Budget papers: Reducing red tape for business - more laughs and statistics? By Nichola Ross Martinby
Tucked into the supplementary budget notes is HMRC’s update on how things are going in connection with its plan to cut red tape which was announced in the previous budget as “Delivering a new relationship with business”. The update is entitled “Progress on reducing the administrative burden”. You might not think that one could find any humour in this section of this particular saga, but having just given a lecture on employment-related securities with the wrong hand-outs and no visual aids, I see the knock on effect of complex tax regulations in a whole new light.
Back to the report, if you remember, KPMG were paid £5 million to research “red tape” and by phoning round a few businesses, came to the conclusion that the total administrative burden placed on business by the UK tax system is approximately £5.1 billion a year, which equates to 0.41 per cent of GDP or 1.1 per cent of the tax take. Using these figures HMRC set itself two targets:
- Target 1: to reduce the administrative burden on business of dealing with HMRC’s forms and returns by at least 10 per cent over 5 years (equivalent to a total reduction of £337 million).
- Target 2: to reduce the administrative burden on compliant business of dealing with HMRC’s audits and inspections by 10 per cent over 3 years, and at least 15 per cent over 5 years (equivalent to reductions of £14 million and £21 million respectively).
By April 2007, HMRC estimates that it has made reductions of £130 million for target 1, and £43 million of target 2, and there is a strange claim that it has also managed to deliver “wider annual administrative burden reductions” of an estimated £134 million net. These apparently come from:
- the simplified pensions tax regime which despite adding a new form is “welcomed by business” and this somehow provides total savings of approximately £43 million overall, cough…and,
- the new Construction Industry Scheme – splutter… how can this be (it has not yet even come into operation)? Nevertheless, new CIS has already saved £55 million...
I don’t know about you, but I am already muddled with the maths here.
Other cunning wheezes to reduce admin include:
- A redesigned VAT registration application form
- Increasing the VAT annual accounting scheme threshold
- Taking a smallest business out of intrastat regime, and, you will like this one…
- U-turning on the zero per cent and non-corporate distribution rates of corporation tax.
It does not end there, because apparently there are savings of around £46.5 million for employers through a series of u-turns and s-bends that would not be out of place in the Nurburgring. These include:
- Deciding that Form 42 (employment-related securities disclosure) was not necessary for formations (a pity that was not spotted in the first place)
- Ending payment of Working Tax Credits via employers, another u-turn?
- A new form P46 and coding “improvements”…
It is in connection with the last point that we find a really good system of s-bends to take us back to the start/finish straight. We hear that one million more new employees now receive the correct initial tax code, but there is no mention of the fact that this is contra’d out by ½ million large company employees who have been sent out incorrect NI demands and ½ million pensioners who have been sent out the wrong codes for next year.
No “comedy moments” here, but on the face of it some good news, HMRC says that it is, “building on the lessons learned from the 2006 trial of new methods of intervention”, and intends to “improve and modernise” its approach to audits and inspections. There is mention of:
- Developing “a suite of interventions that match the degree of risk and allow a ‘lighter touch’ to post return assurance where simple mistakes have been made”.
- Sharing, “where appropriate, the identity of common errors and risk assessments with agents and businesses to help reduce errors made with returns, and improve HMRC’s understanding of the pre-return processes agents carry out.”
Anything that is done to reduce red tape is good in my book, but many of the savings seem to be made by reversing earlier policy decisions, some of which are only a couple of years old. It seems a bit sharp to be making claims for the new CIS scheme before it has even begun without even counting the cost of adapting to the new scheme.
HMRC say that their online tools and calculators help too. I say they would make more difference if you could find them easily on its own website. I know it’s hypocritical (my personal website is a real mess) but HMRC could make its site even more business friendly and that would certainly save a lot of real time.