ICAS responds to Mini-Budget 2022 and calls for action on key tax areas
ICAS experts comment and provide analysis on today’s Mini-Budget 2022 and call for action on tax and net zero, HMRC resources and regulation of tax advisers.
ICAS has responded to the tax measures announced in today’s Mini-Budget 2022 and is calling for the government to take action on three key tax areas.
This includes action on regulating tax advisers, ensuring HMRC is adequately resourced, and for the government to publish an environmental tax strategy.
On the key announcements in today’s Mini-Budget, ICAS experts said:
Abolition of the Office of Tax Simplification (OTS)
Susan Cattell, ICAS Head of Tax Technical Policy, said:
“ICAS is a strong supporter of tax simplification. Complex tax law is reflected in complex tax administration systems that are difficult to use and do not facilitate compliance; this increases costs for everyone engaging with the tax system. Trust in HMRC and the tax system is undermined because many individuals and small businesses cannot understand their basic tax obligations. Complexity also gives rise to uncertainty which deters business investment.
“ICAS is disappointed that the OTS is to be abolished. It has played a useful role in tax simplification. Its effectiveness could have been enhanced by greater government willingness to adopt OTS recommendations, or to use the valuable OTS research and reports in developing alternative proposals to address problems identified. The fact that the OTS was an independent body, at arms-length from government was one of its strengths. It had a valuable role as a bridge between government and a wide range of taxpayers and businesses.
“Now that HM Treasury and HMRC have been given a mandate to focus on simplifying the tax code, it will be important for them to publish a clear strategy for how they will achieve tax simplification, as soon as possible. This should include identifying priority areas to be worked on immediately, for example, addressing issues to support the expansion of Making Tax Digital. We look forward to working with them, as we have always worked with the OTS, towards implementing tax simplification.
“This change will also require HMRC to devote more resources to work on tax simplification, at a time when it is already struggling to provide acceptable service levels to individuals and businesses. ICAS believes it is essential that HMRC has adequate resources to perform its core role of administering the tax system – if it is given additional work, additional resources should also be provided.”
Corporate tax – encouraging investment in the UK
Susan Cattell, ICAS Head of Tax Technical Policy, said:
“ICAS believes that a predictable and sustainable tax regime is necessary to support long term economic performance. Businesses need to be able to plan for the future; stability and certainty are particularly important in the tax system – including tax reliefs. If reliefs change constantly, or may be withdrawn at short notice, it is difficult for businesses to plan a programme of investment over a number of years and it becomes harder to attract international investment. Transparency is also vital – headline rates are only part of the picture; the tax base, to which rates apply, is also important.
As had been widely predicted, the Chancellor announced that the planned increase in the main rate of Corporation Tax to 25% is being cancelled. The existing 19% rate will continue to be payable from 1 April 2023 onwards. In addition to leaving most companies paying tax at 19% rather than 25%, cancellation of the changes avoids introducing additional complexity for companies with profits between £50,000 and £250,000 as there will now be no return to the marginal relief calculations, that were a feature of the corporation tax regime before April 2015.
Annual Investment Allowance (AIA) had been scheduled to reduce from the ‘temporary’ £1 million level to the previous level of £200,000 at the end of March 2023. The Chancellor has now announced that the £1 million level will become permanent. AIA is particularly useful for smaller businesses – for many SMEs setting AIA at £1 million will mean that all capital expenditure on eligible plant and machinery will be covered. Putting an end to changes to the level of AIA (which have been relatively frequent in the past) also removes the need for businesses whose accounting periods straddle the date of any change to pay careful attention to the timing of expenditure, to avoid losing out on relief.
The retention of AIA at the level of £1 million may also be helpful to companies that have been able to take advantage of the current super deduction regime, or would have liked to claim a super deduction but did not have the capacity to bring forward substantial expenditure. It appears that the super deduction regime will not be extended beyond 31 March 2023 and that there will be some amendments as a result of the 19% rate of CT being retained – to ensure that ‘the relief continues to operate as intended’. Taking a long term view, retaining the higher level of AIA (available to all businesses) may be more successful at encouraging additional expenditure over time.
ICAS frequently receives feedback that businesses would like to see the publication of a corporate tax strategy setting out the government’s long term approach to the corporate tax regime. The 2010 ‘Corporate tax roadmap’ provides a good model - for some years following its publication there was clarity and consistency around the direction of corporate tax policy. ICAS would like to see the government build on the corporate tax measures announced today, to produce a new Corporate Tax Roadmap, which could play a role in attracting investment in the UK.”
Cut in income tax rates – impact on Scotland
Charlotte Barbour, ICAS tax team, said:
“The announcement today of a reduction in the basic rate of income tax to 19% from 6 April 2023 has a direct impact on the ‘rest of the UK’ – and an indirect impact in Scotland.
A Scottish Government fiscal event is expected within the next two weeks – and the considerations informing this may include whether:
- Scottish income tax is viewed as a standalone policy, with no changes proposed to the existing Scottish income tax rates, or
- There are comparisons to be made with the neighbours – the current three rates of tax in England (20%, 40% and 45%) currently equate to the following bands and rates in Scotland:
Scottish income tax rates 2022-23
Band - £
12,570* – 14,732
14,733 – 25,688
25,689 – 43,662
£43,663 - £150,000**
*Assumes individuals are in receipt of the standard Personal Allowance. **Those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.
To date, Scottish taxpayers earning up to £27,850 in 2022 – 23 have paid less SIT than their counterparts in the rUK but this will no longer be the case next year when the rUk introduces a 19% basic rate - unless SIT rates are also reduced.
All of this is a reminder that Scottish tax policy is closely intertwined with UK tax policy – and the abolition of the 45 % additional rate in England will cause further political headaches in Scotland.
The other consideration will be the block grant adjustments (BGAs), which have a significant impact on the Scottish budget. The BGAs are counterintuitive – with a tax rate cut, the BGA is reduced too (assuming the underlying amounts of grant remain). This will result in more funds available in Scotland – that the government can spend or use to introduce corresponding Scottish income tax rate reductions.
Part of the concern with Scottish funding is transparency – it’s not simply the tax rates and amounts of tax that are collected that impact on the Scottish budget, but also the BGAs, which few understand or acknowledge.”
ICAS is also calling for action on the following key areas:
Regulation of tax advisers
ICAS is calling for regulation of tax advisers to protect taxpayers.
As outlined in its response to a recent HMRC consultation, ICAS believes that all tax agents should be qualified and required to belong to a professional body, to address the increasing number of problems experienced by consumers using repayment agents to claim tax refunds on their behalf, and other issues in the tax advice market.
Susan Cattell, ICAS Head of Tax Technical Policy, said: “Whilst repayment agents can provide a useful service to taxpayers supporting them to make claims for repayment of tax, many repayment agents do not belong to a professional body. ICAS believes that in the long term, the only fully effective way to protect consumers (those claiming repayments but also those using agents to deal with HMRC more generally), would be to introduce a requirement that everyone acting as a tax agent should be qualified, and should belong to one of the main professional bodies that subscribe to, and enforce Professional Conduct in relation to Taxation."
ICAS is calling for HMRC to be adequately resourced to support voluntary tax compliance and a business-friendly environment for the UK.
Susan Cattell, ICAS Head of Tax Technical Policy, said: “ICAS believes it is vital that HMRC has enough resources to get service levels back to acceptable levels for all taxpayers, following a significant deterioration during the pandemic – and then to maintain those service levels. Poor service from HMRC causes delays, frustrations and difficulties for taxpayers, businesses and advisers.
“During the pandemic, backlogs built up in many areas, including some that are very important to individuals and businesses, particularly processing repayments and refunds of all kinds. Opening hours for helplines were restricted, causing long waits to get through to HMRC. Some of these backlogs and helpline problems have persisted (it can still take months for HMRC to deal with some forms, returns or correspondence) and HMRC does not appear to have been able to recover from the pandemic as quickly as other organisations. As the cost of living crisis develops, there will be problems if HMRC cannot consistently make repayments promptly to individuals and businesses.
“ICAS would like to see commitments from HMRC to clear all remaining backlogs by the end of the year and to ensuring that helplines are adequately staffed in all areas. There should be a return to a position where HMRC is meeting all its pre-pandemic service level targets for dealing with post, telephone calls and other processes. Adequate resources then need to remain in place to maintain these service levels.
“The government could help HMRC to achieve this by providing the necessary resources to clear backlogs, then maintaining resources at an adequate level - and ensuring that HMRC is not asked to take on additional work (outside its core role of administering the tax system), without additional resources being provided. HMRC and the government should also prioritise ensuring that basic tax administration works properly for all taxpayers – even if that means that some big projects, particularly the next stage of Making Tax Digital (the expansion to income tax), have to be slowed down.”
Tax and net zero
ICAS has called on the Government to publish an environmental tax strategy or roadmap. In the absence of such a roadmap, individuals and businesses are likely to find it difficult to plan ahead for the tax changes and costs which will arise as part of the implementation of the Net Zero Strategy. It may also be difficult for the Government to ensure that tax policy is closely aligned with the development of new green technologies and supporting infrastructure. ICAS has issued a briefing paper on the role of tax in getting to net zero.
We welcome the announcement in the Growth Plan that the government is setting up an independent review into how to deliver the net zero commitment. We hope that this review might facilitate the development and publication of the government environmental tax roadmap we have called for.
Susan Cattell, ICAS Head of Tax Technical Policy, said: “Tax can be highly effective at changing behaviour and has long been used as a mechanism for discouraging certain types of environmentally damaging behaviour and encouraging ‘green’ investment. Landfill Tax is a clear example of the stick approach; on the carrot side there have been various capital allowances for investment in ‘green’ plant and machinery.
“Tax certainly cannot do everything, but it can be a vital part of the package of measures needed to deliver net zero. What is missing from the Government is any clear overarching tax strategy to support the transition. We hope that the independent review into the delivery of net zero, announced today, will facilitate the development and publication of an environmental tax roadmap.”