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Key points
- Entrepreneurs’ relief is renamed business assets disposal relief.
- A review of the position on MTD for income tax.
- The MTD pilot phase may be longer than anticipated.
- Call for evidence on raising tax advisers’ standards.
- Some agents do not adhere to high ethical standards.
- Protecting consumers of tax advice is a priority.
- Will formal regulation of the tax profession be required in future?
The coronavirus (COVID-19) notwithstanding, normal tax processes continue and 19 March saw the publication of the Finance Bill, which will give legal effect to the announcements in the Budget. Our expectation is that the Bill will be given royal assent in July, but in this fast-changing environment a delay until the autumn cannot be ruled out. Further, a number of consultation documents were released. Under normal circumstances these would have attracted much interest, but they have rather disappeared under the radar. Nonetheless they are certainly worth some discussion in these pages.
Goodbye and hello
Perhaps the only surprise in the Bill itself is what has happened to entrepreneurs’ relief. Craig Simpson’s article on page 18 goes into the detail and there is no need for me to cover it here. But it is worth a brief comment on the change of name.
Business assets disposal relief is certainly a more accurate description than entrepreneurs’ relief and I can’t help thinking that had that always been the name there might have been less pressure to reduce or abolish the relief. It was the fact that it didn’t really encourage entrepreneurs which was one of the main reasons for the rethink. The whole thing reminded me of the adage in Yes Minister that you should always get the most difficult bits of any document out of the way in the title.
Digitalisation is still on the agenda
So what about the other tax-related documents published alongside the Finance Bill? Several of these caught my attention. The first is an update on making tax digital (MTD). Much of this is backward looking and reviews the early taxpayer experience of MTD for VAT. The assessment is upbeat, but does recognise that problems did arise, particularly around the processes that agents had to go through to register their clients under the new system. HMRC promises to take these into account in designing the next stage of the project. Judging by recent feedback in this magazine I know that some readers will find it difficult to accept HMRC’s positive impression of how things have gone so far, but I think we should all acknowledge that MTD for VAT was not the disaster that some predicted. Of course, the actual reporting obligations for VAT are limited and the real test will be how MTD for income tax will work.
More detail is required
This brings us to the forward-looking part of the document. It is clear that it is still HMRC’s intention to extend MTD to businesses that pay income tax, but there is little detail of how or when. There seems to be an acceptance that it will take some time before it will be possible to consider making this compulsory and it appears likely that there will be a longer pilot phase than originally anticipated. The document recognises that ‘until there is a concrete roadmap for the roll out the software industry will be reluctant to commit to significant investment in MTD software’. But no roadmap is included in this document and I suspect it will be some time before any firm plans are announced.
My best guess is that things will move forward fairly slowly. As more firms and clients see the commercial benefits of operating digitally there will be a natural move to reporting through MTD. If, at the same time, peoples’ experience of the pilot is positive, and continuous improvements are made as a result of feedback, then compulsion may not be necessary. During the current coronavirus outbreak it is inevitable that more taxpayers will interact with agents digitally, so it would be a strange irony that one of the side effects of the virus would be a boost to the MTD programme.
How to trust a tax adviser
A second key document is a call for evidence about raising the standards of the tax advisers. Here HMRC sets out its view of the current state of the tax advisory market. Although it acknowledges that most agents do valuable work for their clients, it is scathing about the small minority who do not. It says: ‘There are some advisers who do not provide a good quality service to their clients. This may be because they lack competency or have not kept up with technical changes, are dishonest or do not hold specialist expertise. Some tax advisers do not adhere to the high ethical standards that their professional bodies expect of them.’
These comments are backed up with a number of examples of poor agent behaviour. Much of the emphasis in the document is on protecting consumers, so that any buyer of tax advice can be confident that that advice is reliable and will not get them into trouble with HMRC.
A number of possible actions are suggesting including, at the extreme, regulation of the tax profession. This has always been shied away from in the past, not least because HMRC does not want to act as a regulator, but the fact that it is put forward as a possibility here does show how seriously this problem is being taken at the highest levels within the department. It is difficult to predict where all of this will end, but it seems inevitable that in the medium to long term we will be operating in a different world. This is a divisive issue but I sense, from the conversations I have with firms of all shapes and sizes, that there would be less resistance to some form of regulation than there would have been even five years ago. Clearly, Taxation will be monitoring developments closely.
What to tell HMRC?
One document I was particularly looking forward to was the consultation on notification of uncertain tax treatment by large businesses. The question of disclosure is one that has always interested me, particularly in the light of all of the developments in the discovery cases. I have to say that I was a little disappointed in the consultation document. This is mainly because much of the emphasis is on process and defining the companies that will be within the scope of the rule. These are of course important, but I would have wanted more clarity over what an uncertain tax position is. At the moment, it all seems rather vague – for example ‘transfer pricing’ (para 3.3) and the ‘capital revenue divide’ (para 3.22) would be relevant to almost all returns for large companies. Obviously, I accept that the purpose of the consultation is to flesh out these broad principles into a workable regime and, on balance, it is better to start wide and then narrow down, but at the moment I don’t really have a sense of what HMRC is actually looking for.
Many readers will not deal with large businesses and so might not give these proposals much thought. In the short term that is fine, but I have little doubt that over time the principles will be extended to a wider group of taxpayers. After all, the Keith Committee on revenue powers in the 1980s proposed that all taxpayers would have to notify the Inland Revenue if they had given themselves the ‘benefit of the doubt’ when filing their returns. What goes around comes around.
Abuse in the construction industry scheme
The last document I want to look at will be of interest to tax advisers acting for clients, large and small, in the construction industry. We all know this is a difficult area with a balance being required between the prevention of fraud and abuse at one end and, at the other, the administrative burden and cashflow issues created for businesses operating the rules correctly.
There are several proposals in the consultation, the most important of which is a new power for HMRC to correct construction industry scheme (CIS) deduction figures in employer payment summary (EPS) returns if the employer has paid CIS deductions and used those to offset the deductions it makes when paying subcontractors. This power will operate in-year rather than as part of the end-of-year processes and tight time limits will be applied (employers will, for example, have only 14 days to respond to HMRC’s requests for information). These proposals seem both significant and complex and I would urge all involved with construction industry clients to review them and then inform HMRC or their professional bodies about any practical problems that might be caused.
Plenty more where that come from
There is no space to cover all of the consultations in this article, so the others that I suggest readers should take note of include the following.
- Tackling promoters or mass-marketed tax avoidance schemes (tinyurl.com/sg568al).
- Preventing abuse of the research and development relief for SMEs (tinyurl.com/vsnywhq).
- Protecting taxes in insolvency (tinyurl.com/uucx3ns).
- Income tax automation challenges (tinyurl.com/tvd5z7n).
The extent to which any of the changes will go ahead is anybody’s guess given the current crisis. Deferral of some proposals seems almost inevitable. The effect of the virus on the economy and businesses will be profound and will almost certainly lead to lasting changes in how our profession operates and interacts with clients and HMRC alike. But normal life must go on as much as possible and we all have an obligation to keep the tax system running as much as we can, which includes continuing to take an interest in potential changes to the system. So, if you are stuck at home why not read some of these consultations – they may temporarily take your mind of everything else that is going on.
