Gauke vows to ‘lift the lid’ on personal tax
Treasury minister David Gauke this week promised to “lift the lid on tax” by transforming “the customer experience of the personal tax system”, but risked the wrath of tax advisers by refusing to consider merging income tax and National Insurance Contributions (NICs).
Two weeks ahead of the Chancellor’s autumn statement (29 Nov) and the publication of draft Finance Bill clauses (6 Dec), Gauke set new reform hares running with consultation papers covering the government’s overall personal tax strategy, options for merging NICs and income tax, and a detailed time table of the Real Time Information system planned for PAYE.
Launching the HMRC discussion paper Modernising the administration of the personal tax system: Tax Transparency for Individuals (650kb PDF) at a Downing Street press conference on Monday morning, the minister admitted that the taxation system is difficult to understand. “It’s a black box of rates, thresholds and reliefs,” he said. Summing up the government’s overall intention in a single line, he offered, “Know what you pay.”
The proposals were broadly welcomed by the advisers and lobbyists at the Downing Street launch event, but Gauke - with the support of the Tax Payers’ Alliance and the ACCA - stopped short of a full merger.
“It is right to maintain NICs separately. The contributory system is still relevant,” he said.
The modernising personal tax discussion paper will have a 12-week consultation period to 24 February, and the government will provide an update alongside the 2012 Budget.
Released alongside this overview were two more documents:
- Integrating the operation of income tax and National Insurance contributions: next steps, which summarises responses to the consultation exercise carried out over the summer. It is available on the Treasury website.
- Draft amendments and documentation explaining how the planned Real Time Information system will work with PAYE, National Insurance contributions (NICs) and the Construction Industry Scheme (CIS). The relevant documents can be found on the HMRC website.
Continued...
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Comment from CIOT president Anthony Thomas
Anthony Thomas, CIOT president, was also at the Downing Street event on Monday. Like several accountants there, he voiced concern about the role of advisers in the reform programme and commented, "Where do agents feature? There was no mention of them."
He caught up with me earlier today and added: "My personal view is that I can understand the government’s attitude about transparency, but they need to focus on so much more.
"Transparency is a lovely idea, but comes with a double-edged sword. They’re in danger of creating something electronically that could screw up HMRC even more. The principle is very good, but it’s a long way off.
"I think the income tax-NI merger is a very complex thing and there are some hard edges to it. That too could cause some grief, a lot of hard work and could cause HMRC to lose the plot. It needs to be thought through, not in a rush. There needs to be some deep thinking before we start the journey."
Am I being over simplistic ...
Gauke answered those who advocate full merger by explaining that the government wasn’t keen to to extend NICs to those above retirement age, or to investment income. “You can end up with the further complication of one tax, but different rates. As always with tax, you do something in one area and a further complication can crop up in another.”
For the avoidance of doubt, he added, “There is no appetite or desire on the part of the government to put 12% on top of the tax rate for pensioners.”
... but can't this be simply adressed by a larger age related PA, clawed back above a level as at present?
Apologies to Jonathan Isaby
Sorry not to respond earlier, but it's good to see you making your own case in public with our comment facility. As I have written in an email, by notes have you saying that you thought the contributory principle was a good thing. It embarrasses me to admit it, but given the unequivocal nature of your comments and blog post, I must not have heard the word "not" during your question to the minister.
I have amended the text, as requested and apologise for the mistake. Thank you for bringing it to my attention, and for adding to the debate on this topic, which is obviously one which matters a lot to AccountingWEB members.
Permanent Secretary for Tax
We have Mike Clasper at the helm of HMRC, he has business experience but does not have a background in tax. We really need some senior people who know and understand the technical side of the tax system. I know the world and his wife have the knives out for Dave and his colleagues, but they play an essential role. Who else would have been involved in the nitty gritty of the Swiss UK deal which will raise billions in tax for the UK? I know that Dave was involved in the tax detail of this, negotiating with the Swiss to secure a deal which benefits us all (except those who choose not to pay tax on some of their income).
E&Y: "Employers will be PAYEing for the next five years"
Shortly after the discussion paper was launched, we received the following comments from Ernst & Young employment tax partner Graham Farquhar:
“With Real Time Information (RTI) due to come into force in April 2013 and the announcement today that National Insurance Contributions (NICs) and income tax will integrate in 2017, employers are facing five years of continuous change and cost. Whether you are a small company or a large PLC, this is going to mean thousands of pounds in new software, systems and personnel training.
“Based on HMRC’s timetable, we won’t know the extent of the changes to income tax and National Insurance for at least another three years, when the legislation is drafted and passed through Parliament. This will however allow time for consultation and for the Revenue to understand the full implications of these measures, not only for employers but also for HMRC’s own staff. It is also envisaged that it will take a further two years for systems changes to be implemented by both employers and the government departments affected.
“It is positive to see that the Revenue are being realistic about the time it needs to get its own house in order. This isn’t just a tax issue; it will impact processes relating to contributory benefits, including the state pension and other statutory payments such as maternity and sick pay.
“One of the most common issues cited by respondents to the Revenue's call for evidence was the different definition and treatment for earnings and expenses; for example there are different rules for tax and NIC relating to termination payments and benefits in kind.
“Will this result in a major overhaul of the National Insurance system? Almost certainly. However, whilst the Government will not wish to undertake a full merger of the tax and National Insurance regimes, a major reform of NIC is still required to suit the employment market in the 21st century which is now much more transient and international in its nature.”