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Behind the Headlines: Office of Tax Simplification and IR35 in The Growth Plan

26th Sep 2022
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BTCSoftware develops feature-rich and cost-effective products.

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Another Autumn, another Autumn Statement – though this one is called The Growth Plan and definitely isn’t a Budget. The Chancellor’s mini-budget is, however, backed by a 42-page document, so we’re taking you behind the headlines to save you some precious time.

Take a closer look with us at the section of The Growth Plan covering the abolition of the Office of Tax Simplification and the repeal of reforms to IR35 off-payroll working rules. We’ll highlight relevant snippets from the document, break down what that might mean for our sector and share BTCSoftware CEO Rob Ellis’ thoughts on the importance of agility in software development.

Ready? Let’s get into it.

Closure of the Office of Tax Simplification and IR35 repeal

The headline: Allowing businesses to focus on business

From The Growth Plan on gov.uk:

 

The Growth Plan 2022 makes growth the government’s central economic mission, setting a target of reaching a 2.5% trend rate. Sustainable growth will lead to higher wages, greater opportunities and provide sustainable funding for public services.

[…]

The government will also repeal the complex changes to off-payroll working, allowing businesses to get on with business. Tax simplification will be embedded at the heart of the tax system as a core HM Treasury and HMRC priority. 5 The Growth Plan 2022The government is committed to fiscal sustainability and reducing debt as a proportion of Gross Domestic Product (GDP) over the medium-term. The government will take the responsible decisions that are needed to achieve this aim, including keeping spending under control. The Chancellor has commissioned the Office for Budget Responsibility to produce a forecast before the end of the calendar year. Taken together, reforming the supply side of the economy, cutting and simplifying tax, and maintaining fiscal discipline will drive efficiency, enhance UK competitiveness, and help to boost growth sustainably in the long term.

 

The details: Section 3.41 – 3.48

We’re leading with perhaps the biggest driver of conversation for accountants from Friday’s announcements; the closure of the Office of Tax Simplification. In The Growth Plan, the decision sits within a section titled Allowing Businesses to Focus on Business which leads with the statement:

 

3.41 Business is the engine room of the economy. Pro-competition regulation, reduced regulatory burdens and a simplified tax system can boost growth by reducing business costs and allowing high-potential businesses to grow and expand.

 

The rationalisation is nothing new; the initial framework documentation for the OTS itself in 2010 similarly stated:

 

The aim of the Office is to provide independent advice to the Chancellor on simplifying the UK tax system, with the objective of reducing compliance burdens on both businesses and individual taxpayers.

 

In The Growth Plan, then, the rationalisation for the abolishment is set out in 3.43; the idea and principles of tax simplification should be a part of the process of government and simplifying the tax code will be part of the role of HM Treasury and HMRC:

 

3.43 A simple tax system is critical for growth. Instead of having a separate arms-length body oversee simplification, the government will embed tax simplification into the institutions of government. It will therefore abolish the Office of Tax Simplification and set a mandate to  HM Treasury and HMRC to focus on simplifying the tax code.     

 

This section of the document also covers the reasons for repealing the reforms of IR35 to make engaging contractors less costly and time-consuming. The topic of off-payroll working reforms has been a leading discussion for the accounting community for a long time, given the impact it has on how tax and NICs are assessed and paid. The relevant paragraph reads:

 

3.44 The Growth Plan sets out first steps in taking complexity out of the tax system. The 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) will be repealed from 6 April 2023. From this date, workers providing their services via an intermediary will once again be responsible for determining their employment status and paying the appropriate amount tax and National Insurance contributions. This will free up time and money for businesses that engage contractors, that could be put towards other priorities. The reform also minimises the risk that genuinely self-employed workers are impacted by the underlying off-payroll rules.          

 

An impact on the future of Making Tax Digital?

In short – who knows? The MTD initiative has always belonged to HMRC so the abolition of the Office of Tax Simplification may have little impact on the progression of digital tax in the UK. The OTS has published reports that HMRC has referenced in their consultations on and development of the Making Tax Digital processes and rules; their recommendations in 2019, however, included a call for a study into which types of self-employed or rental businesses would most benefit from digital tax.

It remains to be seen if the reforms contained in the Chancellor’s Growth Plan are limited to this mini-budget only, or if it’s the start of a much broader change to how tax simplification progresses over the remaining term of this Parliament.

Rob Ellis: Software Must Be Agile

Rob Ellis, CEO and Co-Founder of BTCSoftware, said:

Since we began the development of our software in 1999, we’ve seen six changes in the UK’s leadership and many adjustments to HMRC policies as a result. Ensuring agility of our software development plans, therefore, has always been a priority in how we set out our roadmap for the future. There’s no current clear indication of change to the MTD plans, however I am in regular contact with the Making Tax Digital team at HMRC to ensure that BTCSoftware is able to respond as we always do – quickly, accurately and to the benefit of our customers.

Find us online at www.btcsoftware.co.uk or get in touch by emailing [email protected]