ICAS evidence cited in House of Lords report
By Susan Cattell, Head of Tax Technical Policy
5 February 2024
We outline some of the recommendations of a House of Lords report on the draft Finance Bill, which cites ICAS evidence throughout.
House of Lords report on the draft Finance Bill published
The Finance Bill Sub Committee (FBSC) of the House of Lords holds an inquiry each year into aspects of the bill concentrating on issues of tax administration, technical clarification and simplification. Their 2023 report has just been published. ICAS written and oral evidence is cited throughout and we were pleased to see many of the key recommendations.
The 2023 inquiry examined the following draft legislation:
- Reforms to merge the two existing research and development (R&D) tax relief schemes and to give additional tax relief to R&D intensive SMEs.
- The requirement for certain taxpayers to provide additional data to HMRC.
- New measures to tackle promoters of tax avoidance, including the introduction of a criminal offence.
Research and Development
The report expresses concern about the number of significant changes made to R&D tax relief in the last 5 years, creating a perception of instability and undermining the intended incentive effect of the relief. One of its main recommendations is that over the medium term, the government doesn’t make further changes to R&D tax relief, other than to simplify it.
A key issue raised by ICAS was the undermining of the simplification benefits that should have arisen from the introduction of a merged scheme, because of the introduction of the SME R&D intensive scheme. We suggested that consideration should be given to integrating the additional reliefs for R&D intensive SMEs into the single scheme. We were pleased to see the specific recommendation from the FBSC that the government consult in the near term on bringing the R&D intensive scheme within the new merged scheme to create a fully merged and simplified scheme.
We also questioned whether the R&D intensive approach was the best way to encourage the type of R&D that would have the most significant positive impact on economic growth. Giving additional relief to companies with expenditure on any type of qualifying R&D that crosses a certain threshold, is a blunt instrument. The FBSC called on the government to explain why it considers this to be the best way of incentivising the types of innovation that will support growth.
Requirement for certain taxpayers to provide additional data to HMRC
ICAS and other bodies raised concerns about the possibility that HMRC would be collecting additional data that would be shared with other government departments. We specifically commented that if it is the intention that information will be shared, there should be further consultation and a clear explanation of what will be shared, with whom and why. The FBSC called on the government to clarify its intentions on sharing data with other departments and agencies and said that it should consult with relevant stakeholders before any such sharing takes place.
The sub-committee also discussed HMRC’s estimate of the likely costs to employers of providing the data on employee hours. Based on evidence from ICAS and others, it noted that it seemed very likely that the costs had been significantly underestimated. It recommended that HMRC should publish the assumptions on which the cost estimates were based and should then work with interested parties to review these costings and produce revised estimates that are more realistic and re-evaluate the extent to which the proposed benefits outweigh these costs.
We were also pleased that the sub-committee said that early publication of draft regulations for consultation is crucial if the government is to go ahead with a 2025/26 start date. This was something we had called for to give taxpayers and software providers adequate time to prepare.
New measures to tackle promoters of tax avoidance
The report referred to ICAS’ comments that more should be done to deter potential users of avoidance schemes from getting involved in the first place, including more direct HMRC communication with people it believes may be taking up schemes. The FBSC recommended that HMRC do more to publicise the risks of involvement in avoidance schemes to potential and actual users, using more direct communication channels than just gov.uk, including social media, as well as traditional media outlets such as advertising, the press, and the broadcast media.
We were also pleased that the FBSC noted doubts expressed by some witnesses about HMRC’s capacity to take on the extra work that would be involved, and mentioned our concern that without additional resources for HMRC the measures could lead to the further deterioration of core services. It recommended that resourcing within HMRC for these measures be kept under review so that any lack of capacity can be remedied as quickly as possible.
Let us know your views
ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by members. We welcome input from members to inform our work; email tax@icas.com to share your insights and feedback.
