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KEY POINTS
- The failure of online filing system led to extended deadlines.
- The 10% tax rate debacle forced changes in May.
- Giving up on tax struck a chord.
- The Pre-Budget Report included surprises on tax rates.
These days I find that I normally underestimate how long ago something happened. For example, although of course I know that we had to submit the first self-assessment tax returns in January 1998, it still seemed surprising that in January this year we were publishing an article about the tenth anniversary of the change.
However, I found it equally surprising, as I looked back over a year’s worth of Taxation magazine and website articles, that the term ‘entrepreneurs’ relief’ was not in the tax adviser’s lexicon until the Chancellor announced it in January.
Back then, we were still getting over the shock of his first pre-budget report, and the drastic changes he had announced to the remittance basis as well as CGT. Alistair Darling has certainly not been a boring Chancellor.
The main criticism, initially, of entrepreneurs’ relief was that £1 million would not be enough for serial entrepreneurs. It was later, after we had time to review the legislation, that we began to realise some of the key differences between it and business asset taper relief.
Online failure
As January came to an end, HMRC permitted themselves a pat on the back as they announced that three million tax returns had been filed online. There was a hoo-hah in the press about greater online security being given to VIPs which proved to be a storm in a teacup, but the real storm broke on 31 January, as HMRC’s own online filing system failed.
The deadline was originally extended for a day, and then (when the system was still slow on 1 February) until 3 February for online filing and 4 February for paper. There were suggestions, which we reported, that there might have been some sort of attack on the system, but it turned out to simply be overloading, exacerbated by people trying to get back on after being thrown off.
The Budget
For tax advisers, the most welcome outcome from the Budget was something that wasn’t in it at all. The expected legislation on income shifting did not materialise, despite having been announced almost as soon as the ink was dry on the Arctic Systems decision the summer before.
At first it was just postponed until the pre-budget report in the autumn but when it failed to appear there the Government announced that it was deferred indefinitely and would simply be ‘kept under review’.
The effect of the removal of the 10% tax band was by now old hat to tax advisers, but the effect of it showing up in pay packets sparked a Labour backbench revolt and caused a climbdown by the Government in May.
Rather than a more targeted package, the Chancellor chose to give all basic rate taxpayers an extra £600 in personal allowances. It seemed a rather blunt instrument at the time, but perhaps he realised that a fiscal stimulus would be needed by the autumn.
Domicile and residence
The first part of the year also saw the proposed new domicile and residence rules being challenged and changed. The original proposals to remove the non-domiciled exemption for both settlors and beneficiaries were watered down, with the settlor exemption remaining. However, as advisers worked their way through the massive schedule on the remittance basis they wondered what had happened to simplification.
The rules on residence were the subject of both statutory and case-law changes. The statutory change was to count ‘midnights’ rather than days of presence, and a full statutory test has not been ruled out for the future.
The result of the case of Grace, won by the taxpayer at the Special Commissioners but overturned in the High Court, might hasten the change, as it is hard to say what the rules for becoming non-resident now are.
Giving up
One of the articles we published which attracted the most attention during the year was the Comment piece by Mark Lee explaining why he gave up advising on tax. He said that there were three main factors – the growing complexity of legislation, concerns about his own ability to keep up with it, and the increasing incidence of professional negligence claims.
Several readers wrote in to say that the article had struck a chord, particularly the comments about the increase in legislation. One, however, pointed out (slightly tongue in cheek) that the increase in legislation merely increases the fee-paying work opportunities.
The issue of consultation over legislation was, however, a theme which returned time and again in the year. In May we reported on a CIOT round table on the process of consultation for new legislation. There was general agreement that consultation had improved, but that there were still occasions when the Government tried to pull a rabbit out of a hat.
The result was normally that the resulting legislation had to be amended after the announcement. It would be far better if consultation could take place earlier, and the round table explored ways that this might happen.
Campaigns
Taxation ran two campaigns during the year, with varying degrees of success.
The first was Stop the Staff Cuts, calling for a halt to the cuts in the numbers of Revenue staff until the level of service offered to taxpayers and their advisers improved.
The campaign was certainly noticed at 100 Parliament St, because it was referred to by Dave Hartnett in a subsequent speech (he said the campaign was unhelpful). We can’t, however, claim that it was successful: the staff losses have continued in the name of ‘efficiency’.
Our second campaign is, however, showing more signs of success. It followed from the ICAEW Tax Faculty’s Wyman debate, which looked at the issue of Revenue powers and the growing concern about the lack of safeguards included in them.
Along with AccountingWeb, and of course the representative bodies, we campaigned for a taxpayers charter that had statutory backing and could be used in legal cases, though not fully set out in legislation.
Although the consultation document expressly excluded the option of legislation, the responses to it were so universal in demanding it that the response document issued with the pre-budget report accepted that there will be a clause in the next Finance Act requiring HMRC to have a charter.
The detail of both the charter contents and the legislation have still to be seen, and much will depend on what is in them.
Registration delays
One of the stories of 2007 had been the delays in getting VAT registrations through. Whilst this was partly a result of the increased concern over missing trader fraud, it rose to unacceptable levels, and HMRC were put under pressure to report registration statistics on a monthly basis.
The backlog decreased, but in April to June this year the time taken to process straightforward applications suddenly went up again. HMRC explained that this was because prior to this the time taken to process any application was capped at 60 days. This cap had never been made public before, and it was argued that HMRC had misled the National Audit Office, and even
Parliament
Meanwhile it was argued by some within HMRC that the reason for the backlog was primarily an explosion of company registrations in an attempt to avoid the new managed service company regime.
We investigated this claim and found the position to be more complicated than that; the root cause of it appeared to be the failure of the tax system to properly recognise the status of those working on short-term contracts, meaning that they effectively had to operate through some form of company.
Credit crunch
As the credit crunch hit, so the focus of articles in Taxation changed. Rather than looking at the taxation of profits, we were publishing more articles on how to effectively use losses.
We no longer assumed that the consequence of buying a property would inevitably be a capital gain, and the main concern for those who had investments in unquoted companies was whether they could claim share relief when they dropped in value.
None of this reduces the need for the services of tax advisers; arguably clients need advice even more during the hard times than they do when the economy is going well. We will continue to give you the information you need to help clients who are going through economic difficulties as well as those who are still successful.
Pre-Budget Report
This year’s Pre-Budget Report was accompanied by the now-typical paucity of notice. Chris Sanger argued in a recent issue of Taxline that the dates for both the Pre-Budget Report and the Budget should be fixed by the calendar, and I agree – it would help both the profession and HMRC to know that we were aiming for, say, the third Monday in November for the PBR and the second Wednesday in March for the Budget.
The temporary cut in VAT and the changes to the taxation of those earning over £100,000 were the stories of the pre-budget report. It remains to be seen what effect they have on the economy, but they certainly seem a long way away from the simplification agenda with which this year started.
What of next year?
The new HMRC powers coming into force will no doubt be a major issue, and the progress of the taxpayers charter will be watched with interest. But it is most likely that, next year as this, some of the biggest tax stories will be ones that no one anticipated.
So I will put away my crystal ball, and simply wish all our readers a happy Christmas, and as prosperous a New Year as economic conditions allow.
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