Rebecca Cave met John Cullinane, tax policy director of CIOT, to discuss the Scottish Budget, tax complexity, quality of tax information, and Agent Services.
As we sat down with our hot drinks on a cold winter afternoon, John Cullinane brought me up to date with the news that five income tax bands would apply in Scotland from 2018/19. We both tutted and wondered how software producers would cope with having to program those new bands into payroll software by April 2018.
Cullinane noted that a partially devolved tax system creates its own problems as the CIOT has illustrated. For example, a sole-trader business paying tax at 46% in Scotland, could incorporate and pay corporation tax and dividend tax at rates set at the UK level.
Also, the variation in the tax bands between Scotland and the rest of the UK (rUK) creates some very high marginal tax rates as NIC is paid according to bands set for rUK. Of course, Scotland has a perfect right to choose to impose different tax rates; that is a function of devolution.
In spite of the various tax challenges faced by individuals who live on the Scottish and Welsh borders, Cullinane observed that the pace of change for UK tax is slowing down. He thinks this is due to a different approach taken by Chancellor Hammond compared to Osborne.
The Better Budgets study which the CIOT co-authored with the Institute for Government and the Institute for Fiscal Studies on tax policy, suggested that Osborne added tax law to the statute book at an even faster rate than his Labour predecessors.
The combination of three new allowances for individuals plus the personal savings rates, all introduced in an attempt to appear egalitarian, just increased the complexity for everyone. We concluded that it is now impossible for an ordinary person to work out their tax liability with a pencil and paper.
Cullinane believes the route to better tax law must be through timely and transparent consultation, but this doesn’t always happen.
A recent failure of this process is the introduction of the Trusts Registration Service, which HMRC has twice eased the deadlines following pressure from the CIOT and other professional bodies.
The latest concession hasn’t been published on gov.uk, although the details are revealed on the CIOT website.
The CIOT is taking a strong stand on the quality of tax information on gov.uk. According to Cullinane, an unrepresented taxpayer ought to be able to look on gov.uk and get enough guidance in order to claim basic tax entitlements, such as the marriage allowance, and to avoid penalties.
However, the dumbing down of house style on gov.uk is only achieved by misstating the law.
Do you have examples of the tax law being incorrectly stated on gov.uk – please comment below and we will forward your points to the CIOT to include in their campaign.
Taxed by computer or law?
I asked Cullinane whether he thought we were moving towards being taxed by computer rather than by tax law.
He compared the tax law to the unread terms and conditions which sit behind every online purchase and that in reality the tax law is the computer programme. However, we both agreed that is not how the tax law should work.
We swap stories about tax cases where judges have thrown out computer-issued penalty notices as invalid because the notice can’t be shown to have been authorised by an HMRC officer (eg Khan Properties Ltd v HMRC TC06225).
The FTT has taken HMRC to task for expecting the taxpayer to have a far broader tax knowledge than the HMRC officers themselves (eg Cannon v HMRC TC06254). In another case concerning non-resident CGT, HMRC required the taxpayer to have read an obscure notice which was relevant to their tax affairs as soon as it is posted on gov.uk.
Is the Agent Services Account (ASA) going to be a “sorting hat” for tax agents, to allow HMRC to distinguish between “good” agents and those they view as not so competent?
Cullinane believes it is difficult for HMRC to pick valid measures to do this segmentation, but he would like HMRC to publish some anonymised data about “mistakes” made by tax agents. For example, HMRC could produce some benchmarked information showing the types of expenses rejected on tax returns submitted by agents. The tax agent population as a whole could then learn from that benchmarked data.
We had chatted about tax far longer than our allocated time, so it was time to head home. Let us know if there are other issues you would like me to raise with CIOT or other professional bodies.
About Rebecca Cave
Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.