The season of tax consultations
Susan Cattell (Head of Taxation, England and Wales) reviews the highlights of a busy autumn consultations season for anyone working in tax.
A busy autumn for tax
For Keats autumn was the season of mists and mellow fruitfulness. This year for anyone connected with tax it has also been a bumper season for consultations. The ICAS tax team, in conjunction with the ICAS Tax Committee and its five technical sub-committees, has been working hard to respond. We also submitted responses to the All-Party Parliamentary Group on Responsible Tax inquiry into public confidence in HMRC’s capability to collect tax fairly and effectively and submitted representations setting out what ICAS members would like to see in the Autumn Statement.
The responses put forward the views of the ICAS tax community (Chartered Accountants and ICAS Tax Professionals) but also reflect the ICAS public interest remit to act for the wider good. They aim to share insights from ICAS members into complex tax issues and to address operational practicalities.
The full ICAS responses to consultations can be found on our Tax Consultations and Submissions page but here are the highlights from a busy autumn, as we look forward to seeing some of the outcomes in the Autumn Statement and draft Finance Bill.
Making Tax Digital
MTD goes far beyond a reform of tax compliance. It is a colossal IT and change management project affecting some 5.4 million businesses and many more taxpayers. ICAS responded to all six MTD consultations and issued an overview of the core concerns raised. The concerns included:
- The need for proper risk management
- The unrealistic timeframe
- Mandatory application
MTD also has implications for accountancy and tax practices – and how they support clients and run their businesses for the future.
Everything you need to know about MTD, including links to the ICAS consultation responses and other resources, was covered in a recent article on ICAS.com
Lease accounting changes: Tax response
A new standard for lease accounting (IFRS 16) will have effect for periods of account beginning on or after 1 January 2019 for leases of both property and plant or machinery. This will require changes to the tax legislation dealing with plant or machinery leases.
The consultation invited views on two main options: either changes which would simply preserve the effects of the current tax regime or the introduction of a new regime for the tax treatment of leases of plant and machinery.
The ICAS response on lease accounting changes called for an analysis of the true economic impact of changing the current system. It also noted that consistency between taxpayers should be a consideration; the proposed options for a new regime all involved the removal of capital allowances for lessors. However, the advantages of a new regime might include simplification, particularly the removal of the complex long funding lease rules.
Partnership taxation: proposals to clarify tax treatment
The government invited views on clarifying the tax treatment of some aspects of partnerships, where the current rules are regarded as creating uncertainty or inappropriate outcomes. ICAS and the Law Society of Scotland met with the HMRC officials responsible for the consultation to discuss issues specific to Scottish partnerships, and the overall consultation document. ICAS also submitted a written response.
ICAS welcomed partnership taxation: proposals to clarify tax treatment possible changes to administration for large partnerships, particularly if these include changes to the return to allow for straightforward reporting of multiple partners. Concerns were flagged about the apparent suggestion that partnership profit allocation should be determined in advance; many partnerships, particularly large professional partnerships, have an element of discretionary profit share which is decided at the end of a financial year based on performance and clearly cannot be set in advance.
Consultation on salary sacrifice for the provision of benefits in kind
Salary sacrifice arrangements have become a key component of remuneration policies for increasing numbers of employers in recent years. Due to the associated tax and NIC advantages the consultation states that this growth has led to ‘increasing cost to the Exchequer and creates an uneven playing field between employees and employers who use such arrangements and benefit from the tax advantages, and those that don’t.’ As a result, the government proposes to limit the range of benefits in kind that attract tax and NIC advantages where provided as part of salary sacrifice arrangements.
ICAS attended a meeting with the HMRC consultation team and submitted a written response. This flagged concerns for industries that tend to have a young and mobile workforce, such as the IT sector, where an attractive benefits package can be key to recruitment and retention. It also highlighted the practical challenges of dividing benefits into two categories – one enjoying the tax and NIC benefits and the other not. There would also be initial problems with the proposed start date of April 2017 because many annual salary schemes would be part-way through their year at that date.
Simplification of the tax and National Insurance treatment of termination payments
The current tax and NIC regime for termination payments is complex and causes problems for employers and employees. This is the second consultation on proposals to ‘simplify’ the tax and NIC treatment of termination payments and covers draft legislation to implement the proposed changes. Unfortunately, an opportunity for genuine simplification has been missed. Unless changes are made following the consultation, the new rules are unlikely to be easily understood by employees or employers and will create new uncertainties and administrative burdens, as well as higher tax and NIC charges for some employees. ICAS attended a meeting to discuss the consultation proposals with the HMRC team in charge of implementation.
A recent article on ICAS.com gives more details of the proposals and outlines the ICAS response.
Consultations on new penalties to tackle tax avoidance and evasion
ICAS submitted responses to three consultations which formed part of the government’s ongoing initiative to tackle tax avoidance and evasion. These will be discussed in more detail in a separate article.
- Tackling offshore tax evasion: A Requirement to Correct
- Strengthening tax avoidance sanctions and deterrents
- Penalty for participating in VAT fraud
All-Party Parliamentary Group on Responsible Tax Inquiry into public confidence in HMRC’s capability to collect tax fairly and effectively
The UK tax system depends on a degree of trust and voluntary compliance – coercion alone is not enough. ICAS therefore welcomed the opportunity to respond to this APPG inquiry. Our response will be discussed in more detail in a separate article.
ICAS Autumn Statement representations
The ICAS submission to HM Treasury set out policy suggestions for the Autumn Statement. These reflected demands from ICAS members for stability, certainty and significantly less change to the UK tax system. The submission is discussed in detail in a recent article on ICAS.com.
ICAS welcomes input from members (and non-members); you are invited to submit views on current tax-related consultations by email to firstname.lastname@example.org.
We will be able to take these views into account when preparing representations from ICAS.