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Budget papers: Reducing red tape for business - more laughs and statistics? By Nichola Ross Martin

23rd Mar 2007
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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:

  1. 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,
  2. 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.

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Replies (6)

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By Simon Sweetman
26th Mar 2007 14:20

red tape
Oh Nichola, how could you !

It is very easy to take the whatsit about efforts to reduce red tape after some 25 years of promises, and the desperate desire that HMRC has for quick wins has led them to quote some fairly dodgy figures. Yes, the new CIS may save something but nobody will be convinced yet : but the new pension regime is a real red tape saver. Furthermore there are a lot of people working hard to try to reduce the administrative burdens, and it is now true that every new measure is being looked at hard for its impact.

I would not be a member of the Admin Burdens Advisory Board if I thought it was wasting its time. The problem is that it takes a long time to have an impact, but if left to get on with it (and the fear is that a different govenment would tear it up and start again) I believe that we will start to see real progress. My fingers are crossed.

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
26th Mar 2007 15:28

Carter reforms - projected costs and savings change
The Regulatory Impact Assessment of the Carter reforms published alongside the 2007 Budget also includes some statistical sleights of hand. Where the partial RIA issued at the time of the 2006 budget projected spending on HMRC online improvements to be £840 million up to 2014/15, the latest edition projects a total of £670 million will be invested "up to 2012" (£500 million already invested, plus £170 million over the next five years).

My rough calculations put the annual investment figure going forward at around £34 million. Either HMRC is confident it can deliver the systems and savings to an earlier timetable, or the assessment has scaled back its horizon by a 2-3years.

The savings side of the formula has also altered. The figures for the government's expected savings have risen slightly from £59 million a year by 2014/15 in last year's RIA, to a projected annual saving of £64 million by 2012/13 in this year's assessment.

A year ago, the partial RIA estmated that business could expect savings of between £158m and £215m a year by 2012/13. The latest RIA has less optimistic expectations for taxpayers' savings. Noting that business will incur one-off costs (the time spent registering for online services) amounting to £30 million, plus £3m in recurring costs, the expected annual savings are more likely to be in the region of £35 million-£42 million a year from 2012/13.

On a very simplistic current account basis, HMRC is putting in £34 million a year over the next five years to reap £64 million in savings from the Carter programme. It claims that business and individuals will enjoy more savings (only just - somewhere between £53 million and £85 million annually) but adds that taxpayers will enjoy additional benefits such as reduced error rates and rework, shorter enquiry windows, cashflow benefits from receiving repayments more quickly, plus synergies with tax and accounts software data, and from joint filing initiatives with Companies House.

Total investment in HMRC online services is at £500 million and rising, and by its current estimates, the government is going to need more than 10 years to break even on the project. But this is technology we're talking about, and anything extending over this timespan is likely to need hardware and software upgrades. I am not confident that this has been factored into the public domain calculations. I also suspect the department, or whoever conducts its regulatory assessment, is being somewhat coy about the anticipated savings (eg savings from staff reductions).

The numbers merit further investigation - I plan to take the matter up both with HMRC and interested observers.

John Stokdyk
Technology editor

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By User deleted
26th Mar 2007 17:15

Too early to tell
On the Administrative Burden Advisory Board, we have asked HMRC to ensure that the numbers quoted in any savings calculations are done on the same basis as KPMG's Standard Cost Model.

While the board's mission is to ensure progress is being made, we have only been in existence for a year, so we don't have the data to establish how well HMRC is meeting its targets. We would hope that the work we're doing will be felt in the next 12-18 months.

That said, from my experience on the Better Regulation Commission, I would expect to see a series of changes in any assessment of regulatory impact. As your strategy changes, your thinking has to change too. We would expect HMRC to look far enough ahead on the expected savings that changes would emerge as they go forward.

I have been impressed by growing culture and determination within HMRC to tackle administrative burdens. Senior managers are being held to acount by the Administrative Burden Advisory Board and by internal "challenge panels". We're working well with senior managers and will see a lot more change as a result of this combination.

Teresa Graham,
Chair, HMRC Administrative Burden Advisory Board &
Deputy chair, Better Regulation Commission

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By User deleted
26th Mar 2007 14:15

they didn't mention 64-8's.

Went to a HMRC presentation on Carter Review last week, and how virtually everything's going to be filed on line- turned into a general rant by practitioners about 64-8's, FBI2's, how you've got to be VAT registered to file client's VAT returns on line, etc..

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By astjprice
26th Mar 2007 14:51

Help me reduce the burden on 4 April
I am attending a Administrative Burdens Workshop on 4 April -- supposedly to discuss how to improve and simplify the detailed running of the VAT system between HMRC and representatives of the Joint VAT Consultative Committee.

My read of the outline guidance from HMRC about the meeting suggests that they think we would want to change the rules of how to apply the law, if not the law itself. They do not appear to have grasped the problems and annoyance being caused by the weak guidance on what traders have to do and the poor implementation of helpful ideas such as the submission of VAT returns electronically and the Flat Rate Scheme for small traders.

Having been trying for many years and intensively in recent ones to persuade HMRC to correct mistakes -- without any apparent results and often even without a response -- I will have plenty to say! However, as a VAT specialist, I do not necessarily see all the practical problems for practitioners and their clients. Moreover, it would strengthen anything I could say if I could quote from people at the sharp end!

Anything you can tell me must of course concern principles rather than the detail of individual cases but a case can provide a practical example. If that example is appropriate to what is being discussed, I might be able to state its existence. Should the point be accepted by HMRC, I might be able to pass on the details, if authorised, or to confirm to you what to say to the officer handling the matter.

Having now read Simon Sweetman's encouraging comments, I have one fundamental principle of how to act, which I wonder whether he has grasped, let alone HMRC. The starting problem is the lack of enthusiasm both within and outside HMRC. To change that, one needs a small project with a quick result. That can get the bandwagon rolling and other people deciding to jump on!

In a situation like we have now, it is a fundamental mistake of management to start with a major project, which takes time and resources. Indeed, one of the present problems is that HMRC have been told to cut costs and quickly. Past experience shows that the politicians and the Treasury understand little about how to achieve that. It is unlikely that senior management can make the right decisions in a hurry to change systems etc when those changes would have not been required if that management had seen the right thing to do in the first place! Real progress is only likely only when you engage all your people and with some enthusiasm and,in situations like this one, with input from the customers.

Any comments to me at [email protected].

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By pauljohnston
27th Mar 2007 19:18

Terressa Graham's Comments
These are applauded but before I will really believe them, things such as the P35 determinations which are elsewhere on this site just shows how far HMRC have got to go.

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