Basis period TIIN: What’s the deal?by
Wendy Bradley investigates what the tax information and impact note (TIIN) for the proposed change to the tax year basis period should tell us, and what we actually know.
There are the two ways of doing a tax impact assessment: the easy way and the hard way.
The easy way is to outsource the job to a professional who'll produce something which fits into the Business Impact Target, will get past the Regulatory Policy Committee, and will include the ‘Equivalent Annual Net Direct Cost to Business’, ‘Business Net Present Value’ and ‘Net Present Social Value’ measures (see page 16 of Framework for Better Regulation).
It'll be like the manual for your new car: unread, terrifically technical, but not terribly useful if you just want to know how to get the petrol cap off.
The hard way uses the seven questions model developed for the impact assessment part of the tax information and impact note (TIIN). The person developing the policy should work out:
- What you are doing
- Why you are doing it
- Why you are doing it that way
- What will it cost/raise for the public purse
- What will it cost the people affected to comply with it
- What will it cost the department that administers it
- What other impacts will there be
Why is this hard? Because it requires the policy-maker to think through the issues during the policy-making process and to take account of the answers. It’s a dynamic process, not a PR add-on.
Easy and hard questions
The first question - “what are you doing?” - is easy to answer
The next step - “why are you doing it?” - is trickier to address.
Sometimes the answer is: “it’s government policy”. Governments don’t consult on their policies, or at least not via the consultation process. They set out their stall in their manifestos and then we get to vote on them, sometimes. This is the key reason why we don’t get impact assessments for changes in tax rates like the recent NIC uprating.
The next question - “why are you doing it this way?” - is where most consultation exercises fall down. We could do it like this, or we could do nothing, are the usual options put forward. To admit there are other ways the same policy objective might be reached is to invite the rest of us to argue for taking the other option instead.
Change to tax year basis
In the impact assessment for the proposed change to the tax year basis period for unincorporated businesses, I was particularly interested in the answer to the question: “What will it cost or raise?”
“Don’t ask me,” says the TIIN (or words to that effect.)
HMRC is asking businesses to make a major permanent change to how they report their profits, but we don’t seem to know how many businesses will be affected, how much it will cost, or even whether the impacts on the public purse will be positive or negative.
This is an astounding omission. How can HMRC seriously put forward a policy if it doesn’t know what the effect of it will be?
How many are affected?
HMRC’s computer system should be able to spit out an estimate of the number of businesses affected, by searching for the number of businesses with an accounting date that isn’t 31 March or 5 April (or a day in between).
HMRC may not have recorded the amount of overlap relief businesses are carrying forward in an easily accessible way, but it could sample the businesses that have claimed their overlap relief on cessation recently and extrapolate from that.
What will it cost businesses?
The problem of assessing the administrative burden on businesses could also be solved with a little imagination.
First assess the admin burden for checking whether you need to do something and finding you don’t - that’s your baseline. Then estimate the number of businesses that need to change their reporting processes under the new policy and use the historical admin burden data to find a roughly analogous multiplier. Then refine that figure in the consultation.
What else should have been considered?
What about the small and medium business assessment?
One of the basic principles of better regulation is that changes cost small businesses proportionately more - if you have one employee and they have to do an hour’s worth of reading tax legislation you’ve lost 1/7th of a working day, if you have 100 employees that single hour is 1/700th of your business’ working day.
The policy-maker should look at whether small businesses can be excluded from regulatory change altogether. There isn’t even a sniff of this being considered in the basis period TIIN that I can see.
What we know
The TIIN does tell us that the cost to HMRC of making this change will be between £15m and £20m.
Let me sell you a car. Do you need a car? Will a bike do, or even a horse? Do you need a big robust road warrior or a little runabout? A range rover or a reliant robin? Write me a cheque for between £15m and £20m: I'll tell you what you're getting for it afterwards. Deal?