Memorandum submitted by Anne Redston
In 2004 the Prime Minister said "Effective
consultation is a key part of the policy-making process."
The Chartered Institute of Taxation (CIOT) agrees with this.
As HM Revenue and Customs themselves have said, consultation "improves
the quality of any resulting draft legislation, in particular
by ensuring that it works in the real world."
We are thus disappointed that, for certain key
tax measures announced in this Budget, the consultation process
was non-existent or incomplete. As a result, implementation will
be burdensome, and may even be completely impracticable. This
paper covers three of those areas:
The tightening of filing dates for
The withdrawal of the tax relief
The changes to the taxation of trusts.
It then contrasts this with the best practice
approach adopted for the company car consultation, the tax recycling
of pension funds and the Stamp Duty Land Tax changes.
(SA) FILING DEADLINES
Lord Carter's Review of HMRC Online Services,
published on Budget Day, contains, as one of its primary recommendations,
that self-assessment filing dates be moved. Currently all SA returns
must be filed by 31 January following the tax year end. Lord Carter
recommended that this become 30 September for paper filing, and
30 November for on-line filing.
HM Treasury's Budget 2006 (The Red Book) says that the
Government "accepts his recommendations."
As far as we are aware, the proposal that SA
filing dates be accelerated was not discussed with the professional
bodies; although the CIOT is listed as a "Contributor"
to the Review
this important issue was not mentioned to us.
The completion and filing of tax returns is
a major part of tax advisers' work. It is likely to be very difficult
for agents to meet the accelerated deadline. For example, the
information for most returns is not available before July (when
copies of the P11D have to be provided by employers), and during
August many clients and staff are on holiday.
It would surely have been better for HMRC to
have announced that they were going to consult on Lord Carter's
recommendation, in order to identify any problem areas and seek
solutions, rather than simply announcing its acceptance.
In contrast, the proposed acceleration of company
filing dates, announced in the PBR,
has undergone a robust consultation processthe Budget Red
"the consultation . . . achieved a high
level of engagement with over 100 written responses received".
As a result of the consultation the original
proposals will now be amended, so that small and large businesses
will be treated differently. In other words, the feedback received
provided new information to policymakers.
However, contributors to this company filing
dates consultation made their comments believing that the existing
filing dates for individuals would be unchanged. Since most tax
advisers deal with both individual and company tax returns, a
change to both areas is very different from a change to only one
Had they been consulted on both proposals, they
would have been able to consider how the changes together would
impact both on taxpayers and on their own businesses. Consulting
on one change to filing dates but not the other means that the
conclusions drawn on the company filing dates consultation may
FA1999 allowed employers to provide computers
and related equipment to employees for their personal use, without
tax or NIC arising. This tax relief was repackaged in 2004 and
relaunched by the DTI, the DfES and the Cabinet Office as the
Home Computing Initiative (HCI). Patricia Hewitt said:
"For employers HCI schemes are about maximising
potential in the work place. Basic computer and technology skills
are now regarded as essential for the majority of jobs. With home
computer access IT confident employees have greater capacity to
contribute to an organisation's overall performance and adapt
more easily to new roles and opportunities. HCI schemes can also
generate employer National Insurance savings.
For individuals, as well as cost savings, HCI
schemes can help realise personal and professional potential.
Through improved ICT access and use, they provide the tools and
resources that further individual learning, enhance workplace
skills and increase employment opportunities. The Government is
working closely with industry to promote HCI schemes."
The DTI website, explaining the scheme, is richly
populated with advice, encouragement, links to partner suppliers,
and even a video showing the value the scheme provides to workers.
However, nowhere does it warn that the scheme could be withdrawn
with only two weeks' notice.
On Budget Day, Business Note 30 announced that
this tax and NICs exemption for employees will be removed from
6 April. This has taken everyone by surprise. Again, there was
no consultation, no consideration of the consequences for the
many businesses who are working in partnership with government,
and inadequate thought given to the red-tape consequences of the
In the Budget Day Note no mention was made of
the tax position for existing schemes, but a subsequent brief
announcement was issued by HMRC on 24 March. Although this said
that computers provided before 6 April 2006 would not be affected,
HMRC have indicated that upgrades to software provided for these
computers will in fact be subject to tax and NICs.
This means that employers, who were encouraged
to join this useful scheme by the Government, now have the significant
burden of monitoring employee software upgrades
in order to know whether, and to what extent, a charge applies.
In addition, although the publicity around the
HCI has focused on computers provided entirely for private use,
the current exemption also covers private use of computers provided
essentially for business but where the employer recognises that
in practice there is likely to be some private use.
Absent the computer exemption, an employee benefit
is calculated at 20% of the cost of the asset. The full value
of this benefit must be included on P11Ds. If the asset has been
used partly for business and partly privately, employees must
then each make an individual claim to HMRC that the full benefit
should be reduced by the business element. This has to increase
the workload of that department at a time when its resources are
being reduced, apart from the burden on the employees.
However, employers are subject to Class 1A NICs
on the whole of the benefit, even though the business element
might be 80%. This is because the National Insurance legislation
does not recognise the concept of "mixed use" assets.
Thus a computer which cost £2,500, with
80% business use, will be subject to an annual Class 1A NICs charge
on £500 worth of benefit (£2,500 x 20%), not on £100.
Businesses will only be able to avoid this cost and the regulatory
burden if they can demonstrate that the private use is "not
Had this Budget change been consulted on, it
might have been the considered view that other government objectives,
such as a reduction in red tape, would be better served by leaving
the exemption in place. At worst, all those who have committed
time and energy to helping the Government deliver this initiative
would have had time to restructure their business plans, and the
regulatory issues on transition might have been mitigated.
HMRC have been consulting with tax advisers
and lawyers on the taxation of trusts for some 2½ years.
Over this period there have been discussion papers, consultation
documents, draft legislation, and numerous meetings.
The CIOT, along with other bodies, has participated actively in
However, on Budget Day a number of changes were
announced to the taxation of trusts. None of these has been consulted
The Budget Press Release
presents these changes as "alignment" or "refinement"
of the rules. However, from the limited information provided,
the CIOT was concerned that the scope of the changes was more
fundamental and would affect many ordinary taxpayers. We have
been assured by HMRC that this is not the case, and that only
a few wealthy individuals will come within the rules.
Although it was not clear from the Press Release,
we have now been informed that the changes were in the nature
of anti-avoidance in that they prevented certain tax mitigation
arrangementsalbeit that this tax planning had been part
of the tax and trusts landscape for many years.
We recognise that HMRC does not consult on anti-avoidance
(in order to prevent forestalling), but in the context of the
ongoing and extensive discussions on trust tax reform we think
a way should have been found to adopt a different, and more consultative
approach. This would also have prevented the misunderstandings
on the scope of the provisions which followed the Budget.
When HMRC have consulted appropriately, the
benefits have been clear. The changes to the taxation of company
vans, the taxation of personal portfolio bonds, the radical reform
of the company car system
and the changes to the employee travel rules were all consultations
where the process was excellent and the results speak for themselvesthe
legislation has been understood by taxpayers with little need
for further government intervention.
In this Budget there are some examples of this
best practice. For example:
Reform of the tax regime for business
cars. The options for change are clearly set out in the document
"Modernising Tax Relief for expenditure on business cars"
and businesses have until September to comment.
The PBR announced changes to the
pension rules to prevent recycling of pension funds. CIOT was
worried lest the ordinary taxpayer, with no tax avoidance motive,
would be inadvertently caught, and wrote to HMRC setting out these
concerns. HMRC were receptive to these comments and took them
into account when drafting the proposed legislation and guidance.
We believe the resulting provisions are workable and should prevent
marketed avoidance without catching the innocent.
In the area of SDLT the CIOT has
made a number of suggestions to improve the working of the legislation,
and the Budget announcements showed that many of these have been
accepted by HMRC.
One of the three main objectives set by the
Government for HMRC is to "improve the customer experience,
support businesses and improve the compliance burden."
David Varney has said:
"The way we do business impacts on millions
of people, customers and HMRC employees . . . At HMRC we are committed
to managing our business to maximise our positive impact on all
our stakeholders (including our customers and suppliers), the
community and the environment and to minimise and manage any potential
Consultation is a simple, effective method for
delivering these goals. But in a number of significant parts of
this Budget HMRC have shown complete disregard, even disdain,
for the views of other stakeholders. This is not the way to improve
the customer experience.
24 March 2006
11 Chair of Personal Taxes at the Chartered Institute
of Taxation, Visiting Professor in Law at King's College London. Back
Cabinet Office Code of Practice on Consultation, updated in February
See CIOT's Survey of Consultations, The Good, the Bad and
the Complex,http://www.tax.org.uk/showarticle.pl?id=1348&n=3792 Back
Inland Revenue and Customs & Excise Code of Practice on Consultation
published in December 1997. Back
Carter Review of Online Services, paragraph 5.15. Back
At paragraph 5.81. Back
At Appendix 6. Back
Aligning Filing Dates for Companies, a consultation document
published jointly by Companies House and HMRC, November 2005. Back
At paragraph 5.82. Back
We believe that the same monitoring issue will also arise for
ISP monthly subscriptions; we have tried to confirm the point
with HMRC but have not yet succeeded. Back
ITEPA s313. Back
See, for example, http://www.hmrc.gov.uk/trusts/trust-modernisation.htm Back
That the changes are limited in their effect is also confirmed
by the Paymaster General writing in today's Times. Back
The document "Report on the Evaluation of the Company
Car Tax Reform" published on Budget day demonstrates
the success of this reform, not only in the tax field but also
David Varney's Statement on Corporate Responsibility, see http://www.hmrc.gov.uk/about/corporate-responsibility/index.htm,
see also the Public Service Agreement set out at http://www.hmrc.gov.uk/psa/psatn2005-2008.pdf Back