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Tax day tackles IR35, simplification and tax gap

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The government has published 23 technical tax updates on Tax Administration and Maintenance Day, including consultations on expanding the cash basis, tackling promoters of tax avoidance and double-taxation of income under IR35.

27th Apr 2023
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The overarching themes of the 23 technical tax policy proposals published on Tax Administration and Maintenance Day (TAMD) are the simplification and modernisation of the tax system, tackling non-compliance and making the customs system work better for traders. 

Many of the consultations were predicted based on promises in the Spring Budget, such as the consultation on making the promotion of tax avoidance schemes a criminal offence, but there were a handful of surprises, including a consultation on a potential legislative change to address the over-collection of tax in relation to IR35 non-compliance, and tinkering with the Construction Industry Scheme (CIS). 

Other documents/consultations released today include:

  • Construction Industry Scheme reform
  • Creating innovative change through new legislative pilots
  • The Tax Administration Framework Review: information and data
  • Tougher consequences for promoters of tax avoidance.

Simplify the tax system

The blizzard of consultations come shortly after the Spring Budget and, unsurprisingly, the consultations followed the promises in that fiscal statement to simplify the tax system and make it more effective. 

One way the government hopes to do this is explored in the Creating innovative change through legislative pilots discussion paper, which considers the use of an HMRC sandbox model to develop new tax administration policy and processes. 

The document argues that the current approach of piloting legislation with a subset of taxpayers and external stakeholders can be “limited by legislative inflexibility”. 

Instead, HMRC wants to roll out a new piloting approach that would temporarily suspend the usual tax administration rules for an identified section of taxpayers for a limited pilot scheme. 

Another consultation that is looking to reduce administrative burdens is The Tax Administration Framework Review: information and data. This call for evidence explores the use of third-party information, which could be seen as further steps towards making Making Tax Digital for income tax self assessment (MTD ITSA) work by pre-populating tax returns. 

A key question in the consultation document is: “What are your views on retaining the principle that taxpayers are responsible for the accuracy of their return(s)? This raises further questions over if it’s not the taxpayer, then who else could it be?”

Elsewhere, the TAMD consultation takes a swing at modernising stamp taxes. The government notes in the document that the paper-based stamp duty is “often regarded as an anachronistic feature of an otherwise well-performing UK tax system”.

In this consultation the government proposes having a mandatory, single tax on securities instead of separate taxes for electronic transfers (stamp duty reserve tax – SDRT) and paper instruments (stamp duty), plus proposals for the assessment and administration of any new single tax on securities. 

This consultation comes as tax lawyer and founder of Tax Policy Associates, Dan Neidle, recently encouraged the government to going a couple of strides further and abolish stamp duty on shares

The focus on simplification comes as the Office for Tax Simplification (OTS) was shuttered, despite criticism from across the tax profession and support from the Treasury committee. Instead, the government committed to putting simplification at the heart of tax policy making and pledged to embed the ethos of simplification within HMRC and the Treasury. 

Ellen Millner, the director of public policy at the CIOT, welcomed that the government is talking about simplfying the tax system but concluded that the measures announced today are all "quite niche". 

She said: "There is nothing in today’s measures which holds out the prospect of simplifying tax for the vast majority of UK taxpayers. Nor is there anything to ‘embed’ simplification in the tax system, as the government have promised to do." 

Non-compliance and tackling the tax gap

As teased in the Spring Budget, the TAMD consultations took aim at promoters of tax avoidance and non-compliance. As expected there was a consultation on making the promotion of tax avoidance a criminal offence.

Under the proposed changes the government wants to roll out a Stop Notice to deter promoters avoidance arrangements. To achieve this the government wants to introduce a new strict liability criminal offence. Those who fail to comply with the Stop Notice would face a criminal offence, regardless of their intent. 

In addition, the government confirmed that a summary of the responses to the “tackling non-compliance in the umbrella company market” consultation will be published soon alongside further options to regulate the sector. 

As announced earlier this year, the TAMD announcement also reiterated that repayment agents are required to register with HMRC from 2 May 2023 and will have a three-month window to do it. 

Rebecca Cave, AccountingWEB’s consulting tax editor, pointed out: “If a business doesn’t register by 2 August 2023 it can still submit repayment claims, but it may be subject to sanctions such as HMRC limiting the agent’s access to online services, or a block on that access altogether, or in extreme cases HMRC refusing to deal with the agent.”

There was also a consultation on reforming the Construction Industry Scheme (CIS). Under this consultation, the government is considering the appropriateness of adding VAT to the list of taxes HMRC must consider when undertaking the statutory compliance test for receiving or keeping Gross Payment Status. 

The consultation includes a proposal for group reporting to reduce reporting burdens in a similar fashion to VAT grouping, and having landlord/tenant payments to be exempt from CIS as proposals to reduce administrative burdens of the scheme. 

The raft of consultations also includes one on addressing the over-collection of tax as a result of IR35 non-compliance. As the consultation flags: “HMRC may end up collecting more tax than is due because the worker and their intermediary may have already paid tax and national insurance contributions (NIC) on the same income in the belief that they were outside the rules.” 

The consultation explores a potential change to the rules so HMRC can set off the tax and NIC already paid against the PAYE liability.

Seb Maley, the CEO of Qdos, calls this consultation “potentially game-changing”. 

He added: “The double-taxation of IR35 under the off-payroll rules is a massive problem. HMRC doesn’t offset the tax already paid by a contractor when handing a business a tax bill. Put differently, it means HMRC collects much more than it should. It’s morally wrong.”

The TAMD consultations also focused on stamping out non-compliance in the charity sector, with the focus on four areas: tainted charity donations, approved charitable investments, non-charitable expenditure and charity-filing obligations. 

Consultations coming later

Elsewhere the government announced some consultations that will be coming later this year. 

One of these will be on national insurance (NI) credits and ways parents can retrospectively receive the NI credit if they have not claimed the child benefit. Cave called this a very good idea but “it should have been sorted years ago”. 

She added: “It would be better to abolish the high income child benefit charge altogether and thus prevent the NIC problem from arising in the first place.” We await details of the proposals.

Other consultations to look forward to include: 

  • plastic packaging tax and calculating the proportion of recycled content in chemically recycled plastics
  • the effectiveness of the employee ownership trusts tax regime
  • using digital technology to improve Gift Aid
  • simplifying and updating diverted profits tax, transfer pricing and permanent establishment reform (coming in May)
  • updating the VAT terminal markets order legislation.
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Replies (14)

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By Justin Bryant
27th Apr 2023 16:09

It's just never-ending (and never improving/simplifying in my view) isn't it?

Thanks (2)
the sea otter
By memyself-eye
27th Apr 2023 17:50

The orchestra plays on while the Titanic settles ever lower in the water.....

Thanks (5)
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By Moo
28th Apr 2023 09:52

I appreciate that this has been asked before but when did tax avoidance become illegal?
I'm of the generation that was taught that avoidance was legal tax mitigation and the illegal schemes were Tax Evasion.
Without that distinction we are on a slippery slope.
At what point does my IFA face a Stop Notice and possible prosecution because he points out to me the possible IHT savings from maximising my pension contributions and he then goes on to manage these SIPP investments for long term growth on the basis that they will be the funds that I'm least likely to draw on in retirement?

Thanks (10)
Replying to Moo:
Should Be Working ... not playing with the car
By should_be_working
28th Apr 2023 10:55

My thoughts also.

I know the strict liability criminal offence specifically relates to breaching a 'stop notice', but how can it be right that HMRC can have the unilateral power stop what is, at that point, a legal activity? It is for the courts and/or Parliament to decide what is and isn't illegal, not HMRC.

Thanks (1)
Replying to Moo:
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By AndyC555
28th Apr 2023 13:47

"...when did tax avoidance become illegal?"

I think there was a shift round about 2008. Soon after that politicians started talking about a 'moral duty' to pay taxes and paying one's 'fair share'. Utter nonsense of course.

Then SJW tax campaigners saw an opportunity to jump on the band wagon and create a career out of grants from gullible charities to write meaningless 'reports' about how unfair everything was and if only they could tax "that rich bloke over there" a bit more, then everything would be lovely.

Like every great snake oil salesman knows, tell people that their problems are someone else's fault and it can all be put right at someone else's expense and you have a willing audience.

The current economic crisis we're in just adds fuel to this fire.

We're now a long way from:

“No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores.

The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer’s pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue.”

Thanks (1)
Replying to AndyC555:
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By johnjenkins
28th Apr 2023 13:55

Gordon Brown started it and Alistair Darling carried it on.

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By johnjenkins
28th Apr 2023 10:41

For simplification and modernisation read more compliance and more taxation. The mere fact that tax isn't offset in IR35 cases shows the mentality of HMRC. They got rid of OTS purely because OTS were coming up with common sense simplifications (getting rid of IR35).
I have no faith or belief in anything that comes out of their mouths anymore. I'm sure I'm not the only one.

Thanks (4)
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By cereus77
28th Apr 2023 10:42

Unless HMRC are moving to make tax avoidance illegal, it seems inconsistent to make the promotion of tax avoidance schemes illegal. To me tax avoidance is perfectly legitimate and is often described as tax planning. If this move goes ahead, then tax advisers will need to be very wary about how they promote their services.

I find it all rather worrying and in line with a regrettable trend in recent years to outlaw things that the government/police/HMRC etc. find easier to address through legislation and criminalisation rather than to actually get on and do the jobs they are paid for. In this case; creating a simple and fair tax structure which minimise the possibility and incentive for tax avoidance.

Thanks (6)
Replying to cereus77:
Should Be Working ... not playing with the car
By should_be_working
28th Apr 2023 10:59

cereus77 wrote:

Unless HMRC are moving to make tax avoidance illegal, it seems inconsistent to make the promotion of tax avoidance schemes illegal. To me tax avoidance is perfectly legitimate and is often described as tax planning. If this move goes ahead, then tax advisers will need to be very wary about how they promote their services.

Agree. Every new power that is given to an authority or official will eventually and always be pushed beyond what the drafters intended.

cereus77 wrote:

I find it all rather worrying and in line with a regrettable trend in recent years to outlaw things that the government/police/HMRC etc. find easier to address through legislation and criminalisation rather than to actually get on and do the jobs they are paid for. In this case; creating a simple and fair tax structure which minimise the possibility and incentive for tax avoidance.


Government by optics - why actually do something when you can just pass another law and make it *look like* you're doing something. Tax and laws are the bureaucrats' and politicians' Maslow's Hammer.
Thanks (2)
Replying to cereus77:
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By johnjenkins
28th Apr 2023 11:09

Many years ago HMRC stated that any avoidance scheme that included a bit that wasn't kosha would be challenged. Many operators sent in schemes to HMRC to see if they were "allowed". HMRC stated that they wouldn't give an answer until they saw the scheme up and running. Now we have this mess, Unless it's all part of a carefully contrived plan to make "avoidance" a social stigma, like smoking.

Thanks (2)
Replying to johnjenkins:
By Nick Graves
28th Apr 2023 12:05

johnjenkins wrote:

Many years ago HMRC stated that any avoidance scheme that included a bit that wasn't kosha would be challenged. Many operators sent in schemes to HMRC to see if they were "allowed". HMRC stated that they wouldn't give an answer until they saw the scheme up and running. Now we have this mess, Unless it's all part of a carefully contrived plan to make "avoidance" a social stigma, like smoking.

I believe it's more cynical than that.

Having recognised all the words in the article, but not parsed anything concrete in them I think the Cunning Plan is to make it all such a mess that the only answer is to deduct tax at source on every transaction via your friendly Central Bankster Digital Currency. The software will just 'know', see..?

You will be able to claim an overpayment refund, but the process will be so arduous as to be pointless in reality.

Thanks (3)
Replying to Nick Graves:
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By johnjenkins
28th Apr 2023 13:53

Now if you were chancellor with a mandate to get as much money as possible to pay for the extinction of potholes, wouldn't you tax every transaction. Mind you there's not many that aren't one way or another.

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By rememberscarborough
28th Apr 2023 16:09

Think they've been "modernising" the CIS tax system since I first started training to be an accountant back in the late 80s and get the feeling they'll continue to do this long after I've retired. At what point do they actually hold up their hands and admit the Construction industry is totally unique and must be treated completely differently from ever other industry in this country.

You might say discrimination but I couldn't possibly comment....

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Replying to rememberscarborough:
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By johnjenkins
02nd May 2023 11:29

Realising that the construction industry was different was the reason why CIS was set with main contractors and subcontractors where you can have business as either or both. The problems occur where you try and change that set up in order to get more tax.

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