Host

Philippa Lamb

Guests

• Stephen Relf, Technical Manager, Tax, ICAEW
• Laura Hough, Director, Trust and Ethics, ICAEW

Transcript

Philippa Lamb: Hello. Welcome to Accountancy Insights. I’m Philippa Lamb with your monthly roundup of accountancy news.

This time I’ll be discussing the government’s efforts to collect billions of pounds of unpaid taxes – that’s with technical manager Stephen Relph. After that, we’ll be highlighting the key changes you need to know about the new ICAEW 2025 Code of Ethics with Laura Hough, Director of Trust and Ethics.

Stephen, let’s start with you. The government – they’ve tightened their focus on clawing back all this unpaid tax, haven’t they? As I said, we’re talking about billions of pounds. How big is this problem?

Stephen Relf: In December 2024 unpaid tax liabilities due to HMRC totalled over £44 billion. To put that into perspective, debt five years earlier was around £15.5 billion. Some of this increase is down to inflation, but if we look at tax debt as a percentage of total tax liabilities, the current debt level is roughly double the level pre-pandemic. Also, HMRC estimates that approximately £20 billion of that current tax debt is over 12 months old, and as you would expect, all the debt is harder to collect.

PL: Do we know which sectors, if any, are the worst offenders here?

SR: There’s no breakdown, but there has been an indication that a lot of the increase has been driven by smaller businesses.

PL: So what does the government plan to do about this problem? I think there were announcements in the Autumn Budget, weren’t there?

SR: We did get a few measures in the Autumn Budget. Probably the most important was to do with the way HMRC calculates its interest rate. Up to 5 April this year, HMRC charged interest on most taxes and duties paid late at the Bank of England base rate plus 2.5 percentage points, and this increased to base rate plus four percentage points from 6 April. As a result of that, the rate of interest charged by HMRC rose from 7% to 8.5% on 6 April.

PL: What about the rates of interest on overpaid tax? What are they charging there?

SR: No changes have been made to the rates of interest HMRC pays on overpaid tax and duties. The repayment interest rate is currently 3.5% for most taxes and duties. But it is worth noting that the next Bank of England base rate announcement is scheduled for 8 May [the base rate was reduced from 4.50% to 4.25%], and so those rates could change following that.

PL: Now, we did have additional measures in the Spring Statement too, didn’t we?

SR: We did, yes. It was a bit of a theme from the Spring Statement, and we did get a package of further measures. Probably the headline change is an increase in late payment penalties for VAT from April 2025, but also for individuals, as they join Making Tax Digital for income tax. Also, the government said it would invest £87 million over the next five years in HMRC’s existing partnerships with private sector debt collection agencies and commit to an additional 600 HMRC debt management staff, again over the next five years.

PL: What’s that going to cost?

SR: I believe it’s estimated to cost roughly £144 million over the next five years.

PL: What about policing private sector agencies?

SR: Yes. There have been reports in the past that things have gone wrong. Often that’s due to a breakdown in communication between HMRC systems and the information that the debt collection agency has. So again, that is something that we’ll need to monitor going forward.

PL: Yes, because we’ve seen tabloid stories about that going wrong in the past, haven’t we?

SR: Obviously it can be quite frustrating and also quite upsetting when that does happen, but clearly there is going to be an issue there when you have a separate body and that needs to be managed appropriately.

PL: We’ve also got this issue of restarting direct recovery of tax debts owed by… is it both individuals and companies?

SR: It is indeed, yes. So this is a relatively controversial power that HMRC has, which isn’t used often and has been paused for a while. HMRC is going to look at restarting it, but it is important to remember that there are a lot of safeguards around that. So again, it’s something for us to look at when it does happen.

PL: There’s a whole raft of measures. How much is government hoping to raise?

SR: Taken together, and including the extension to Making Tax Digital for income tax from April 2028, the measures are expected to raise over £1 billion in additional tax revenues per year by 2029-30.

PL: HMRC’s accounts, they are reviewed every year, aren’t they?

SR: The House of Commons has a Public Accounts Committee. They review HMRC’s accounts and also HMRC’s performance, and in a fairly recent report they did recommend that HMRC should set out how much it wants to collect and by when, and come up with a plan for recovering debts.

PL: What should listeners do if they’re working with a business – they know it has a tax debt? What steps should they be taking?

SR: Well, it’s important for the business to contact HMRC as soon as it’s about to miss a deadline, or if it knows it’s not going to be able to pay tax on time. It may be possible to avoid penalties, but not interest, by agreeing a time to pay arrangement with HMRC. This essentially is where the business agrees to pay the tax in instalments.

These arrangements – time to pay arrangements – are very common. At March 2024 there were over 900,000 taxpayers with a time to pay arrangement, and they can be fairly straightforward to arrange. You can do it online, or you can do it by calling HMRC. To find out more just go to gov.uk and type in ‘time to pay’. You will see when you look at the web page for the online service that there are criteria to meet. But don’t worry if you don’t meet those criteria; you can still give HMRC a call and run through your circumstances with them.

PL: Shall we just point listeners in the direction of a full breakdown of everything we’ve talked about, because there’s been quite a lot?

SR: Yes, certainly. We have written quite a few articles in the last few months to cover all of these measures, and I’m sure we’ll provide links to those in the show notes.

PL: That’s great. Thank you very much, Stephen.

SR: Thank you.

PL: Hello, Laura. ICAEW’s Code of Ethics – it’s been updated for 2025, hasn’t it? Do you want to talk us through the when and the why?

LH: The changes to ICAEW’s Code of Ethics will become effective from 1 July this year – so, 2025. We last updated our Code actually in 2020 so there’s a lot of updates to go through there. The changes we’ve put through will bring our Code in line with the code of the International Ethics Standards Board for Accountants Code and really include all of their updates and changes. We’re obliged to adopt the changes from IESBA to be in line with their Code, and we’re not permitted to make any changes to their wording. However, we can add additional requirements if we want to and feel that that’s necessary.

PL: And the Code’s fundamental principles, they’ve been enhanced?

LH: Just to recap for our listeners, there are five fundamental principles in the Code: Integrity, Objectivity, Professional Competence and Due Care, Confidentiality, and Professional Behaviour. The first enhancement is to the Professional Behaviour principle, and this principle now explicitly refers to the public interest, and that can be found in section 110 of the Code. But the Code in this update acknowledges that there may be unusual or exceptional circumstances where the professional accountant considers that applying the Code might actually not be in the public interest or might lead to some kind of disproportionate outcome. So if you are in that sort of situation, the Code encourages you to contact your professional body or your regulator to discuss that in more detail.

The 2025 edition also includes reference to a ‘reasonable and informed third party test’ as part of the expectations that we have for a member’s conduct.

PL: So what does that exactly mean?

LH: Yes, it sounds a bit abstract and complicated, doesn’t it? The reasonable and informed third party test means that if somebody was looking at that situation, they had reasonable knowledge of the facts and understood the relevant context of the situation, they would consider that the judgement that you’d taken was reasonable. But this individual doesn’t actually need to be an accountant; they just need to have the right experience and the relevant knowledge to understand and evaluate in an impartial manner.

PL: And Integrity is the second one we need to look at, isn’t it?

LH: For Integrity, the wording ‘strength of character’ has been added to the principle, and this is also found in section 110 of the Code. And this really means that you stand your ground when confronted by a dilemma or difficult situation, and that you challenge others as and when the circumstances warrant this, in a manner that is, of course, appropriate to the circumstances.

In terms of having strength of character, it’s important to act appropriately, even when facing pressure to do otherwise, and when doing so might create a potential adverse personal or organisational consequence. So very much acting in the broader public interest, rather than in your own best interest.

PL: That’s not all, is it?

LH: No. The concepts of ‘an inquiring mind’ and ‘professional judgement’ have both been defined separately in the Code, this time at section 120. ‘An inquiring mind’ is actually very interesting and it has two different elements. First of all, the professional accountant needs to consider ‘the source, relevance and sufficiency of information’ that they obtain. And secondly, they need to be ‘open and alert to the need for further investigation or other action’ which might be necessary in light of any new information that you come across.

PL: It’s complicated this, isn’t it? What exactly is the difference between the ‘inquiring mind’ and ‘professional scepticism’?

LH: The inquiring mind is really broader as it applies to all professional accountants, and they’re required to have an inquiring mind when they’re applying the Code’s conceptual framework – so, regardless of the kind of professional activity that they’re undertaking, whereas the concept of professional scepticism is a mindset that’s required when people are performing audits, reviews and other types of assurance engagements.

PL: Anything else that listeners should know at this point?

LH: Yes, there are also some key changes to do with technology, and these changes have really been introduced to guide members as they adapt to new technologies. The changes stress the fundamental principle of Professional Competence and Due Care, but they also touch on the principles of Objectivity and Confidentiality at the same time.

PL: And there’s a new definition of ‘confidential information’?

LH: There is. This has been updated to make reference to information in any format, whether that’s written, electronic, visual or oral that’s not publicly available at the time.

The other point here is that there are changes also to clarify the circumstances in which firms and network firms may not provide a technology-related non-assurance service to an audit or assurance client.

PL: There is quite a lot to digest here for members, isn’t there? I’m sure there are plenty of resources on offer. Do you want to just run us through what’s available?

LH: ICAEW has also published a range of supporting guidance ahead of the Code being published, and we also recorded a webinar to help practitioners understand the changes and what they mean to the users of the Code. And of course, I have to mention as well the ICAEW Ethics CPD course – you’ll see updates coming through in that over coming months.

PL: We’ll link to all those resources in the show notes. I will also link to a November podcast when we spoke to Sophie Wales, Director of Regulatory Policy – that was about ICAEW’s expectations on professional behaviour, so a neat fit with this one.

Thank you very much.

LH: Thank you.

PL: That is it for today. The next Accountancy Insights will be with you in early June. If you subscribe and turn on notifications, you’ll get an alert as soon as it drops.

Our next episode is a special one. It’s the 100th episode of Accountancy Insights. We’ll be talking to experts from business, finance and politics about accountancy’s role in this very fast-changing world. I’ll be joined by ICAEW Chief Executive, Alan Vallance, Baroness Ford, Chair of the newly formed Centre for Public Interest Audit, and Frances Haque, Chief Economist at Santander UK. Do not miss it.

Thanks for listening.