House of Commons Treasury Committee Hearing - Tuesday 6 September 2016
Shifting Sands: An Inquiry into UK tax policy and the tax base
CIOT President Bill Dodwell was among those taking part in the Treasury Committee’s third oral evidence session for its inquiry into UK tax policy and the tax base. (CIOT Tax Policy Director John Cullinane had given evidence at the first session, back in February.) Questioned alongside Bill were a number of representatives from small business: Cara Bendon, founder of Cara Bendon Brand Consultancy and Prince's Trust Young Ambassador, Toby Parkins, Founder and Director of Headforwards and UKNetWeb, President of the Board of the Cornwall Chamber of Commerce, Adam Fox-Edwards, owner of Arundell Arms Hotel and Managing Director of Devon Hampers.
Topics covered by the Committee included:
HMRC reorganisations – have there been too many? Bill Dodwell (pictured) praised the work of the Large Business Directorate, which looks after the tax affairs of the 2,100 or so largest businesses in the UK. “It is the best way they reasonably have of dealing with the complex tax affairs of very large domestic businesses or indeed foreign-owned or UK-owned multinationals.” The High Net Worth Unit and focusing counter-avoidance in a separate directorate were also praised. Put under pressure to score HNRC’s reorganisations Bill said he would ‘probably put seven or eight’ out of ten.
Digitisation – are business concerns justified? The small business representatives gave a mixed response. Adam Fox-Edwards was ‘pleasantly surprised’ by how easy it had been to resolve some IT issues, but did not see much upside for most small businesses and self-employed people in going to a quarterly basis. He recommended that a pilot is done for 1,000 or 10,000 businesses to see how it goes. Toby Parkins wanted HMRC to make better use of ‘messenger-based systems’ for dealing with enquiries and also felt that the £10,000 threshold was ‘far, far too low’. Bill Dodwell highlighted that HMRC have launched a webchat facility which has gained positive feedback. Cara Bendon was positive about digitisation but thought the system should be ‘opt in’ rather than being compulsory. Bill went on to set out the view that digitisation was “too rapid and making it compulsory is going to make the roll-out very challenging. It is going to be even more challenging than some of the previous digitisation projects.” He added: “We completely support the point regarding starting with larger businesses; it would make sense to start with more capable businesses with accounting systems. We also certainly support lifting the threshold for quarterly reporting well above £10,000.” Bill said he did not think it would meet the tax simplification objective which has been set out for it.
Tax gap – is it right it is defined in a way that doesn’t include the ‘avoidance’ of Google, Amazon, etc.? Bill Dodwell felt that too much focus is placed on the tax gap analysis prepared by HMRC, which was more ‘finger-in-the-air’ than is often assumed. He explained that the tax gap was internationally recognised to be the difference between ‘how much tax you should collect under the laws you have got compared with the amount of tax you actually collect’. The question with regard to the multinationals named was ‘whether you should change your laws’. It was, in any case, ‘very hard to get a realistic estimate of the potential tax loss that you might change’.
Role of tax advisers in relation to aggressive tax avoidance. Bill Dodwell drew attention to Professional Conduct in Relation to Taxation, the code of ethical standards signed up to by seven bodies, and the forthcoming revision of that code as requested by the last Government in March 2015. “The code will focus on enhanced standards for promoting avoidance, essentially trying to make it a breach of those professional standards to promote or market aggressive tax avoidance.” In response to a question about how will we know whether people have broken the code, he explained the role of the independent Tax Disciplinary Board, and similar independent processes other bodies use. He said things had ‘very definitely’ changed in recent years. “We at Deloitte and, I believe, all the major firms have quite significantly changed the approaches we take to tax planning and similar areas of public concern. We have an internal review panel, of which I am a member along with various other partners. We assess anything that partners wish to market. We have told some people that we do not think they are suitable for the firm to market.”
Sanctions and deterrents – were HMRC’s proposals relating to both avoidance and facilitating evasion reasonable? Bill Dodwell felt the proposal for a strict liability offence was wrong – “Even if it is difficult to prove, we think that an offense involving dishonesty, which is what tax evasion is, requires proof of guilty intent.” Regarding financial penalties for enablers of tax avoidance, ‘our initial view is that the net has been cast too wide’. “If changes are not made, we are worried whether all the advisers in the country who try to give honest advice under law would be able to continue in practice given the scale of potential penalties if they were to get it wrong.” “We think the penalty of asking them to pay the tax is out of all proportion to any financial gain that they have made. We think that you should follow the Australian system, which is to look at your fees… and set a penalty by reference to that.”
Offshore accounts – whether introducing the new failure-to-correct penalties in September 2018 was simply ‘a wish and a hope and a threat designed to bring in more money through greater transparency, or will HMRC still need to devote their resources, once it has the transparency, to go after potential avoidance?’ Bill Dodwell felt it was both. As well as criminals, ‘there are also people who trip into this: they might be working overseas, have an overseas bank account, and pay tax overseas - or not, because they might be working in a no-tax country - and then they might return and forget about the bank account’. While generally he felt the penalties were not too harsh, he said he was not happy with penalties involving a proportion of assets as opposed to a multiple of the tax not paid.
Broadband access, personal tax accounts, cash basis accounting were also covered during the hearing.
To read the whole debate, click here.