Select Committee on Treasury Written Evidence

Memorandum submitted by Anne Redston[11]

  In 2004 the Prime Minister said "Effective consultation is a key part of the policy-making process."[12] The Chartered Institute of Taxation (CIOT) agrees with this.[13] As HM Revenue and Customs themselves have said, consultation "improves the quality of any resulting draft legislation, in particular by ensuring that it works in the real world."[14]

  We are thus disappointed that, for certain key tax measures announced in this Budget, the consultation process was non-existent or incomplete. As a result, implementation will be burdensome, and may even be completely impracticable. This paper covers three of those areas:

    —  The tightening of filing dates for self-assessment.

    —  The withdrawal of the tax relief for computers.

    —  The changes to the taxation of trusts.

  It then contrasts this with the best practice approach adopted for the company car consultation, the tax recycling of pension funds and the Stamp Duty Land Tax changes.


  Lord Carter's Review of HMRC Online Services, published on Budget Day, contains, as one of its primary recommendations, that self-assessment filing dates be moved. Currently all SA returns must be filed by 31 January following the tax year end. Lord Carter recommended that this become 30 September for paper filing, and 30 November for on-line filing.[15] HM Treasury's Budget 2006 (The Red Book) says that the Government "accepts his recommendations."[16]

  As far as we are aware, the proposal that SA filing dates be accelerated was not discussed with the professional bodies; although the CIOT is listed as a "Contributor" to the Review[17] this important issue was not mentioned to us.

  The completion and filing of tax returns is a major part of tax advisers' work. It is likely to be very difficult for agents to meet the accelerated deadline. For example, the information for most returns is not available before July (when copies of the P11D have to be provided by employers), and during August many clients and staff are on holiday.

  It would surely have been better for HMRC to have announced that they were going to consult on Lord Carter's recommendation, in order to identify any problem areas and seek solutions, rather than simply announcing its acceptance.

  In contrast, the proposed acceleration of company filing dates, announced in the PBR,[18] has undergone a robust consultation process—the Budget Red Book[19] says:

    "the consultation . . . achieved a high level of engagement with over 100 written responses received".

  As a result of the consultation the original proposals will now be amended, so that small and large businesses will be treated differently. In other words, the feedback received provided new information to policymakers.

  However, contributors to this company filing dates consultation made their comments believing that the existing filing dates for individuals would be unchanged. Since most tax advisers deal with both individual and company tax returns, a change to both areas is very different from a change to only one of them.

  Had they been consulted on both proposals, they would have been able to consider how the changes together would impact both on taxpayers and on their own businesses. Consulting on one change to filing dates but not the other means that the conclusions drawn on the company filing dates consultation may be invalid.


  FA1999 allowed employers to provide computers and related equipment to employees for their personal use, without tax or NIC arising. This tax relief was repackaged in 2004 and relaunched by the DTI, the DfES and the Cabinet Office as the Home Computing Initiative (HCI). Patricia Hewitt said:

    "For employers HCI schemes are about maximising potential in the work place. Basic computer and technology skills are now regarded as essential for the majority of jobs. With home computer access IT confident employees have greater capacity to contribute to an organisation's overall performance and adapt more easily to new roles and opportunities. HCI schemes can also generate employer National Insurance savings.

    For individuals, as well as cost savings, HCI schemes can help realise personal and professional potential. Through improved ICT access and use, they provide the tools and resources that further individual learning, enhance workplace skills and increase employment opportunities. The Government is working closely with industry to promote HCI schemes."

  The DTI website, explaining the scheme, is richly populated with advice, encouragement, links to partner suppliers, and even a video showing the value the scheme provides to workers. However, nowhere does it warn that the scheme could be withdrawn with only two weeks' notice.

  On Budget Day, Business Note 30 announced that this tax and NICs exemption for employees will be removed from 6 April. This has taken everyone by surprise. Again, there was no consultation, no consideration of the consequences for the many businesses who are working in partnership with government, and inadequate thought given to the red-tape consequences of the transition.

  In the Budget Day Note no mention was made of the tax position for existing schemes, but a subsequent brief announcement was issued by HMRC on 24 March. Although this said that computers provided before 6 April 2006 would not be affected, HMRC have indicated that upgrades to software provided for these computers will in fact be subject to tax and NICs.

  This means that employers, who were encouraged to join this useful scheme by the Government, now have the significant burden of monitoring employee software upgrades[20] in order to know whether, and to what extent, a charge applies.

  In addition, although the publicity around the HCI has focused on computers provided entirely for private use, the current exemption also covers private use of computers provided essentially for business but where the employer recognises that in practice there is likely to be some private use.

  Absent the computer exemption, an employee benefit is calculated at 20% of the cost of the asset. The full value of this benefit must be included on P11Ds. If the asset has been used partly for business and partly privately, employees must then each make an individual claim to HMRC that the full benefit should be reduced by the business element. This has to increase the workload of that department at a time when its resources are being reduced, apart from the burden on the employees.

  However, employers are subject to Class 1A NICs on the whole of the benefit, even though the business element might be 80%. This is because the National Insurance legislation does not recognise the concept of "mixed use" assets.

  Thus a computer which cost £2,500, with 80% business use, will be subject to an annual Class 1A NICs charge on £500 worth of benefit (£2,500 x 20%), not on £100. Businesses will only be able to avoid this cost and the regulatory burden if they can demonstrate that the private use is "not significant."[21]

  Had this Budget change been consulted on, it might have been the considered view that other government objectives, such as a reduction in red tape, would be better served by leaving the exemption in place. At worst, all those who have committed time and energy to helping the Government deliver this initiative would have had time to restructure their business plans, and the regulatory issues on transition might have been mitigated.


  HMRC have been consulting with tax advisers and lawyers on the taxation of trusts for some 2½ years. Over this period there have been discussion papers, consultation documents, draft legislation, and numerous meetings.[22] The CIOT, along with other bodies, has participated actively in this consultation.

  However, on Budget Day a number of changes were announced to the taxation of trusts. None of these has been consulted on.

  The Budget Press Release[23] presents these changes as "alignment" or "refinement" of the rules. However, from the limited information provided, the CIOT was concerned that the scope of the changes was more fundamental and would affect many ordinary taxpayers. We have been assured by HMRC that this is not the case, and that only a few wealthy individuals will come within the rules.[24]

  Although it was not clear from the Press Release, we have now been informed that the changes were in the nature of anti-avoidance in that they prevented certain tax mitigation arrangements—albeit that this tax planning had been part of the tax and trusts landscape for many years.

  We recognise that HMRC does not consult on anti-avoidance (in order to prevent forestalling), but in the context of the ongoing and extensive discussions on trust tax reform we think a way should have been found to adopt a different, and more consultative approach. This would also have prevented the misunderstandings on the scope of the provisions which followed the Budget.


  When HMRC have consulted appropriately, the benefits have been clear. The changes to the taxation of company vans, the taxation of personal portfolio bonds, the radical reform of the company car system[25] and the changes to the employee travel rules were all consultations where the process was excellent and the results speak for themselves—the legislation has been understood by taxpayers with little need for further government intervention.

  In this Budget there are some examples of this best practice. For example:

    —  Reform of the tax regime for business cars. The options for change are clearly set out in the document "Modernising Tax Relief for expenditure on business cars" and businesses have until September to comment.

    —  The PBR announced changes to the pension rules to prevent recycling of pension funds. CIOT was worried lest the ordinary taxpayer, with no tax avoidance motive, would be inadvertently caught, and wrote to HMRC setting out these concerns. HMRC were receptive to these comments and took them into account when drafting the proposed legislation and guidance. We believe the resulting provisions are workable and should prevent marketed avoidance without catching the innocent.

    —  In the area of SDLT the CIOT has made a number of suggestions to improve the working of the legislation, and the Budget announcements showed that many of these have been accepted by HMRC.


  One of the three main objectives set by the Government for HMRC is to "improve the customer experience, support businesses and improve the compliance burden."[26] David Varney has said:

    "The way we do business impacts on millions of people, customers and HMRC employees . . . At HMRC we are committed to managing our business to maximise our positive impact on all our stakeholders (including our customers and suppliers), the community and the environment and to minimise and manage any potential negative impact."

  Consultation is a simple, effective method for delivering these goals. But in a number of significant parts of this Budget HMRC have shown complete disregard, even disdain, for the views of other stakeholders. This is not the way to improve the customer experience.

Anne Redston

24 March 2006

11   Chair of Personal Taxes at the Chartered Institute of Taxation, Visiting Professor in Law at King's College London. Back

12   Cabinet Office Code of Practice on Consultation, updated in February 2006. Back

13   See CIOT's Survey of Consultations, The Good, the Bad and the Complex, Back

14   Inland Revenue and Customs & Excise Code of Practice on Consultation published in December 1997. Back

15   Carter Review of Online Services, paragraph 5.15. Back

16   At paragraph 5.81. Back

17   At Appendix 6. Back

18   Aligning Filing Dates for Companies, a consultation document published jointly by Companies House and HMRC, November 2005. Back

19   At paragraph 5.82. Back

20   We believe that the same monitoring issue will also arise for ISP monthly subscriptions; we have tried to confirm the point with HMRC but have not yet succeeded. Back

21   ITEPA s313. Back

22   See, for example, Back

23   BN25. Back

24   That the changes are limited in their effect is also confirmed by the Paymaster General writing in today's Times. Back

25   The document "Report on the Evaluation of the Company Car Tax Reform" published on Budget day demonstrates the success of this reform, not only in the tax field but also environmentally. Back

26   David Varney's Statement on Corporate Responsibility, see, see also the Public Service Agreement set out at Back

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