Towards the end of last summer, HMRC published several important and often far-reaching consultation and other documents, including proposals for the reform of the basis period for income tax. The Taxation Committee was concerned by a number of aspects of these and submitted a detailed response to the policy paper and draft legislation. One of our concerns was that the “consultation” appeared to be more of a fait accompli – released in the middle of the holiday period immediately after the loosening of Covid restrictions, with a shortened consultation period for what in reality would be a major change with significant complexities.
The Finance Bill Sub-Committee then issued a call for evidence covering two areas of the draft Finance Bill clauses published on 20 July 2021, namely the proposals for income tax basis period reform and notification by large businesses of uncertain tax treatment. (The Sub-Committee is appointed annually by the Economic Affairs Committee to consider the draft Finance Bill. It focuses on issues of tax administration, clarification, and simplification rather than on rates or incidence of tax.)
The questions asked by the Sub-Committee were somewhat different than those in the HMRC paper and we submitted a new representation, whilst still repeating our major concerns. When its response was published on 15 December, we were very pleased [delighted?] to see that not only was our contribution acknowledged, but that parts of it were quoted, namely our comment that the “consultation appeared to be not so much about whether the reforms should be implemented in the first place, but rather about how they should be implemented” and our concern about the shortened consultation period.
The Sub-Committee’s response also included our comments that basis period reform was “by no means a necessary element” of the Government’s ten-year strategy and indeed that the reform “could be considered counter-productive” insofar as the aim of the strategy was to provide a better experience for individuals and businesses.
The SC’s conclusions make interesting reading, including that “we consider that the consultation on basis period reform was flawed. In particular, it remains unclear why after four years since the original consultation the new and different proposals were published in haste. We do not consider that a compelling case has been made for basis period reform, either as a simplification or as an essential prerequisite for introducing MTD for income tax.” A PDF version of the response is available at Basis Period Reform and Uncertain Tax Treatments (parliament.uk) and includes a link to our full representation.
Readers will also be interested in the SC’s comment “we are troubled by the evidence we heard about the current service levels within HMRC, and anticipate that the additional demands on HMRC arising from the reforms discussed in this report will only serve to exacerbate the situation. We therefore recommend that the Government commission an independent report into HMRC customer service levels and capacity to implement change.”
We also responded to the policy paper and draft legislation on “Large businesses: notification of uncertain tax treatment (UTT)”. Since then, HMRC has issued an invitation to attend a “Data Points Roundtable” focusing on the notification process for the UTT policy, originally scheduled for December but postponed to February. Taxation Committee member Steve Wade is planning to attend and has been in correspondence with HMRC about the interaction with PAYE, and that, if it is to be included, he believes there are problems with the legislation as currently drafted.
In recognition of our various other representations, we have also been invited to participate in several working groups, such as one on Timely Payments (date to be announced) and a series of themed online discussion workshops on the government’s call for evidence on “Income Tax Self-Assessment Registration for the Self-Employed and Landlords”. After an introductory session in December, follow up workshops were planned for January, but HMRC responded to feedback from practitioners and rescheduled the series for February. We are planning to take part in all of these.
Report by Gayton Jordan LL.M, Secretariat Consultant to the LSCA Taxation Committee.
For further details about the Committee, to express an interest in joining it, or to see a copy of any of our representations, please contact Gay by email.
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