Tax: Representing ICAS member views

As Donald Drysdale explains, representing the views of ICAS members to our legislators is a key function of the ICAS tax team.

Evidence to the House of Lords

On 10 October the House of Lords Economic Affairs Committee’s Finance Bill Sub-Committee heard oral evidence from “a galaxy of talent” – to use the words of Sub-Committee Chair Lord Forsyth of Drumlean.

The Finance Bill 2018 draft provisions were published on 6 July. Following the Budget on 29 October, the Finance Bill is due to be published on 7 November. The Sub-Committee is investigating the draft provisions and, in particular, is examining developments in the balance of powers and safeguards between HMRC and taxpayers and recent progress on Making Tax Digital (MTD).

Those giving evidence were Charlotte Barbour, Director of Taxation, ICAS; John Cullinane, Tax Policy Director, CIOT; Frank Haskew, Tax Technical Manager, ICAEW; and Chas Roy-Chowdhury, Head of Taxation, ACCA Global. Their evidence can be found online here.

The strong contributions demonstrated close and effective collaboration among the professional bodies. Here I shall look particularly at views proffered by ICAS, supplementing its written submission of 1 October.

HMRC’s powers

Initial discussion concentrated on the role of Professional Conduct in Relation to Taxation (PCRT) in countering “egregious” tax avoidance schemes, and whether this expression was clearly understood.

Barbour explained that if tax planning is viewed on a scale of 1 (at its most innocent) to 10 (at its most extreme), egregious is probably 11. It has no economic purpose, and you look at it and think: “Why on earth would you do that?”

She felt that measures extending HMRC’s powers often seemed acceptable when viewed incrementally, but thought it worrying that they amount to a creeping encroachment on taxpayers’ rights. The concern is not so much that HMRC would abuse their powers, but the scope for greater powers and whether they sit in the right place.

The debate then turned to the better access which HMRC appears to give to larger taxpayers. Barbour said that many large businesses in a Scottish context are too small to have customer-client managers at HMRC. Although agent account managers exist, urgent technical issues can still be difficult to resolve promptly.

Extending time limits

The Sub-Committee invited comment on draft clauses extending HMRC’s time limit for dealing with offshore matters to 12 years, and the professional bodies were consistent in thinking a time limit of 12 years disproportionate.

They were also heavily critical of proposals in a recent consultation (not currently in the draft Finance Bill) that HMRC should be allowed to request information from third parties such as banks, with no need for Tribunal approval (as is currently the case), and to use such information for HMRC’s wider purposes.

Barbour noted how completely HMRC have changed the tax avoidance landscape. She was unaware of members promoting tax avoidance schemes any longer, suggesting that HMRC’s approach had been effective.

ICAS has repeatedly recommended that powers given to HMRC, especially in recent years, should be properly evaluated with post-implementation reviews to see if they work. For example, penalties are meant to influence behaviour but might be ineffective unless those concerned know about them.

Asked what should determine how HMRC uses the powers given to them by Parliament, Barbour said they should follow the principles agreed during the review of HMRC powers in 2005. She quoted the Taxpayers Charter as a good approach – in particular, to assume that taxpayers are honest, and to accept that others may represent them.

She also observed that the Taxes Management Act 1970 is unmanageable in its present form, having been amended and extended on so many occasions. There is need for a proper review of HMRC’s powers, and perhaps an oversight body that could report regularly on how those powers are exercised.

Making tax digital

Barbour described how confusion around MTD is causing difficulties for ICAS members. HMRC are pursuing this as a so-called “agile project”, and this seems to mean that practitioners, businesses, software suppliers and HMRC are all unclear what they need to do, when they need to do it, and who can tell them. These uncertainties are bad for businesses, which need certainty in what they must do and how to do it.

She explained that MTD was not only problematic for small businesses. It will also prove expensive for large businesses that have to change existing processes – changes which might take far longer and cost much more than one would expect.

ICAS members are keen that most businesses – or at least those with annual turnover above £250,000 – should use digital processes to free up time, and to do so properly this should involve both accounting and tax processes. It should not necessarily be driven by tax.

Barbour criticised the Government’s decision to make MTD mandatory. Had MTD been optional, HMRC would have had an incentive to create a system that businesses would want to use.

When asked whether HMRC’s outsourcing of MTD software has made it hard for them to disseminate and educate people about the methodology of MTD, Barbour explained that ICAS has always been firmly opposed to HMRC’s approach. Instead, businesses should be able to perform basic tax compliance free on HMRC systems. Furthermore, third-party software for MTD should be accredited by HMRC and covered by HMRC assurances on functionality, ongoing availability, assistive technology, security and other features important to users.

ICAS members, doing their best to prepare their clients, have been hampered by lack of access to HMRC’s pilot to date and the absence of a range of compliant software to meet differing business needs. HMRC have listed MTD VAT software suppliers in the pilot who have “tested their products in HMRC’s test environment” and “demonstrated a prototype of their software to HMRC”, but not software that meets the MTD digital record-keeping requirements.

Even by December, when HMRC are expected to publish a list of all products which will successfully file MTD VAT returns, it seems that this software will not have been checked by HMRC to ensure it also meets those record-keeping requirements. This is a serious flaw because many businesses will be unable to check for themselves and will expect that software on the list will meet all the MTD requirements.

ICAS is concerned that HMRC seem to have lost sight of the original ‘big picture’ of MTD, which was to allow taxpayers – businesses and individuals – to deal with all their taxes in one place. While HMRC insist on pressing ahead with MTD for VAT, it is unclear whether this will still go as far as making tax digital for business.

Barbour speculated on what might be driving MTD for VAT. She wondered whether HMRC want businesses to benefit by going digital, or whether the only aim is to ensure that information is submitted in a way that suits HMRC’s relatively inflexible new IT systems.

As ICAS said in its written evidence, Chartered Accountants are trusted business advisers who help businesses streamline their processes, administration and controls, and this includes advice on tax compliance and the use of a digital approach where this is beneficial. But if ‘digital’ is a good thing, businesses would adopt it voluntarily and that is why ICAS does not like the mandation around it.

Conclusion

Collaborating with other leaders of the tax profession, Barbour played an active part in this evidence session. ICAS members should feel confident that she is working effectively in representing their collective views, informed by feedback from members and agreed by the ICAS Tax Board.

Article supplied by Taxing Words Ltd