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Key points
- Keeping up with the various government coronavirus support schemes.
- Will HMRC feel empowered to clamp down further on what it views as unacceptable tax planning?
- Effect of social media on MPs’ consideration of the loan charge.
- More support for MPs should be provided to help them make effective tax law.
- The role of agents must be kept in mind with tax digital developments.
Sometimes I write a brief piece in December making predictions about tax developments in the following year. I didn’t do that last year and I must say I am mighty relieved about that. It would probably have been about post-Brexit agreements and how effective Sajid Javid might be as chancellor. Not in my wildest dreams could I have imagined that a then junior politician, Rishi Sunak, would be throwing money at restaurants to encourage me to eat out, nor that the government would be paying the wages of nine million private sector employees. Truly it has been an extraordinary year. So, in Taxation’s final 2020 edition it seems appropriate for me to look back at what has happened this year in the hope that it might give us some pointers to the future.
Keeping up with the pace of change
We start, inevitably, with the various coronavirus support schemes. Like so many people, I have been bewildered by the range of schemes which have been available and, in particular, at the rate they have changed. We have tried our best to keep readers up to date with everything but at times this has been difficult, not least because sometimes alterations have been made to new schemes between our going to press and the magazine being posted.
I will reflect on some of the design issues later, but it is right to say here that HMRC surpassed expectations in delivering this support to businesses. Whenever I talk to small business owners I make a point of asking them whether they received the financial support to which they were entitled and also how easy it was to get it. The response has been almost universally positive. People have found the systems straightforward to navigate and money has reached their accounts quickly. Of course there have been a few glitches, but these are trivial in relation to the overall effectiveness of the delivery.
Many of us doubted whether HMRC could deliver what was required. We had seen other parts of government struggling to cope with logistical challenges – for example, the early days of personal protective equipment (PPE) distribution or the problems with ‘test and trace’ – but HMRC has not prompted any of the same sort of headlines. I have no doubt that the department will come out of the pandemic with greater confidence than when it went into it. That is bound to have a long-term impact on the department’s ambition and will increase its clout in Whitehall when tough decisions are to be made. Who knows what that might lead to?
Falling though the gaps
Let’s move on to design issues. We are all aware that significant numbers of people fell though the support gaps, in particular the newly self-employed and directors rewarding themselves through dividends. This is a consequence of something that we all know: the same activity carried out in different legal forms can lead to different fiscal results. There are strongly contrasting views on the impact this has had for coronavirus support.
Some people feel strongly that support should not depend on how people take their income. Others feel equally strongly that ‘those who live by the sword should die by the sword’ – people who have deliberately taken dividends rather than salary to reduce their tax liability cannot complain if they do not qualify for support based on the level of salary. Regardless of the rights and wrongs of this, I can see only one long-term outcome: further moves to equalise the tax treatment of business income, regardless of the way it is structured.
When introducing the self-employment income support scheme (SEISS), the chancellor said: ‘But I must be honest and point out that in devising this scheme – in response to many calls for support – it is now much harder to justify the inconsistent contributions between people of different employment statuses. If we all want to benefit equally from state support, we must all pay in equally in future.’ We have been here before. I have lost track of the number of times this issue has been raised, but there is now a clear impetus for change and I am sure that we will spend much of 2021 reviewing proposals for reform of small business taxation.
Pay it all back!
There is another aspect of the coronavirus schemes worthy of mention: the public’s view of what is and is not fair. We have seen several household name retailers making the decision to repay furlough payments or business rate subsidies. This has not been on the basis that they were not entitled to them, but because they do not want to be seen to be profiteering from government support when they have been spared many of the worst effects of the crisis. They do not want to attract public opprobrium and so are getting their retaliation in first.
The latest version of the furlough scheme gives HMRC an explicit right to publish the names of businesses that receive payments, and I expect that publication will receive a great deal of publicity both nationally and regionally. I am sure there will be more pressure put on businesses to repay cash. This is bound to ignite the question of what is fair in taxation, and the difference between taxes which are legally due and which are morally due.
That debate has been less prominent over the past year, but I expect it will come back with renewed intensity. Again, where this might end up is anybody’s guess, but I can imagine that a newly-confident HMRC will want to press for yet more measures to clamp down on anything which is not plain vanilla tax planning. If the experience of coronavirus is anything to go by it will have the public on its side.
A loan is a loan is a loan
Hard as it is to remember, there have been other issues occupying tax advisers. The first of these is the loan charge, which continues to excite strong emotions. This is not the place to revisit the arguments about whether the charge is justified, but there are some wider points worth mentioning.
The first is the impact of social media. We have seen social media used in tax campaigning before, but there is no doubt that the ability of people to share their experiences and views this way has been a major factor in the way the debate on the loan charge has been conducted. I doubt very much that Sir Amyas Morse’s review (tinyurl.com/lcramdec) would have happened without the social media campaign highlighting the issue so that MPs were forced to take action. Whatever readers’ views about social media, it is now very much part of the agenda and all of us involved in taxation, including the government and HMRC, have to work out how we can make it a force for positive debate rather than, as I fear it can often become, a vehicle for ill-thought-out comment and abuse.
Should have seen it coming
Mention of MPs brings me to my other perspective on the loan charge – the role of parliamentary scrutiny. It is clear that when the loan charge legislation was originally debated MPs had no appreciation of how it would work in practice or any idea of the controversy that would explode as a result of the legislation being passed. I can’t really blame them for this. The whole of the disguised remuneration legislation is hideously complex – I struggle to get to grips with parts of it and I have been writing commentary on it for several years – and there is no way that anybody other than a few specialists could be expected to understand its nuances. But something clearly went wrong in the scrutiny process and has resulted in vast amounts of time and energy spent trying to reach a more sensible place.
When the dust has finally settled on the loan charge, we should take the opportunity to look again at the way tax legislation in the UK is enacted. MPs must have the final say in a democratic process, but they need better support. The creation of a standing body independent of HMRC and the Treasury to provide information and analysis to MPs has been discussed before and now is the right time to consider taking this forward. No one wants a repeat of what has happened with the loan charge.
You only need to press a button
The final area I want to cover is the future of digitalisation. I mentioned earlier the confidence which HMRC will have obtained from the successful implementation of the coronavirus support schemes. It is inevitable this will affect thinking about the role that digital processes play in tax administration. We have recently seen, for example, the launch of the consultation on making tax digital for corporation tax. I had started to think that this was an idea that would be quietly shelved but it is back on the agenda.
It is no secret that I support the move towards a digital approach to tax administration – something I know with which not all readers agree – and the coronavirus schemes have shown that well-designed digital systems which do work and give the right outcomes in a relatively easy-to-use way can be developed. It seems inevitable that more work will be done on moving towards a real-time basis for tax reporting and payment across the board. Indeed the lack of real-time information was cited by HMRC as one of the reasons that some people, such as the newly self-employed and those who had changed jobs, could not be included within the schemes. It will take time and the position of those who cannot cope with digitalisation needs to be protected, but I am in no doubt that after some of the recent hiccups and delays MTD will be back on track.
Or do you get somebody to press it for you?
One feature of the SEISS was that claims had to be made by taxpayers and could not be made by their agents. By and large, most taxpayers seem to have managed to negotiate the online process relatively well without help. Of course, making a claim under the scheme is a different proposition to preparing and submitting accounts and tax computations, but we will need to be aware of the argument which could be made by some in HMRC that the experience of the SEISS shows that agents do not have a role to play in digital process.
It would be quite wrong for MTD systems to be designed deliberately to exclude agents – something that some readers fear is already happening – but it would be equally wrong for any processes not to recognise that many taxpayers will want an agent to act on their behalf. Let’s hope we can have a constructive dialogue about the future direction of digitalisation in the coming months. Things move so fast in this space that the ideas of even a few years ago, when MTD was first mooted, will soon start to look dated. Let’s have some fresh thinking about what will work for all parties.
Looking forward, not back
For many of us 2020 will be a year we will want to forget. But we can be justly proud of what our profession has achieved and the way clients have been supported through exceptionally difficult times. The light at the end of the tunnel has been a long time coming but, on the day I am writing this, the first person in the UK has received a vaccine, so there is every reason to hope that next year will be much brighter for us all.
I will not make any predictions for 2021 other than to say I think it highly unlikely that I will be dining out again at bargain prices courtesy of Rishi Sunak. As the saying goes: there’s no such thing as a free (or subsidised) lunch! It only remains for me, on behalf of all at Taxation, to wish readers a happy Christmas.
