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KEY POINTS
- Third project: to establish the OTS and show it makes a difference.
- Small staff, but others who can be called on.
- Reliefs review will start by codifying what is available to be claimed.
- Small business review will not ‘abolish IR35 by the end of the week’.
My memory is obviously playing more tricks on me than I thought, because I distinctly remember going to a retirement party for John Whiting when he left PwC last year.
But I can’t have done, because he has just accepted the interim role of tax director at the OTS for one day a week, in addition to his job as policy director at the Chartered Institute of Taxation (CIOT).
In theory he is now working four days a week, in practice I suspect he is as busy as he ever was. I went to the CIOT’s offices in Victoria, just a few minutes’ walk away from HM Treasury (HMT) at 100 Parliament St, to talk to him about his new job.
MT: How would you describe the job?
JW: Challenging. Simplification is something I’ve been talking about for so long that, given the opportunity to have a go, I couldn’t really say no – but this is a terribly small unit, and it is a huge task. The goodwill is fantastic, but the weight of expectation is also quite something. Various people seem to think I’ll be knocking a thousand pages a year off the famous 11,000 pages in the legislation. I think a degree of realism has to creep in, but we’ve got to try. If nothing else, this sends a signal that this government is really serious about doing something to halt the rise of complexity in the legislation.
MT: So is the Government really serious about this?
JW: I think so. There are two good signals. One is the Making Tax Policy document, which I think is seminal. We’ve got to see if it is carried through, but all the comments I hear in the Treasury and HMRC are good about a better process for making new law. Then with the OTS we’ve got a commitment to reviewing the old law. We’re supposed to have two immediate projects, but as far as I’m concerned we’ve got three.
MT: What’s the third?
JW: To get the OTS up and running, get it really established, and show it can achieve something. That’s unofficial, but in my mind it is a key part of what I have got to do.
MT: It’s a really small staff, though.
JW: We’ve got Michael Jack and me, both very much part-time. There’s a small secretariat within HMRC/HMT of three full-timers plus a bit of admin support. The idea is that we can find the expertise within HMT and HMRC when we need it. So, while it might look like a small team, there is quite a lot more we can draw on, including their statistical team. Then, of course, we aim to recruit a number of secondees from the private sector – we’ll see how many we can get – but it’s still a single-figure complement of people.
MT: If you had been asking the profession for secondees a year or so ago you would probably have had people falling over each other to come in.
JW: Yes, there would have been a lot more enthusiasm for parking people with the OTS to broaden their experience. Now it might be a bit tighter.
MT: What sort of response are you getting to the requests for secondees?
JW: Recruitment from HMRC has started, and we hope that we have appointed a head of unit. Dave Hartnett and Edward Troup wrote to a lot of the large professional firms and companies saying we would be looking for help, and we’ve got a pleasing response. We also need to find a way of getting involvement from small firms. Am I saying I’ve got a queue of people waiting to join up? No. Am I confident we’ll recruit enough to get going with? Yes. Then, if we can prove it really works, when my appointment expires, one of the things I might have to say to David Gauke [Exchequer Secretary to the Treasury] is that you need a full-time director and maybe 27 people to run the OTS.
MT: So, in a year’s time you might well be saying to them, ‘We need proper paid staff for this’?
JW: I haven’t been asked to do that, but I would see it as part of my role. When they recruit for a permanent chairman and tax director in about nine months time, Michael and I can apply and the staffing could just roll on. But if I feel we need a full-time director and more staff I would feel it incumbent on me to say so.
MT: Because I can see the profession wanting to help it get going, but staffing it on a secondee basis…
JW: Unpaid secondee…
MT: Yes, an unpaid secondee basis: that can’t go on for ever.
JW: I think the big firms and trade bodies would want to help, and if some mechanism could be found for 500 small firms to band together and provide someone…
MT: That’s not easy.
JW: No, and the professional bodies, like the ICAEW, for example, want to help, but professional bodies don’t have many people on their staff.
MT: Do you see any conflict with your CIOT role?
JW: That’s something I asked the moment I got the call, because I want to carry on with this role, given that the OTS role is very part time. There is possible friction in two ways. What if the CIOT want to criticise what the OTS is doing? Also, if the other bodies see me in place, is that going to put their noses out of joint? I recognise the tensions and will work to overcome them. I think I’ve got a reasonable record of being fair and independent, so I hope I can balance it all. I soon have to start forming some steering groups and working parties, and I will naturally enough want to bring everyone in. Although the CIOT has views on most things, so do the other bodies.
MT: But you are sitting there as the OTS director in the middle. Would you need to bring someone else in to represent the CIOT view?
JW: I could do. There’s an element of ‘we’ll cross that bridge when we come to it’, but I think that , metaphorically or literally, when I leave this building for an OTS meeting, I’ve got to find a telephone booth to put on my OTS underpants. If when I reach the Treasury there’s a letter from the CIOT saying ‘the way to solve this is X’ and everyone else thinks it’s Y, then I’ve probably got to go with Y.
MT: Even if the CIOT letter has your name on the bottom of it?
JW: Yes. It’s slightly odd, but I think I’ll probably see some of the difficulties that HMRC and HMT have in synthesising the common message from the rep bodies.
MT: So that may help you in doing the CIOT job because you get to know more about the way the Treasury works.
JW: Well, I’ve learnt more and more about the process that goes on down there over the past ten or 20 years. All the bodies have got better at timing and framing our representations usefully. We used to do Finance Bill representations, which was far too late. Now we’re doing them to influence the consultation document before it comes out.
MT: If the OTS had been in place earlier, would it have had an impact on the decision to change CGT halfway through the year?
JW: Not immediately. The OTS is meant to look at the stock of existing tax law, whereas the process of getting new law is down to the new tax policy-making process. That said, if we can show that simple means sensible, that there is a better way of doing it, then we might help. Would an OTS established a couple of years ago been able to say, ‘Hang on, that’s adding unnecessary complexity’? No, that’s probably not in scope.
MT: Would it be in scope to say of past legislation ‘we need to change this and you probably shouldn’t do that again’?
JW: I’d like to think so. After our immediate projects, another that could be topical would be pensions. If OTS had been there for many years we might last year have said it was a good time to look at the pension rules. We might then have said, ‘These are pretty good, and by the way don’t change them’. I’d like to think that would have an influence, but would it? I don’t know.
MT: Lord Howe was very open that Chancellors love tinkering with the tax system for political reasons. Can the OTS change the process that allows them to do that?
JW: One of the things Lord Howe has flagged up, and Vincent [Oratore, the CIOT president] too, is to say that the parliamentary process needs to improve. Making Tax Policy doesn’t really deal with that. So, on the parliamentary process, we’ve got a lot to do. We hope to improve the consultative process, but the OTS is basically looking at the stock of existing legislation. Maybe two or three years down the track, the OTS director might be in a pre-Budget consultation saying, ‘Do you know that we’ve just looked at this subject? I’m not saying you can’t change it, but it will cause these particular problems’.
MT: Is it any part of the OTS’s role to decide whether we should have a General Anti-Avoidance Rule (GAAR)?
JW: It could be, but we’ve got two important projects to start with. Let’s get on with those rather than getting mired in a popularity poll in the pages of Taxation asking what we should simplify. I haven’t got a brief as such to think the unthinkable, but there’s got to be an element of that. A GAAR isn’t on my agenda, but could it be? Yes, it could, but it is already on the agenda of the tax policy committee, which will be discussing the matter this summer.
MT: Thinking of the two projects you’ve got, the tax reliefs review has to report quite fast.
JW: I see the first stage as just codifying the reliefs. If you had asked most people how many reliefs there were in the tax system, they might have gone as far as 100. The fact that HMRC have got to over 400 already shows how many there are. At one end there will be capital allowances, and at the other end there will be some reliefs claimed by only a handful of people. I think once it’s codified you‘ll start getting a bit of reaction. That’s what I see as the start of the process, not putting the black spot on some of them by October/November, although we might identify some particularly interesting ones. By way of illustration, I’ve been involved in some past work on reliefs claimed by small businesses. Everyone claimed things like capital allowances, but hardly anyone knew about corporate venturing relief, and even fewer claimed it. So the question is, are these reliefs working? Are they delivering value for money? Are they just subsidising what would happen anyway?
MT: So, you need to get into the reason behind the relief. What are we aiming to get out of this relief?
JW: I think a lot of this is about the admin burdens it imposes, rather than just the number of pages in the Yellow Book. If we reduce the burden of compliance that is as good, if not better than reducing the legislation.
MT: How far will the small business review go? As soon as you pull at one string of it, you could unravel the whole lot.
JW: Well, it specifically includes IR35, and a lot of people have already interpreted that as ‘we’re going to abolish IR35’. Now, just a minute: in some ways that’s not a bad starting point: i.e. can we at least streamline IR35? But if we’re going to make any serious progress we should look at the whole thing. Does that mean looking at the whole subject of sole trader v employee v company? Yes, it possibly does. We might have to come up with an initial report that says we’ve got to look at the whole thing to make a real impact.
MT: So, without asking you to be definite, you’d be reasonably happy if by Budget 2011 you had outlined the scope for a further consultation?
JW: That’s clearly one possibility, but I’ll be hoping for a lot of input between now and then from people who have been thinking about it for some time. So, perhaps we can plot more of a course. What I don’t want to do is add another bit of sticking plaster to what is already quite a ramshackle structure. If that disappoints people by not committing to abolish IR35 by the end of the week, well, sorry.
MT: Even if IR35 is abolished in due course there is still that fault line to deal with between casual employees and freelance workers. One way to abolish it would be to come up with tests like those planned for the construction industry.
JW: Or you start removing the differential between these different statuses. I don’t want to rule anything out or anything in at this stage, but we need an overall look at this. As far as I am concerned, IR35 is not very effective and we need to look at what gives rise to that. For all the hot air it generated, there were real abuses that IR35 was meant to tackle. If it were abolished, they could come out again. Maybe people have to accept that if we simplify to make things easier, it may make some of the edges rougher.
MT: Would that involve divorcing the employed/self-employed distinction for tax from the one used in other legislation?
JW: Personally, I wouldn’t want to do that. I’d prefer to get them harmonised and going in the same direction. IR35 was also meant to ensure that those who really were employees got employment benefits, but that never happened.
MT: If you became the permanent director, would you expect it to take the same amount of time?
JW: That’s the working assumption, but we’d need to sit down and take stock in nine months or so.
MT: Let’s say you did serve for the five years of this parliament, what would you consider to be a success?
JW: I’d hope we would have got rid of a few pages from the Yellow Book, but I also hope that there would be a feeling that there was a better way of doing tax law. I’d hope people would say, ‘The OTS are coming out with some sensible suggestions; they are having an impact’. But we’re never going to get the Yellow Book down to the size it was when I started in tax. I’d like to be able to point to some milestones that we’d achieved, but equally to the way we’ve changed the culture and the ethos. That might not sound very ambitious, but I’m trying to be realistic: I think there is a cultural shift to play for here.
