab public and media attention, and it is unlikely that they will let up on what they see as the abuse of the system by large multinationals.”

… Civil society views taxation through “the lenses of morality and fairness,” and tax avoidance scandals can be “devastating” to companies, according to Responsible 100, an initiative of Profit Through Ethics, a London-based company. A roundtable event to be held on January 18 will address the question, “Is your business transparent on tax?” Responsible 100 director Michael Solomon told Tax Analysts that “it beggars people’s belief to hear businesses say they would be open and honest were it not for the reason that such openness and honesty would then be used against them.”

Read more: My news story for Tax Analysts, 6 January (paywall).

UK lawmakers to debate new push for transparency in overseas territories

A new measure forcing the UK to demand greater transparency from its overseas territories has won the backing of more than 80 members of Parliament, including a former secretary of state for international development.

A proposed new clause, to be added to the Criminal Finances Bill currently before Parliament, would require the UK government to provide, no later than the end of 2018, “all reasonable assistance” to the governments of the UK’s overseas territories to enable each of them to establish a publicly accessible register of the beneficial ownership of companies registered in its jurisdiction …

Read more: My news story for Tax Analysts, 6 January (paywall).

Complexity and cliff edges

The Brexit vote, the Finance Act 2016 and the draft Finance Bill 2017 have introduced a number of complexities and uncertainties for anyone considering how to structure a business and distribute or retain its profits. Changes to savings and dividends taxation merit careful examination, and several recent initiatives may have an impact on tax policy.

Read more: My article for Accounting and Business, January 2017.