OTS chief welcomes signs of progress

 

“Without us, it would be worse,” Office of Tax Simplification policy director John Whiting told AccountingWEB in his 2012 Budget assessment.

This week’s Budget was perhaps a little unexciting, but still contained some chewy morsels for connoisseurs of tapers, marginal rates and the minutiae of tax mechanics.

The doyen of this accountant-heavy fraternity is John Whiting, who has been engaged since 2010 in a crusade to remove some of the complexity from the UK’s creaking taxation system in his role as tax director for the Office of Tax Simplification.

After producing reports on small business tax and the issues affecting pensioners and share schemes, Whiting was pleasantly surprised to see some of the OTS proposals being taken forward.

In the case of tax accounting for small businesses based on cash receipts and payments, “The idea was taken higher and faster than we suggested,” he told AccountingWEB.

The OTS terms of reference require any reforms to be tax neutral. To ensure it would have a minimal impact on the tax take, the small company review team formulated restricted its proposals to simplify tax accounting requirements to micro businesses turning over no more than £35,000.

“Our thinking was to establish the regime and see how it worked. We thought it was something that would need time to get going. But they’ve gone much higher, up to the VAT threshold [£77,000],” Whiting said.

From a simplification point of view, there’s a clear argument in favour of aligning the small company reporting option with the VAT threshold. “When VAT applies is when companies have to get on top of their business records. But it raises quite a few issues - as AccountingWEB members have pointed out so energetically,” Whiting said.

Corporation Tax reduction

One of Whiting’s many epigrams is, “The best way of simplifying anything is to get rid of it.” But there are certain restrictions to this approach, he admitted:  “You can’t really see the government doing away with income tax or corporation tax.”

But you can reduce it, which is what the Chancellor did with his announcement of an extra percentage reduction in the Corporation Tax rate from April 2012, continuing downwards to 22% in 2014.

“Aiming for 20% makes a lot of sense,” said Whiting.

“It will simplify a lot of things for small business and do away with the associated company rules.”

Pensioners aged-related allowance

Whiting was also glad to see the Chancellor respond to some of the tax issues that cause problems for pensioners. “The recent OTS report listed a range of ways that these might be solved. Allowing [age-related income tax allowances] to wither on the vine was one of them, but we did not know that this would go straight into the Budget,” he said.

“In terms of simplification, freezing the age-related allowances is a good measure, but it clearly raises things that need to be solved. It does affect older people who have incomes between £10,500 and £24,000. This measure will be costing them something, so the Chancellor needs to give some compensation for it. But how far do you compensate?”

Continued...

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Comments

Tax simplification - so why consider son of IR35 ??

mikewhit | | Permalink

We see in response to the recent IR35 disguised employees in the corridors of power, the following in the Budget:

Section 2.207 of the supplementary Budget papers: the proposal for PAYE/NICs to be deducted at source for those 'integral' to running an organisation. But IR35 itself already deals with this - so no need for any new legislation, surely ?

Let's hope this 2.207 fizzles out when it becomes clear that "the wheel" already exists and does not require reinventing ...

@mikewhit:Janice Joplin's "U don't know what U've got till ... "

dstickl | | Permalink

mikewhit wrote:

We see in response to the recent IR35 disguised employees in the corridors of power, the following in the Budget:

Section 2.207 of the supplementary Budget papers: the proposal for PAYE/NICs to be deducted at source for those 'integral' to running an organisation. But IR35 itself already deals with this - so no need for any new legislation, surely ?

Let's hope this 2.207 fizzles out when it becomes clear that "the wheel" already exists and does not require reinventing ...

Hi mikewhit! The answer to your question seems to me that some Ministers, HMT [and some of HMRC] positively live Janice Joplin's song "You don't know what you've got till it's gone!"

Surely that's Joni Mitchell's "Big Yellow Taxi" ?

mikewhit | | Permalink

@dstickl.

@ mikewhit: Aah! Hazy memories ...

dstickl | | Permalink

...

John Stokdyk's picture

ICAS not quite on message...

John Stokdyk | | Permalink

We've just published a guest blog from ICAS technical policy directory James Barbour entitled, Simple is not always best.

He's speaking for a different constituency than John Whiting (or George Osborne), but something tells me the consultation exercise around the small company tax accounting reforms is going to be a lively one.

@mikewhit and @dstickl - thanks for flagging up paragraph 2.207 - there's also an Any Answers question bubbling up on this issue. It was a very timely reminder for me to get the IR35 reform discussion group up and running. From the obscure hint in the Budget report, it looks like there might be a lot to talk about in the months ahead.

Bob Harper's picture

Accountants should welcome progress

Bob Harper | | Permalink

 

Most accountants seem to be very negative about this. Shouldn't the profession be positive, after all these changes are designed to help their clients?  

There is a good argument that if someone wants to earn a living being self-employed they should be able to do that as easily as being employed. Specifically, they should not need to pay additional tax in the form of unnecessary accountancy fees.

Good accountants should be working with clients helping them grow and mange their businesses more effectively, improve profits and supporting them with all the real challenges they face.  

For those who are negative, this is a blessing in disguise; get rid of low value work with micro businesses where there is little real profit and focus resources on adding value. This change of focus has the potential to develop our economy for the better for everyone, except lazy accountants. 

Bob Harper

Crunchers Accounting Franchise

What about the child benefit changes?

cmiskin | | Permalink

What has the OTS got to say about the Child Benefit changes - surely, an introduction of great complexity into the tax system? The lessons of the problems in the tax credit system re joint/single claims and changing households have clearly not been learnt.   

Joint tax returns

mikewhit | | Permalink

Just to prod the Conservatives into some thought, a couple of years back while they were still in opposition, I did submit a suggestion on their website that if they wanted to encourage stability of relationships and "fairness", they should consider introducing the option of joint couples' tax returns in the US or Isle of Man mould, rather than all this emphasis on married couples which seemed to be based on a circular argument about married people with children staying together. At the time, the "income splitting" debate was still going around.

This would then (in those opting for a joint return) avoid such discrepancies as those described with respect to Child Benefit, since a whole household income would be accounted for.

Can't see them bringing this in at this stage though ...

Sorry John

The Black Knight | | Permalink

but mini micros do take advice, until you convince them that it's just the filling in of a form they need to do and can do this themselves.

And they get a lot of valuable advice they do not pay for......not a big four business model but there you go.

This is not just about us trying to protect our fees it is about giving the right advice and the dirty word compliance which we should be leaving to untrained franchises.

Those who have experience of this size of business already know how much tax goes missing at present and have a fair idea of the future losses.

We will adapt and survive that's what accountants do, might even find something better to do.

and a professional rule changer will replace the rules to make way for new rules to do the same job as the ones that they got rid of, whether it works or not is not important in fact it is better for it not to work so the OTS can continue in existence.

I hope the hole turns out to be large so I can say Kassandra...

It will be the tax + the payments on account + the tax credits + the vat.......now that is what I call a timing difference.....Ha ha

 

Wild Billy's picture

Isn't it astonishing....    1 thanks

Wild Billy | | Permalink

... that after years and years of moaning about complexity that we now complain when there is simplification? All this really reveals is three things:

(1) We will moan whatever happens- if there is simplification we will moan about fairness or because we "have" to now find other ways round the system.

(2) We don't really want simplification- we really want what is best for us (whatever that may be)

(3) All those who shouted so loudly about simplification go depressingly quiet when the flak is flying and aren't prepared to put their heads above the ground to back up their earlier views.

Are we REALLY so arrogant (and ignorant?) to think that the OTS are a bunch of clowns? Are we saying John Whiting is an idiot? Are we saying that the private sector secondees that worked on this report- yes, people like you and me because they are not from the Big 4 as far as I can tell- are living in a parallel universe? How many of us here bothered to offer views to the OTS by attending meetings or making a written submission DURING the review stage?

We really are a very depressing bunch.

 

this is not a simplification

The Black Knight | | Permalink

It is a backwards step, with disastrous consequences for small business and tax collection.

If the OTS had spent some time with small accountants working on the issues they have and the difficulties they have in completing even the most basic of records they would have the same opinion as some who have been working on micros for 25+ years.

Cash accounting is of no use to anyone and more complicated to understand than invoice accounting.....most of our time on a small job is balancing the bank that is why we all revert to an invoiced based income and expenditure account, because it is the most cost effective version.

Clients can list their invoices in numerical order and list their expenses by keeping the receipts they cannot in most cases manage a bank record.

Market forces had already determined a sensible method, estimates and flat rate figures have always been used in mini micro accounts not by statute but by generally accepted accounting practice for those entities.

Some of us did engage in the consultation process !

I note that we still have deferred tax (that only accountants understand) but do not have a source and application of funds statement which helped the client understand where the profit had gone....I guess that was useful and we don't want that do we ?

The OTS should have comprised of those that understood the subject not because of TV Celebrity...

Bob Harper's picture

Cash is good    1 thanks

Bob Harper | | Permalink

@Black Knight - I don't understand your problem.

This is for the smallest businesses in the UK. But, having developed software for this market and worked with hundreds of firms and have thousands of clients using the system I know (without any doubt) that clients can balance a bank...if they are shown how and provided with a system.

The trouble is most accountants are not committed enough to a) provide and system and b) train and coach their client.

In terms of accounts/self-assessment it could be as simple as add up money in, take off money out (except what you have taken) and the difference is the profit or a loss.

Where is the difficulty?

Bob Harper

Crunchers Franchise

extra work

The Black Knight | | Permalink

We are going to have to produce two sets of accounts to see which ones are beneficial for tax purposes....explain the pro's and cons and the effect on their tax credit handouts....otherwise we will be sued for negligence.

This works in the same way as the 0% band for small companies that was a good idea for two minutes.

If we were only self interested in our fees we would be clapping our hands but this helps no one.

Professionals have integrity and independence and act in the best interests of their clients although in recent years we have seen an influx of churn it out as cheap and nasty as possible and make the most money firms.

Bob Harper's picture

Extra work    1 thanks

Bob Harper | | Permalink

@Black Knight - how do you know there will be an annual option. Perhaps it will be a one way road like FRS?

 

Perhaps it will be so simple that micro business owners really will not need an accountant. 

 

Bob Harper

Crunchers Accounting Franchise 

Wild Billy's picture

Time to step up...

Wild Billy | | Permalink

The Black Knight wrote:

It is a backwards step, with disastrous consequences for small business and tax collection.

If the OTS had spent some time with small accountants working on the issues they have and the difficulties they have in completing even the most basic of records they would have the same opinion as some who have been working on micros for 25+ years....

The OTS should have comprised of those that understood the subject not because of TV Celebrity...

Right. Let's deal with facts.

Here is the consultative committee: http://www.hm-treasury.gov.uk/ots_smallbusinessreview_committee.htm

Here are the biographies of those private sector secondees working at the OTS: http://www.hm-treasury.gov.uk/ots_biographies.htm

WHO doesn't know what they are doing? Which specific person is literally SO clueless that they have dropped a clanger here that everyone else can see but them? Time for name and shame. The report says Angela Williams was the main author: "Angela Williams is a Chartered Tax Adviser and Chartered Accountant with nearly 30 years experience as a tax practitioner, the last 18 of these running her own sole practice. After eight years in industry, Angela trained in tax with Arthur Andersen and KPMG. She worked for several years in the tax department of a small local firm..." Yep, sounds like she doesn't have a clue.So, again, WHO doesn't know what they are doing?

The Black Knight wrote:
 

Some of us did engage in the consultation process ! 

 

What did you do? Were you one of the 23(!) that responded to the OTS consultation? Can you put your submission online so we can read it? Or does the fact that you did engage just show that the balance of views ACTUALLY was against you?

 

thats one person

The Black Knight | | Permalink

That might have been near a bank reconciliation ! or a client of that size !

Is it not ?

Clearly the balance of views was against me !

Call me Kassandra !

Who cares anyway tax evasion is completely out of control and accountants have had their day.

 

Wild Billy's picture

Oh dear

Wild Billy | | Permalink

The Black Knight wrote:

That might have been near a bank reconciliation ! or a client of that size !

Is it not ?

It is not actually. If you can't be bothered to respond to my challenge to actually read the full list of people involved and give a considered response then it says everything about the quality of your argument. The idea may or may not end up working but the idea itself is far less ridiculous than claims that it is dreamt up by people who don't know what they are doing.

This one is over.

I Did

The Black Knight | | Permalink

 

The idea may or may not end up working but the idea itself is far less ridiculous than claims that it is dreamt up by people who don't know what they are doing.

This one is over.

[/quote]

who said that ?

Wild Billy's picture

Stop digging

Wild Billy | | Permalink

The Black Knight wrote:

who said that ?

You did.

The Black Knight wrote:

It is a backwards step, with disastrous consequences for small business and tax collection.

If the OTS had spent some time with small accountants working on the issues they have and the difficulties they have in completing even the most basic of records they would have the same opinion as some who have been working on micros for 25+ years. 

The OTS should have comprised of those that understood the subject not because of TV Celebrity... 

 

So now go and do something useful with yourself and stop digging a deeper hole. Of course, at any point you wish to answer my question about who you think is clueless and don't know what they are doing then all you have to do is name those individuals.And at any point you want to publish the submission that or email that you sent to the OTS giving your views then all you have to do is let us know.

And if you are going to try and give off the appearance of being clever by evoking Greek mythology then at least get the spelling right: http://en.wikipedia.org/wiki/Cassandra

It's all Greek to me    1 thanks

The Black Knight | | Permalink

Suggest you look up Cassandra in the oxford dictionary where the K will be explained to you.

That is the trouble with wikipedia !

As for the rest of your diatribe there's not much I can say really.

dissenting view

The Black Knight | | Permalink

John Stokdyk wrote:

We've just published a guest blog from ICAS technical policy directory James Barbour entitled, Simple is not always best.

I am not the only dissenting view. See above if you want a high paid name.

Wild Billy's picture

Journey to the centre of the earth...

Wild Billy | | Permalink

The Black Knight wrote:

Suggest you look up Cassandra in the oxford dictionary where the K will be explained to you.

That is the trouble with wikipedia !

I did and, oh dear, you are wrong. Again. I'd be very worried if I was one of your clients because it seems that you know you are right, tell people you are right, and have sources to prove it... but then it all falls apart in your hands. A boutique seller of tax avoidance schemes perhaps?

http://oxforddictionaries.com/definition/Cassandra?q=cassandra 

http://oxforddictionaries.com/spellcheck/?region=uk&q=kassandra 

The Black Knight wrote:
 

As for the rest of your diatribe there's not much I can say really. 

 

No, It appears there isn't, although it doesn't mean you don't expend time doing it.

The Black Knight wrote:

I am not the only dissenting view. See above if you want a high paid name. 

 

No, you are not. But you are someone who claims that the OTS have no idea what they are doing, don't have your experiences and the conclusions are driven by a "celebrity". James Barbour doesn't do that.

LOL    1 thanks

The Black Knight | | Permalink

you need to read a book....clearly you have issues !

Cassandra = latin from Greek Kassandra King Priam's daughter !

According to my dictionary anyway !

johnjenkins's picture

Get rid of OTS    1 thanks

johnjenkins | | Permalink

and use the money in agent strategy where agents (mostly accountants) WILL make things simple.Where do all these so-called experts get all these daft ideas from. Nobody wants IR35 yet it's still there, but we can really simplify things by bringing out a condoc about things that most of us already do - priceless.

OTS

thomas34 | | Permalink

The Black Knight wrote:

It is a backwards step, with disastrous consequences for small business and tax collection.

If the OTS had spent some time with small accountants working on the issues they have and the difficulties they have in completing even the most basic of records they would have the same opinion as some who have been working on micros for 25+ years.

Cash accounting is of no use to anyone and more complicated to understand than invoice accounting.....most of our time on a small job is balancing the bank that is why we all revert to an invoiced based income and expenditure account, because it is the most cost effective version.

Clients can list their invoices in numerical order and list their expenses by keeping the receipts they cannot in most cases manage a bank record.

Market forces had already determined a sensible method, estimates and flat rate figures have always been used in mini micro accounts not by statute but by generally accepted accounting practice for those entities.

Some of us did engage in the consultation process !

I note that we still have deferred tax (that only accountants understand) but do not have a source and application of funds statement which helped the client understand where the profit had gone....I guess that was useful and we don't want that do we ?

The OTS should have comprised of those that understood the subject not because of TV Celebrity...

Well said that man.

"I think the OTS has made a significant contribution. Without us it would be worse". Their contribution seems to have gone way over my head so it would be useful if, say every 6 months, the OTS listed specific changes to the legislation to which they have contributed. I'm afraid they have flopped with their handling of IR35. I seem to recall that their first recommendation was to keep the status quo, abolish it or amend it - I think I could have worked out those 3 alternatives.

As far as deferred tax is concerned I've never provided for it on the true and fair basis and use the flow through method. I disclose the appropriate policy by saying that "no provision for deferred taxation has been made since the directors are of the opinion that no liability will crystallise in the foreseeable future".