Host
Philippa Lamb
Guests
- Caroline Miskin, Senior Technical Manager, Digital Taxation, ICAEW
- Anita Monteith, former Head of Tax Policy, ICAEW
- Debbi Francis, Head of Member Service Centre, ICAEW
Transcript
Philippa Lamb: Hello and welcome back to the Insights podcast. I’m Philippa Lamb with the month’s key developments in accountancy. This time we’re looking at the tax system from two different perspectives: digitalisation and gender imbalances. Also today, important changes to CPD – Continuing Professional Development – for ICAEW members. Joining us this time we have Caroline Miskin, Senior Technical Manager in Digital Taxation; Anita Monteith, who’s just stepped down as Head of Tax Policy, and Debbi Francis, Head of Member Service Centre. Hello, everyone. Thanks for coming in.
We going to start with Making Tax Digital, or MTD. Caroline, there’s a long history to this. I don’t think we need to reprise all of it, do we, but can you just summarise the overall plan and the overall timeframe for us?
Caroline Miskin: The original announcement was made in 2015, and at that point we were going to have VAT from 2019 and income tax from 2018. There have been several deferrals. We finally got VAT for a lot of businesses in 2019, but for most businesses not until 2022, and it wasn’t at the end of 2022 that it really became business as usual. MTD for income tax has actually been deferred, I reckon, five times, even though the National Audit Office count four. It was registered to be 2018. We’re now not going to see it until 2026 at the earliest, and for a reduced group of businesses – only those with a turnover of more than £50,000, and from 2027 for those with a turnover of more than £30,000. And the plans for MTD for partnerships and corporation tax, there is now no date. They have completely been kicked into the long grass.
PL: Perhaps unsurprisingly, the National Audit Office isn’t very impressed, is it? They’re particularly critical of this slow progress, and they said so in no uncertain terms in a report… it was 12 June, wasn’t it? What were the headlines there?
CM: It was one of the most critical NAO reports that I’ve seen. It’s very clear that the initial timeframe for MTD was completely unrealistic. MTD for income tax is at least eight years behind the original timetable and very much tallying with our views is that some of the really important elements of the design have still not been sorted out, some of the real basics. Obviously, the fact that it has been delayed so much has undermined the credibility of the project and also led to a very significant increase in costs, which are now expected to be £1.3bn and the original was some two hundred and something million. It’s made it quite clear that HMRC has not demonstrated that the programme offers the best value for money for digitalising the tax system, and some of the business cases excluded significant chunks of costs to taxpayers. It also importantly points to one of the big considerations that doesn’t get discussed as much as it should, which is the legacy systems – because that is the other aspect to what is happening behind the scenes with HMRC systems, which is just as critical to them producing their services but is proving to be really problematic.
PL: There’s a lot there. And now there is an inquiry, isn’t there, by the Public Accounts Committee? What is on their agenda?
CM: Well, the Public Accounts Committee essentially is using the National Audit Office report as the basis for its inquiry, but there are three particular elements: the original vision of the plans, what progress was made up to the end of 2022, and whether the current plans are realistic and can be achieved.
PL: On 19 June, I think it was, the HMRC provided oral evidence to the committee. What came out of that session?
CM: Yes, they did. The committee was naturally critical on the costs aspects and followed the National Audit Office report. And it did push them pretty hard. HMRC made its case. I think we’ll have to see what exactly the committee says in the report. It didn’t get too heated.
PL: Do we know when we’ll see that report?
CM: It will probably be in the autumn. They won’t get it out before the summer recess. And it may be that the committee decides to call further people to give evidence. At the moment it has only called HMRC, which is a little strange.
PL: And ICAEW has submitted evidence, hasn’t it, as part of that inquiry, expressing significant concerns in various areas. What are they?
CM: We did indeed, as many other people did, provide evidence to that inquiry and that evidence is available on the Public Accounts Committee website. In particular, we refer back to a letter which we had sent to HMRC earlier in the year, because alongside the deferral in December 2022, the government announced a review into how MTD might be adapted for small businesses, businesses and landlords with a turnover of less than £30,000. And so that inquiry is still… that’s another piece of the jigsaw. We understand that HMRC has just made its recommendations to the government, but we’re not expecting an announcement until the autumn, probably at a fiscal event. So that is another moving part. It’s an opportunity perhaps for some of the policy to be reviewed. The thing that ICAEW is really pointing to is quarterly updates, as we just don’t think that quarterly updates can be delivered in a sensible way by 2026, and we have doubts about whether they should be there at all. But we also have significant concerns about the state of development of the software products that are needed, and of course HMRC’s ability to provide support to taxpayers in the transition, given its current customer service problems.
PL: Because there’s a pilot in 2025/26, is that right?
CM: There is actually a pilot that is still going but there’s only about 137 taxpayers in the pilot. The pilot has actually been going since 2018 but is currently closed to new participants. What we are saying is that if it’s to go live in 2026, there needs to be a really significant pilot from 2025, and really we would like to see it going before that, but HMRC’s own plans show that a lot of the functionality isn’t going to be delivered by 2025, and some even not by 2026.
PL: So big concerns about the capacity to support taxpayers and agents?
CM: There is a concern about capacity. Obviously, the fact there’s a much reduced population size does help to address that to some extent. But it is a very significant change to the whole relationship between HMRC, taxpayers and their agents. ICAEW is fully supportive of the digitalisation of the tax system and maintaining digital records. But it’s the aspect of having to report data to HMRC once a quarter that we really have the difficulty with.
PL: You mentioned software as an issue. Software developers – I think you mentioned to me that at least two of them have cancelled their plans to develop a solution. So where does that leave all this?
CM: Yes, they have. There are a number of software developers who really developed and got going on the back of MTD ITSA and that was going to be their primary product, and so they are in particular difficulty. But even the large software developers have big concerns about their investment plans. It’s not just the building the product, it’s all their marketing and everything. There are two… yes, two of them have withdrawn completely: Tax Sheets, and the other one is Coconut, which was quite an exciting development because it was involving integrating the banking as well. That’s just been sold off for a pound.
PL: That’s not good news, is it?
CM: It’s not good news. I think we are in the situation that HMRC to some extent, unlike other tax changes, can’t just force this through. It can only do so with the cooperation of the software industry, and I would argue, agents and taxpayers as well.
PL: So where do we go from here? Or what would ICAEW like to see?
CM: Where do we go from here? Well, I think now we have made our case in the letter to HMRC, and we plan to have a follow-up meeting on that. We’ve provided the evidence to the Public Accounts Committee, we’ll have to see what comes out of that inquiry. I think we have to wait and see what happens in the autumn and what the government does announce, because of course we also have a general election between now and the start date, which could disrupt things considerably. Our view is just that we just don’t think that the plans as they currently stand can be delivered in a way that will actually achieve the objectives of the plan, which is to make it easier for taxpayers to comply with their tax affairs and to perhaps close the tax gap. But that in itself is controversial as to whether it will.
PL: Do you get a real sense that HMRC is taking these criticisms on board?
CM: I think it is. I think it has clearly shifted. We still think there are further policy changes needed. We think they need to move further. They have moved a long way, we think they need to move further, or the trust in the project is just not going to be there.
PL: And of course it’s important to remember this is not the whole of digitalising tax, is it? I mean, HMRC is doing other things in this area too.
CM: Absolutely. And that is one of the sort of disappointments, that actually HMRC is distracted. HMRC has got some really exciting plans actually for a single customer account and a single customer record, which will… it’ll probably take a decade, but it will in due course greatly improve the digital accounts that are available to taxpayers and bring everything, all the information together and all the information services together all in one place. That is a development that we should watch and we may well return to in a future podcast.
PL: And it’s rolling out digital services like online time to pay?
CM: At the moment, yes. It is, where it can and subject to budget. It is rolling out services, such as online time to pay. There are certain services that employers can now do online such as filing P11Ds and PAYE settlement agreements. So HMRC’s own digital services that it provides itself rather than through software developers, those are slowly making changes. But we have a very long wishlist of digital services, particularly for agents who tend to get forgotten – improvements that we would like to see, which we regularly discuss with HMRC.
PL: Thanks, Caroline. That’s a really helpful summary. That’s great.
Anita, sticking with tax, you’ve been looking at gender imbalances – and no big surprise that they still exist?
Anita Monteith: Yes, they do. We have moved closer to equality, but we’re not there yet. While the content of the legislation itself appears to tax the sexes equally, the impact isn’t felt equally, because of course biology and life choices affect men and women differently. Broader factors are relevant to a gender-neutral tax system, and things like parental leave, career breaks, the gender pay gap, workplace pensions and Universal Credit, all of that comes into play.
PL: There’s obviously a long history of inequitable treatment of women. I think it was only 1870, is that right, when married women were actually allowed to be the legal owners of money they earned?
AM: Yes, that’s right. Women have been second-class citizens financially for a very, very long time. And you’re absolutely right, until the mid-19th century they were just absolutely nowhere. And even then it took another 50 years before the Law of Property Act in 1922 made it possible for a husband and wife to inherit each other’s property and to inherit the property of intestate children equally. And just as recently as the 1980s married couples were still being taxed as a single unit on which the husband was responsible for the tax.
PL: I find that almost incredible.
AM: It’s extraordinary. And it took until 1990 for us to get independent taxation. So well within our lifetimes.
PL: The government aims to ensure that new taxes at least aren’t biased. How do they do that?
AM: They do try, you’re right. When a new tax policy decision is announced in the budget it is usually accompanied by a TIIN – a tax information and impact note. This has got a section which considers who or what might be affected by the policy, for example, specific individuals, households, families, types of business and so on. But it doesn’t always work as it is intended to do.
PL: Yes. I’m going to say tampon tax at this point, because that was a great idea but it actually didn’t really work in practice, did it?
AM: No, a brilliant idea, lots of lobbying to get that one passed.
PL: So this is VAT…
AM: It’s about VAT, yes. A zero rate of VAT now applies to women’s sanitary products. Sadly shelf prices have not been brought down by the expected 20/120. So one can only presume that somebody else, perhaps retailers, have benefited instead. And in fact, that isn’t the only clear policy area where there is this sort of problem. Another one which I feel very, very strongly about is tax relief for training. After a career break, it is often the case that a woman will want to come back to the workforce doing something different. Now if I wanted to retrain as a plumber, for example, I would have to bear the cost of that myself unless I was on some special scheme. And that cost would not be eligible for tax relief.
PL: That is an interesting thought, given that we’re trying to upskill our workforce.
AM: Exactly. And there’s a whole bunch of people that want to retrain, not just women, but it’s just in the context of career break…
PL: And lifelong learning…
AM: And lifelong learning.
PL: Cliff edges disproportionately affect women as well, don’t they?
AM: They do, I’m afraid. Most problems occur where there is a cliff edge in the system. One that we all really, really hate more than any other is the high income child benefit charge. Where the income of any individual in a household is over £50,000 and either that person or someone they live with receives child benefit, then the charge applies, and child benefit is clawed back through the tax system from the individual with the higher income.
PL: Presuming that’s usually the man?
AM: Indeed. And quite often it will be the mother – not always, but usually – the mother who claims child benefit and, as you say, the father who has to pay it back through this charge. They don’t need to be married, and the child may not even be his. So, as a consequence, the couple may decide it simply isn’t worth the mother claiming the child benefit at all. Now, not only does that deprive many women of a small source of income of their own, and so some independence, but it also has a potential impact on their state pension entitlement, as claiming child benefit triggers entitlement to national insurance credit.
PL: Yes, this is vital, isn’t it?
AM: It is. And thankfully, it was actually announced on the tax administration and maintenance day that we had recently that the government will address this particular problem, and affected parents can now receive a national insurance credit retrospectively.
PL: Yes… which hopefully goes some way to narrowing the gender pension gap over time.
AM: Yes, well, it does, but of course there are all sorts of things that also impact women more than men. For example, freezing allowances is a big one, because that will impact lower income earners, bringing more people into the tax system for the first time. And of course the gender pay gap means that it is often women who are in this lower income earning group.
PL: So there’s a lot for policymakers to do isn’t there, and avoiding these unintended consequences is key. What needs to be done differently?
AM: Now, for a start, I think gender is a very, very important issue, but it isn’t the only one. Policymakers need to be clear about their goals. And if gender equality is an underlying requirement to your new policy, then look for the unintended consequences. Think laterally and allow enough time during consultation to refine the policy. Keep an open mind and a change in direction will almost always be possible. There are plenty of people out there willing to tell you where you can improve your policy to achieve the same thing, if you listen.
PL: I think there’s a Taxline article on this, isn’t there?
AM: That’s right. It’s just been published. It’s called ‘Does tax policy reflect gender?’ and it’s freely available for everyone to read.
PL: That’s great. Thank you very much, Anita.
CPD now. Debbi, it’s changing for ICAEW members – should we start with when?
Debbi Francis: We’ve got some new CPD regulations coming in and these rules are going to apply from 1 November this year. They are going to affect all ICAEW members. The last time we changed CPD policy was back in about 2005, so it’s a big change for members. And the key thing is that all of our members double-check what categories they sit in for this new CPD policy.
PL: Just to be clear, the existing rules apply until 1 November, but members won’t be declaring using these new rules until the following year, 2024. Is that right?
DF: Absolutely. The current rules are going to apply all the way up until November, then our members will need to make sure that they’re aware of the new policy changes. They won’t declare for this new policy and the new CPD activity they’ve undertaken until the following year. So that will be November 2024.
PL: And what exactly is changing?
DF: We are introducing some mandatory CPD hours for members working in particular roles. If our members are completing work in areas of accounting, finance, those individuals will be affected by this policy. So anybody that’s in regulated areas will come under this new policy. And there are members that actually will be exempt under these new regulations as well. This is all down to… as members already will have been assessing under their existing roles… it’s about the work that they undertake. So we have some fantastic self assessment tools online that members can go and have a look at and work out their category and work out the minimum number of mandatory hours that they will need to undertake as part of that role.
PL: And a number of those hours must be verifiable.
DF: Yes. Depending on your category, there’ll be a set number of CPD hours. Some of those will be verifiable hours, and some of those will be non-verifiable. When we come to look at verifiable hours, that’s hours that basically need to be corroborated – you can evidence those hours. We’ve got a good example online with a really helpful CPD record. I think the key thing I’d really like our members to take away is that verified CPD doesn’t need to be structured courses with an in-person all-day event that’s going to be really costly. Verifiable hours under this new arrangement, it’s quite broad. For example, you may be listening to a podcast like we’re doing today. You could be at a webinar, you could actually be reading technical information online, you could be at a working meeting. As long as that activity can be evidenced, then you can contribute that towards your verifiable hours when this new policy comes into play.
PL: So you can point to the article, point to the podcast specifically.
DF: You could do. Obviously not this one, because this wouldn’t be bringing you up to date on technical information or necessarily things relevant to your role. But yes, you could absolutely point to that information. You would need to demonstrate that you had actually listened to it, so that might be… you might have registered for something, you might be able to dictate when this happened, if it was a live recording. It might be, if you’ve been at a meeting, it might actually be corroboration from your line manager. But as long as it’s factual information that you’ve taken away that can be evidenced, that would count as verifiable.
PL: And there’s a new requirement for ethics training?
DF: There is. There’s a mandatory requirement for ethics training. There’s a great new tool that ICAEW has created. And that’s… I think its maximum is about 12 hours. Obviously you don’t need to do 12 hours. We’re only asking our members to complete one hour of ethics training. But you could actually use some of this ethics training if you wanted to progress through the tool for more hours than one, and that could be counted as verifiable time as well. It’s fairly flexible in the way we do things, and we’ve got our own ethics package that we’ve put on, but you don’t need to use ours that we’ve already launched, you could actually undertake other ethics training, which would also count.
PL: And it’s important to remember that statutory directors, they’re also subject to the CPD regulations.
DF: Yes. This all comes down to your role and the requirements of the role and the skills and the expertise required for that role. As a statutory director, you will still have some decision-making responsibilities; you’re responsible at that company. Under that, you are required to maintain CPD to make sure that you’re doing the best job you can be. And that does cover ethics requirements as well.
PL: And it is worth pointing out… you talked about technical stuff but it’s soft skills too, isn’t it?
DF: Yes. Verifiable CPD… it could be verified or non-verified but if, for example, you had identified that you may need to brush up on communication skills – it could be change management, it could be anything like that – that would also potentially count towards your CPD requirements. And verifiable, if you can obviously evidence that.
PL: I would obviously not wish to suggest that members’ declarations might be unreliable, but ICAEW does check, doesn’t it?
DF: We do. We do have multiple ways in which you could be monitored. Mainly we do a random sample monitor. So anyone could be chosen at any time, which is why really keeping those records when we kick off this new CPD policy is absolutely key. I’m sure our members are used to keeping records anyway from the current CPD policy and the firms – if you’re working in a firm – they will support you in keeping those records. So you could be chosen from monitoring through random sampling, or it could be that your firm might be visited as part of our quality assurance reviews.
PL: One other thought: if you work part time, is your CPD pro-rated?
DF: So this was discussed at length when the policy was put in. The skills and the technical knowledge, all of those things are just as important… the level of those are just as important for somebody who’s working part time as they are for somebody who’s working full time. For somebody who is working part time a few days a week, they still will be required to do the full amount of CPD hours, and they should check the self-assessment tool for what those would be. If, however, you are somebody who is returning to work or you’ve taken a sabbatical, you may be exempt for a proportion of a year. In that case – for example, if you were absent from work or unemployed for six months of the year – then you could actually pro rata those hours. If you needed to do 30 hours of CPD and you’d only worked six months of the year, that CPD year, then actually you’d only be required to do 15.
PL: If you needed to check up on something like that, or indeed any other elements of this new system, where can members find more information about this?
DF: This is all online. There’s such a wealth of information online at icaew.com/CPD. There is a huge number of case studies, so you may be able to find somebody whose role is very similar to yours in those case studies. There is information on… whether accountancy and finance work, it’s got a list of that, if you can identify yourself in some of those areas… if you’re not sure, are you brought into scope or aren’t you? If you’re not brought into scope, say… it’s an absolute wealth of resources. And another reminder would be that when it comes to actually doing your CPD activity, we have a huge range of things available for members. We have guidance, we have helpsheets, we have pages within our library sites, we have ebooks, we have a lot of communities as well and faculties. All of this information, it’s not necessarily a chargeable thing – it’s something that you already get and that would contribute towards your CPD time. I’m hoping that members are already doing this as part of their every day. So it’s something they’re doing all the time. We’re just asking them to record it in a particular way.
PL: Thanks very much, Debbi.
Debbi, Anita, Caroline – thanks so much for updating us. You can find more information on the topics we’ve just discussed by digging into the show notes for this episode. Make sure to also sign up to daily, weekly or indeed monthly newsletters from ICAEW Insights and that way you’ll get all the latest accountancy news direct to your inbox, but importantly only at your preferred frequency.
Join us later in the month for July’s In Focus podcast. The Insight series will be back in early August. Meantime, I’m going to end with my regular request for you to please take a moment to rate, review and share this episode and subscribe to the series on your favourite podcast app. Thanks for being with us.
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