- Lindsey Wicks, Senior Technical Manager for Tax Policy, ICAEW
- Caroline Miskin, Senior Technical Manager for Digital Taxation, ICAEW
- Frank Haskew, Head of Taxation Strategy, ICAEW
Lindsey Wicks: Hello, and welcome to The Tax Track, the brand new podcast series from ICAEW, where we explore the latest from the tax world, and what it means for our members and tax professionals alike. In our very first episode, we’ll be looking ahead to what’s coming down the line in 2024 and how accountants, businesses and taxpayers can navigate the changes in an election year.
Frank Haskew: Whether there’s a change in government or not, we’re still likely to see some sort of fiscal event, I would have thought.
Caroline Miskin: The time has come when everybody needs to set themselves up with access to their digital tax account, because there are going to be things that need to be done there.
LW: I’m Lindsey Wicks, Senior Technical Manager for Tax Policy at ICAEW. I’m joined by two colleagues who know more on the subject of tax than most – Caroline Miskin, Senior Technical Manager for Digital Taxation, and Frank Haskew, Head of Taxation Strategy. The first few days back in the office have been a bit of a whirlwind, haven’t they?
FH: It’s been extremely busy, hasn’t it Caroline, already?
CM: We already had, even before we got back, the announcement of the budget, which I guess does help us all in planning our diaries. So yes, lots is going to happen.
LW: This first episode looks ahead to the year in tax for 2024. We’ve all chosen a topic that we think will define the year, and we’re going to talk about those issues and what they might mean for accountants and businesses. My topic is the fact that it’s an election year; Caroline, you’ve chosen HMRC service standards; and Frank, you’ve chosen regulation.
I’ll kick off with the broadest topic of discussion. It’s an election year. We’re not sure when the election will happen, but it will obviously have an impact on tax, particularly how many budgets we might have, how many finance bills we might have. What are your thoughts on this?
FH: I must say I’m intrigued about how many finance acts we might have this year, because they’re obviously at pace in passing the current Finance Bill, aren’t they? That’s going to be passed, I think, in the next month. Are we going to then have another one, do you think?
LW: I think we will, yes, after the budget, because this Finance Bill hasn’t set the income tax or corporation tax rates and they’re annual taxes, so we need a Finance Bill to enact those every year. I think the likelihood is that one week after the budget on 6 March, we’ll probably have another Finance Bill.
FH: And possibly another after an election. So it could be a busy Finance Act year.
CM: Well, certainly not a year with the one fiscal event that we all would all like to see.
LW: Certainly, thinking ahead to the budget, there’s already a lot of speculation about tax rabbits coming out of the hat. What are your thoughts on this?
CM: IHT [inheritance tax] seems to be the perennial that everybody talks about, and is replacing pension reform as being the topic that gets discussed coming up to every fiscal event. I think there has been a slight sense of dampening; I think it’s worth people being aware that IHT revenues are rising. And it’s almost a straightforward choice between income tax and IHT as to where the chancellor decides to spend whatever headroom he might be able to find. You do wonder whether, if the choice was put to people that starkly, where they would actually opt.
LW: Yes, and the thing that strikes me as well with IHT is complexity, because we’ve seen with the pension lifetime allowance how scrapping the pensions lifetime allowance has led to 99 pages of new legislation. So is it going to be scrapping IHT for everyone, then we’ve got the 10-year charge for IHT on trust – will that remain?
FH: On the face of it, IHT potentially really only affects a small number of people but grabs a lot of headlines. But I think most people would prefer either the unfreezing of the rate bands and thresholds or a reduction in income tax generally.
CM: There’s certainly scope for reforming IHT and there’s been a lot of good work done by people like the IFS [Institute for Fiscal Studies] and others. There’s certainly room for reform, but it’s exactly that sort of thoughtful level of change that I don’t think we will see in an election year with lots of fiscal events and finance acts.
LW: And the other rumour has been that the chancellor will do something for first-time buyers,
CM: Not a lot on what though – and we’ve had special forms of ISAs, we’ve had stamp duty – but that just seems to put up the house prices. So I haven’t seen any suggestions as to how he might do that.
FH: No, it’s a perennial issue now, isn’t it, that SDLT [Stamp Duty Land Tax] rates are high? Once upon a time it was just 1%, wasn’t it, on purchases over £30,000. But we’re a long, long way from that, with SDLT. And it is a significant cost, isn’t it? But as you say, will it just effectively fuel house-price inflation at the end of the day? It doesn’t seem to be affecting the market particularly.
CM: I think we’ll have to watch fuel duty. Fuel duty hasn’t been put up for years – I’ve forgotten how many years now. But yet the forecasts continue to assume that it will rise in line with inflation. So that decision will make a very significant difference to how much scope there is for other changes, I suspect.
LW: And we spoke before about the fact that we might have an emergency budget after an election. Presumably, that could mean some mid-year changes?
FH: No matter if there’s a change in government or not, we’re still likely to see some sort of fiscal event, I would have thought, because a new government will want to make its mark. But I suspect we’ll also see that the current government would want to carry through further things, having had a new mandate. So I think we will have an event – I suspect they might not want to call it in emergency budget. But whatever happens, I think we will see changes coming through.
CM: We have had major changes before but not very many, really, over the years. National Insurance, because it’s not annual, is easier to change mid-year. Payroll people don’t like me saying that, but it is easier than income tax. I know in the Gordon Brown era there was a mid-year change, but I think that would be really messy.
LW: OK, so for an election year, we think many fiscal events, many finance bills, and it could just be interesting to see where they go with tax policy. Which brings us nicely on to Caroline and service standards.
CM: Yes, service standards were certainly a dominant theme in 2023, and I think will continue to be in 2024. And as we report, there are significant restrictions on the self-assessment helpline, both for agents and for taxpayers. HMRC is certainly doubling down on trying to achieve what they call ‘channel shift’ – moving contact from phone and post onto the HMRC digital services.
I think to some extent one has some sympathy with them – it’s limited, but we have some, because they do get an awful lot of calls for things that could be done easily online. So people looking for their national insurance number; asking what their PAYE code is; changing their address – those kinds of things. They do get millions and millions of calls, mostly from taxpayers. And HMRC does acknowledge that this shift is more to do with taxpayers than it is with agents. But HMRC has made it very clear that it must reduce phone and post contact by something like 30% by the end of this year, compared with 2020/21 – that is the only way it is going to be able to restore its service standards. The staff numbers have reduced by about 20 to 24% in the last five years; HMRC budget is going down by £1bn. So HMRC does need to achieve a significant channel shift.
I have a list of all the gaps and issues with HMRC services standards, which is doing the rounds within HMRC. But it just seems to be so difficult to get those changed. You know, we keep getting messages from HMRC to say people must go online, must go online. But we all know – and agents in particular know – that there are so many things that can’t be done online. HMRC services are not comprehensive, they’re not always easy to find. And there really does need to be very significant investment in digital services. We’ve asked members a lot about where the gaps are, so I think they’re all fairly well established now. But things like being able to have some sort of secure electronic communication, even if email isn’t the answer [we need] some sort of secure equivalent.
LW: Clearly there’s a lot been going on in HMRC customer services, but what specifically needs to change?
CM: Simple things like agents being able to request changes to tax codes – there’s no digital service for that at the moment; or to withdraw tax returns – there are some really basic things that can’t be done online and HMRC really does need to step up and actually provide decent services.
LW: What can people do to help ease the pressure on HMRC?
CM: Well, I’m not sure that there’s a lot that agents can do. But I do think the tax profession as a whole should be encouraging as many people as possible to download the HMRC app. I think we are getting to the point that even if somebody is represented, the time has come when everybody needs to set themselves up with access to their digital tax account, because there are going to be things that need to be done there. The best hook is national insurance, because there’s really good information on your national insurance history and what your state pension forecast is. And we are sure that coming very soon will be a fully electronic method of paying voluntary class 3 national insurance contributions, which will be a significant thing. So it is well worth everybody really encouraging clients, friends, family – everybody – to think app first, because it is slowly and steadily improving.
LW: And National Insurance, of course – with class 2 going from April, that’s going to be a key one for self-employed people to check there.
CM: Absolutely, yes, that’s another reason why people need to have that app. Because if you’re not paying class 2 you need to be doubly sure that you’re actually getting a credit for the year.
LW: So Frank, what’s ICAEW been doing to try and improve things for our members?
FH: Well, that’s a good question, Lindsey. Caroline has been an absolute Trojan in this area, I have to say, but we have been trying to hold HMRC to account in this area for quite some time. It’s the number one concern of our members, judging from the postbag. Caroline and others are getting emails about this every single day, and at every meeting we go to with members it’s the same thing. So we’ve been putting out press releases, and we have had our CEO, Michael Izza, putting out press comment on it. At every single forum that we have with HMRC, it’s front and centre. So we are doing as much as we can. And indeed, we’re also working very closely with a number of the other professional bodies on it. I would just say that we saw evidence from HMRC with the Public Accounts Committee, just before Christmas. Demand is going up, and resources are falling. It just seems to be an unsustainable position. And the comments we’re getting are that it’s going to get worse before it gets better, which is really concerning. I think we’ve got to carry on holding HMRC’s feet to the fire.
The other comment I’d like to make is that there doesn’t ever appear to be a Plan B – you know, [they say] this is the plan, and we’re somehow going to meet it. But on the basis of past performance as a guide to the future, from our side we’re seriously concerned that they won’t.
LW: On the channel shift, achieving that shift from speaking to a person to going online and acting for yourself – how reasonable is that? What do taxpayers need?
FH: Tax is a bit different to other organisations seeking to engage digitally, in the sense that you have legal obligations and if you don’t meet them, you’re potentially open to penalties or interest [payments]. You know, with both taxpayers and agents, there’s that fear factor.
CM: They want reassurance that they’ve got it right, when it’s not something that they do every day or every week. It’s not like checking your banking app, which you might do every day or every week. That’s not going to happen with tax, whatever might be in HMRC’s dreams.
FH: We’re a long way from that, I think, aren’t we?
LW: That’s why in some cases, a lot of people do still need a tax agent – which probably brings us nicely on to regulation, specifically of tax advisers. This is your topic, Frank. What are the issues we’re likely to be hearing about in 2024?
FH: Well, that’s a very interesting question, Lindsey. I think the starting point is that you don’t have to be affiliated to a professional body to actually be a tax agent and interact with HMRC. Anyone, literally anyone, can set themselves up without any knowledge of taxation. There are all sorts of stories about people doing exactly that, but I think my favourite one was from Caroline’s predecessor in the role, Philippa Stedman, who had people in her street in Wimbledon, who were Australians over on visas. And she asked them: “What are you going to be doing?” “I’m going to becoming a VAT consultant,” was the reply, to which her response – naturally enough – was: “So what do you know about VAT?” And the answer was: “I don’t know anything about VAT.”
But the fact is, anybody can set themselves up as a tax consultant agent. That’s problematic when we have a system which is potentially people who don’t have the necessary qualities of a tax agent. HMRC has had, since 2016, the standard for agents, which they expect agents to follow. But I think the trouble is that there are no requirements in it; it’s expectation. There are various things HMRC could do, but effectively, it doesn’t have any teeth; I would say it lacks enforceability.
There’s no requirement, for instance, to have professional indemnity insurance. HMRC stats – not that we’ve seen any real stats, of course – are that about 30 to 35% of agents who are registered with them appear to be unaffiliated to a professional body. But as we all know, a lot of the problem areas that we’re seeing seem to be in that sector – not exclusively, I think we have to recognise that – but areas like contractor loans, R and D, repayment agents, umbrella companies. The list is quite long, isn’t it? And we seem to see lots of problems in those areas, as you know. It pretty much came to a head with Sir Amyas (now Lord) Morse’s report, back in December 2019. So it’s now already some time ago, but one of his recommendations was that there should be greater oversight of the tax profession, possibly including regulation. And really, that can has been kicked around ever since.
LW: And, Frank, we’ve already had a few consultations. Can you talk us through those?
FH: We had a call for evidence back in March 2020, just as the pandemic was starting. Then the following year, we had another consultation on potential compulsory professional indemnity insurance (PII) and also the definition of tax advice. The government obviously decided in its response, which was in November 2021, that it wouldn’t proceed with compulsory PII, but that it would look to introduce a possibly regular, further consultation on regulation. So here we are.
CM: Two years on and we still haven’t seen anything. Extraordinary!
FH: We wrote to the Financial Secretary to the Treasury back in February 2022 about all of this. And here we are almost two years on even from that, and we haven’t seen anything. But the mood music we are hearing is that it’s going to change, that we’re going to have a consultation in the first quarter of this year, and that it is likely to contain proposals – certainly a direction of travel – that’s looking at greater regulation on other tax professionals.
LW: One area where we have had some action is in respect of repayment agents. And that’s partly because of the disruption that they can cause on HMRC’s ability to deliver customer service. Caroline, do you want to talk a little bit around what what’s happened there?
CM: There have been some quite significant changes there. It started with deeds of assignment which date back to 1920s property law. What it actually means is that you are assigning a repayment, in formal legal terms, to the individual. It’s different from a nomination, which is simply saying please pay this money to a third party, as the nomination can be revoked unilaterally at any time; a deed of assignment can only be revoked by mutual agreement between the taxpayer and the third party. So the first action we saw, which I think pretty well everybody welcomed, was to stop deeds of assignment.
The next step HMRC is taking is to make sure that with agents submitting paper repayment claims – we’re talking about mass-market P87s [income tax relief on job expenses], marriage allowance claim forms, things like that – the agent will have to quote their agent reference number on those forms. HMRC has also taken a lot of steps on repayment of tax on interest on PPI claims, and actually paused processing those for a period at the end of last year and is now requiring the PPI paperwork before it will look at the repayment claim. So it’s really, really slowed those down and actually required very specific evidence
LW: Repayment agents have, though, been successful in plugging a gap because a lot of people don’t realise that they’re entitled to claim back their tax. So how do we address that? HMRC is trying to tackle it, as an issue, but the issue is partly one of awareness, isn’t it?
CM: There does need to be a lot more done on making people aware of the reliefs to which they are entitled and how to claim them. And it’s back to what we were talking about earlier – the digital services need to be much more comprehensive, easy to find and all joined together. And I think when we get to the point that everything is in one place, then we will start to see people becoming much more familiar with and much more interested in checking their tax affairs.
LW: Frank, agents also have a place in the market in terms of doing things at relatively low cost. But professional indemnity insurance is another cost – should we just pick up again on that and why HMRC rejected the idea of everyone holding professional indemnity insurance?
FH: As we all know, if you’re a member of a reputable professional body, it’s a requirement to have professional indemnity insurance. So we actually supported it in principle as an idea. But the insurance industry certainly was not keen on it. But in the end, the government did reject it. And I think there are three main reasons, the first one being that the government thought the consumer protection element of PII was quite weak. They also thought that it was unlikely to work as a mechanism for removing the riskiest tax advisers from the market, which is probably true, because we all know that these actors – or bad actors – seem to be completely impervious to almost anything you try and do to stop them. And thirdly, but I think, importantly, there was a serious worry that premiums would rise for all tax advisers, because that’s the way the insurance market would work. And in fact they’ve been rising anyway, as I understand it quite significantly, without those sorts of changes. So I think those were all the reasons why they rejected it. But the fact is that if we go into a model which has greater regulation, where everybody has to be a member of, say, a professional body, then they would have to have PII anyway. So to some extent it’s not gone away, because it will have to happen if we move to a more regulated environment.
LW: Can you just give me an idea of ICAEW’s position on regulation?
FH: Where we are at the moment is that we certainly need better data on which to make decisions. We don’t really have a good handle on data as to the performance of agents, and without good data you can’t really make good evidence-based decisions. So I think we’re in a position that we need better data.
But more importantly than that, what actually is the problem we’re trying to solve? And will regulation solve those problems? Caroline has just highlighted very clearly the problems in the repayment agent sector, where effectively we’re already having to introduce new sets of rules to deal with that. So, is regulation the answer to that? I’m not sure from evidence that we’ve seen elsewhere in the world – for instance, Australia – that regulation actually would solve the sorts of problems that we’ve often been seeing outside of the affiliated sector. And we all know that people acting in these areas do seem to operate – and continue to operate – no matter how many rules and regulations you throw at them.
I think the other thing – and this again is why tax is a bit different– is that you could end up with perverse policy outcomes. Because the fact is, if you introduce a regulatory regime, as we know, costs will go up. And at what point do you reach [a time when] tax advice becomes too expensive for many taxpayers with the result that they’ll just do it themselves? HMRC did have some evidence that just having a tax advisor did help improve compliance, although I’ve never actually seen any hard data on that. So it’s actually a very difficult question to get right. And I think it will take years before we see any sort of clear regulatory model emerging. There’ll probably need to be a transitional period as well, if we have a direction of travel set, and if we have an election or a change of government that would then likely to continue, I would say.
LW: I think there’s going to be a lot happening in 2024. Whether or not we’ll see something on regulation? We’ll have to wait and see. Whether or not we’ll see improvements in HMRC customer services? We can only keep our fingers crossed, can’t we? But one thing is certain – we are likely to have an election and therefore a very exciting year in tax. Many thanks to Caroline and Frank for your contributions
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