The Draft Finance Bill 2014 - Economic Affairs Committee Contents


Chapter 6: The New Approach To Tax Policy-Making Since 2011

191.  This chapter begins by setting out the five-stage consultation approach to tax policy-making adopted by the Government in 2011 and the main conclusions and recommendations of this Committee's inquiry[170] into this new approach. It then goes on to assess the process of developing tax legislation since 2011, including the current partnership tax proposals, against the benchmark set by the new approach and the recommendations in our 2011 Report.

The Tax Consultation Framework

192.  The Government's new approach to tax policymaking is intended to help bring about a clearer, more stable and predictable tax system with better tax legislation and more effective scrutiny of proposed tax changes. It consists of a formal commitment to full and open consultation, except in exceptional circumstances, at every stage in the development and implementation of a new tax policy proposal.

193.  The approach the Government intended to follow in developing future tax changes was outlined in June 2010 and finalised on Budget Day 2011 in the Tax Consultation Framework.[171] This sets out five stages in the policy-making cycle at each of which full and open consultation should take place as a matter of course:

(1)  setting out policy objectives and identifying options;

(2)  determining the best option and developing a framework for implementation, including detailed policy design;

(3)  drafting legislation to effect the proposed change;

(4)  implementing and monitoring the change; and

(5)  reviewing and evaluating the change after its implementation.

194.  The main exceptions to this process, apart from changes to tax rates, allowances and thresholds, are measures to protect tax revenues or where there is a significant risk of forestalling. By way of clarification, the Government published a protocol[172] in March 2011 outlining the conventions it would seek to abide by in announcing tax changes outside the Budget.

195.  The new approach means that, in practice, most tax legislation should be published in draft for consultation at least three months before the relevant Finance Bill is laid before Parliament, with consultation on the first two stages of the process having taken place in the preceding months.

196.  The Framework also established a 'Tax Professionals Forum' (TPF) to consider and report on the Government's performance against these principles, including the protocol, and to identify and prioritise improvements to the way in which tax policy is made. The TPF's role also includes monitoring progress towards the goal of simplifying the UK's tax code.

Report on Finance Bill 2011: Recommendations on New Approach

197.  This Committee's inquiry into the 2011 Finance Bill found widespread support for the new framework which was seen as building on the good practices of previous governments and promising better tax legislation if implemented consistently. The Report commended the Government on its adoption of this new approach and welcomed the establishment of the TPF. And it concluded that, with a couple of notable exceptions, "most of the measures in Finance Bill 2011 were developed in accordance with the principles of the new approach to tax policy making."[173]

198.  The Report recommended that "the Government observe the five-stage process for progressing from policy objective to final evaluation, with consultation at each stage, in all but the most exceptional cases, and that the reasons for any such exceptions be explained fully after the announcement."[174] It emphasised the need for the principles of the new approach to be firmly embedded in the day-to-day practice of tax policy-making and made a number of recommendations, the main ones being that the Government should:

(a)  publish the findings of an internal review of the policy partnership between HMT and HMRC and undertake "a comprehensive audit of the tax skills and experience of HMT and HMRC staff working on developing tax policy and legislation"[175] and of the incentives to recruit and retain the best talents to this work;

(b)  seek to consult with a wider range of smaller businesses and "develop and publish a comprehensive strategy for consulting non-business stakeholders on tax proposals likely to affect them";[176]

(c)  consult taxpayers potentially affected by proposed changes from the outset when drawing up initial Tax Impact and Information Notes (TIINs);[177]

(d)  "add to the new framework a formal requirement for all significant tax reforms to be evaluated against their stated objectives once they have bedded in",[178] and that "such evaluations should be carried out with the support of independent experts and that their results should be published;[179] and

(e)  outline its strategic objectives for different parts of the tax system, even where it has no immediate plans for change, so as to reinforce the certainty, predictability and stability the new approach aims to achieve.[180]

199.  The Report also noted that all the private sector organisations submitting evidence to the inquiry suggested that the new approach should also lead to consequential changes in the way Parliament scrutinised tax legislation.[181] As a result, in 2012, the House of Lords revised the terms of reference of the Finance Bill Sub-Committee (FBSC) so that it could start its work earlier in the year and examine the provisions which appear in the draft Finance Bill. Its first such inquiry was carried out in 2013.

Previous Assessments of Performance Against New Framework

200.  The TPF's membership is drawn from the accountancy, tax and legal professions and it meets bi-annually under the chairmanship of the Exchequer Secretary. It has so far published two reports, the first in December 2011 and the second in March 2013.

201.  The first covered broadly the first year of operation of the new model and concluded that "the approach adopted for most of the measures in the Finance Act 2011 complied with that outlined in the New Approach to Policy Making. In particular the corporate tax reform package and the measures relating to tax relief on pensions were excellent illustrations of best practice in the conduct of the policy process."[182] This echoed the conclusion of this Committee's Report earlier in 2011, as did its reservations about the disguised remuneration provisions and the oil and gas supplementary charge in that year's Bill.

202.  The second Report,[183] covering the period from 6 December 2011 to 30 November 2012, also came to mixed, though predominantly positive, conclusions. While it reported "a number of good examples where the five stages have been or are being followed, in particular the consultations on the changes to the CFC rules, the Statutory Residence test, the reform of the taxation of non-domiciliaries",[184] there were other cases that year where the consultations had started part way through the process, or "without a clear articulation of the policy involved" or "without any discussion of the policy".[185]

203.  It also concluded that

    "more thought needs to be given to the timetable for the legislative process. Even where there is a full and valuable consultation where government and taxpayer understand the intended policy, the legislation implementing that policy can be overlong, over complex and very occasionally not reflect the intended policy if instructions have to be given to Parliamentary Counsel on a timeframe which starts before part of the consultation process has ended."[186]

204.  The TPF has not yet published its conclusions on the 2013 Finance Act. This Committee, when it looked the draft 2013 Bill last year, commended "HM Treasury, HMRC and all those involved in the development of the GAAR on an exemplary tax policy-making process",[187] but went on to recommend that the two departments "examine closely why the new policy-making process worked well in developing the GAAR and less well in developing the ARPT [now the Annual Tax on Enveloped Dwellings] package and the cap on reliefs. Whatever steps are necessary to achieve a uniformly good outcome should then be taken."[188]

The Partnerships Package and the New Approach

205.  Turning to the package of measures affecting partnerships, the Government chose to roll together the first two stages of the process recommended in the Tax Policy Framework before beginning consultations.[189]

206.  Nonetheless, Baker Tilly, thought the May consultation document met the requirements of the new approach in that it outlined "a coherent view of why change was necessary: it set out the policy objective; it set out the circumstances where that objective was not being met; it proposed solutions; and it set out a test of whether or not the outcome would be successful."[190] And they went on to say that there had been "an extensive consultation process with a high level of engagement between HMRC and interested parties".[191] In contrast, the LSEW, complained that "neither the proposals in the May 2013 consultation nor those in the December 2013 technical note were preceded by any consultation",[192] as did Grant Thornton.[193]

207.  Most witnesses were content with the way the consultation had been run from May until August 2013 when it closed. Mr Baker thought that "the consultation got off to quite a good start in the summer, with the document that was published."[194] Similarly, Mr Hale, talking of his discussions around the impact of the AIFMD, said: "In the period from early June to the end of September, we had, I think, three substantial meetings of two hours or more with a considerable team of HMRC, HMT and FCA representatives."[195]

208.  However, the same does not apply to the later stages of the policy development process. Our witnesses maintained that, although the draft clauses were available for consultation from 10 December, the change to the proposals on salaried members was so radical that the Government should have allowed time to go back and debate again stages I and II of the new approach instead of, in effect, skipping straight to stage III of the process with consultation only on the technical detail of the legislation.

209.  Mr Haskew saw the process as moving "from a consultation that was going down one track to suddenly something completely different, with no obvious linkage as to how they really got there, and I do not think that is very satisfactory."[196] And the CLLS commented that "The consultation process has also been managed in a regrettable manner. It is extremely unusual, as was the case here, for the second iteration of proposals to be more aggressive to taxpayers than the first … This does not promote trust and confidence in the consultation process."[197]

210.  As for the consequences of the late change of direction, Mazars claimed that it would create uncertainty and provisions that are not properly road-tested, "thus seriously undermining the consultation process."[198] Deloitte "query whether a full impact assessment has been undertaken given the late change from proposals designed to address tax-avoidance to proposals with more fundamental impact across the professions."[199]

211.  As discussed extensively in Chapters 3 and 4, Ms Knott considered that, to the extent that the approach to the legislation had changed between May and December 2013, that was as a result of the representations received about the use of the case law tests (as set out in the Employment Status Manuals) to determine whether a member of a LLP was a partner or an employee. In spite of the changes, she did not accept the case for delaying their introduction in order to hold a more comprehensive consultation, not least because the yield from the measure had been estimated on the premise that the change would be in place from 6 April 2014. Notwithstanding the evidence submitted on the later policy-development stages, both Ms Knott and Ms Morgan thought there had been a lot of praise for the consultation process: "it has been a very well run consultation."[200]

212.  The evidence we have heard leads us to conclude that, although it would have been preferable not to have compressed the first two stages of the process, the partnership consultation carried out between May and August 2013 was well-conducted, open and responsive. We commend HMRC and HMT for that and particularly for their interaction with representatives of the AIFM sector.

213.  That has, however, not been the case since December when the draft Finance Bill proposals concerning salaried members turned out to be significantly different from the ones discussed in the summer. We have already concluded that insufficient time has been allowed for proper consultation on the new proposals if the April start date is to be maintained. This constitutes practice that is not compatible with the new policy-making process.

Developing Tax Legislation 2011-2014

214.  The Sub-Committee's main recommendation in its 2011 Report was that the Government should abide by the full five-stage process for progressing from policy objectives to final evaluation of outcomes in all but the most exceptional cases. We therefore took evidence on how consistently the new approach had been applied to the development of tax policy since 2011.

CONSISTENT APPLICATION OF THE NEW APPROACH

215.  The evidence we received was very positive about the effects of the new five-stage process: where it is applied comprehensively, the result is good consultation and good legislation. Mr Sanger commented that

    "there is much more formality around how we go forward with tax policy. That provides a real opportunity for many more people to be engaged in the debate, and that is absolutely to the good … We are moving to a world where good policy-making and good communication of that policy are becoming the norm, and that is a good result."[201]

The British Bankers Association (BBA) noted that "In the main, the consultation process is working in a constructive manner, resulting in better final legislation for the benefit of both the Exchequer and business."[202] Others thought likewise, including Mr Whiting who cited a variety of examples of good tax policy-making.[203]

216.  Mr Whiting also compared the UK favourably with other jurisdictions: "Comparing notes with opposite numbers in other countries, we can see that many of them are immensely jealous of the process that we go through and think it is a much better process."[204] Mr Król agreed, commenting that "the UK Government's consultation procedure is incredibly open and is much more thorough than what we experience in other jurisdictions."[205] This view is very much in line with the findings of a recent Oxford University Centre for Business Taxation (OUCBT) report which, comparing consultative arrangements, concludes that "the UK has among the strongest processes. There is a clear, ministerial commitment to consultation; formally documented and articulated in a series of government publications."[206]

217.  We commend the Government, HMRC and HMT on the quality of the consultations conducted and the tax legislation produced since 2011 in those areas (the large majority) where the new approach to tax policy-making has been applied comprehensively.

218.  However, each year there seem to be a minority of cases where that high standard fails to be achieved because the new approach has not been observed, or it has only been nominally adhered to, or time pressures around the third stage (drafting legislation) have curtailed consultation and prevented the resulting legislation from being as considered as it might otherwise have been. Cases of this sort led the ACCA to conclude that "The overall process of consultation on tax legislation has shown some signs of improvement, but is still very much a curate's egg."[207]

219.  The main areas of concern where the policy-making framework was not fully adhered to were covered earlier in this chapter. More recent examples are the current partnership measures, also discussed above, and the frequently cited consultation on tax and public procurement where, according to the CBI, "Not only was the policy unexpected, it also came with a very short consultation period and the implementation schedule did not follow the recommended practice".[208]

220.  There was also some concern that, although the requirement to consult is met, the Government's commitment to consultation is not always wholehearted. The ICAEW wrote "we are not convinced that the Government is always listening to the responses and ensuring that the proposals are amended to take account of legitimate concerns. There is a danger that the process is still seen more as an end in itself rather than a means to an end".[209] ICAS commented in similar vein.[210]

221.  On time pressures curtailing consultation on draft Finance Bill clauses, KPMG wrote that "In many cases, the consultation seems to progress in a satisfactory manner but at the end there is a rush to get legislation drafted in time for the Finance Bill. This often results in badly drafted legislation which then has to be 'corrected' in guidance notes".[211] The TPF's second report picked up a similar point, noting that the new approach exacerbated the risk "because draft legislation has necessarily to be produced at an earlier stage … before all responses have been fully evaluated. It may then become difficult to alter or recast the legislation sufficiently prior to enactment."[212]

222.  As we recommended in past reports, we urge the Government to examine why the new policy-making process worked less well in a minority of cases, and take the necessary steps to ensure a uniformly good result in all cases. In particular, we recommend that, where the approach decided on after the closure of a Stage II consultation differs radically from that consulted on, the policy development timetable should be amended. This would allow for further consultation on the revised proposals, building on the outcome of the earlier stages, before proceeding to publish clauses in a draft Finance Bill.

The Tax Policy Partnership

223.  A policy partnership between HMT and HMRC that works well is a critical factor in applying the new approach consistently and developing good tax legislation. Our 2011 inquiry uncovered some disquiet among witnesses about the effectiveness of the policy partnership. Officials responded by assuring us that a joint review by senior officials had led to a 'reinvigorated' partnership.[213]

224.  This year there was not the same groundswell of criticism, but the current state of the policy partnership between the Treasury and HMRC was far from clear. There was some evidence that it was working more effectively. Mr Whiting argued that the partnership worked "pretty well" and was "going in the right direction", but, on the other hand, he still had "some concerns, such as whether the Treasury people have the tax experience, and indeed the commercial experience, that they would have ideally. They tend to move on very quickly. I still have concerns as to whether policy work in HMRC has the status that it might".[214]

225.  Asked about the findings of the 2010-11 review into the policy partnership, Ms Morgan said that she "was not sure that they [Mr Hartnett and Mr Troup] referred to a formal internal review".[215] She offered to give further detail, but was asked for a note. The note from HMRC did not contain any information about the 2010-11 review, but assured us that "HM Treasury and HMRC keep the Policy Partnership continually under review and seek improvements in the working relationship between the departments."[216] Among the improvements listed in the note, the main ones were the establishment of The Policy Partnership Oversight Group, chaired by senior HMT and HMRC officials and charged with monitoring "effective allocation of resources and the skills in both parts of the partnership" and of The Budget Policy Oversight Panel, whose role is to "scrutinise tax policy development to provide high-level stress testing and challenge for emerging tax measures".[217]

226.  Other witnesses were concerned about the range and depth of knowledge and expertise in the two departments. Professor Freedman commented that although there was a lot of consultation she was not always sure that

    "HMRC and the Treasury know quite what to do with it. Unless you go out consulting with some clear background knowledge so that you can evaluate what is coming back, there is a danger that you lose your way … and sometimes the people working on the consultations, who are all very, very bright, have just not had long enough in the area to know about that detail and so mistakes are made that way."[218]

Mr Murphy agreed that "the people who might be involved in creating some of this draft legislation and the processes inside the Treasury do not have the experience for what happens inside the commercial world",[219]adding that there was a particular lack of understanding of what happened in small businesses.

227.  As will be clear from earlier in the report, there was also some criticism of HMRC's lack of understanding of how partnership structures are used. Mr Roy-Chowdhury made the point that "Whoever thought up these tests does not seem to understand how partnerships, say accountancy practices across different jurisdictions, across different countries, come together … They do not seem to properly understand commercial reality and how businesses operate in partnerships."[220]

228.  Ms Knott felt that there was

    "a considerable amount of expertise in HMRC on partnerships in terms of our operations—the large business service has a partnerships unit … But it is fair to say that it was when we went to consultation that we realised the extent [to which mixed partnerships are used in the AIFM sector]. We certainly learnt a lot from the consultation."[221]

And Mr Quelch added that the department had

    "an ever growing understanding of the UK business population … through ever more sophisticated exploitation of our significant data sets … and … extensive research into the business population … In addition, we are always happy to engage with external experts to help us identify where the market is changing, commercial trends being what they are."[222]

229.  Policy initiatives come from a number of different sources, including, most importantly, from Ministers themselves. Our witnesses focused on the detailed development of policy initiatives and expressed concerns about the apparent lack of internal challenge which some attributed to the current division of policy responsibilities between HMRC and HMT. Mr Sanger and others argued that

    "if HMRC's role was to 'own' the policies, ensuring that any proposals are rigorously evaluated by both the policy lead and those with practical experience of the operation of the tax system, then a number of the concerns of detail might be identified and addressed up front. HM Treasury would then have a clearer 'scrutiny' role, which would provide the 'challenge function' to the policies being developed."[223]

230.  We were heartened to hear that the tax policy partnership between HMT and HMRC was working more effectively and of the measures taken to strengthen it. We recommend that the interdepartmental Policy Partnership Oversight Group and Budget Policy Oversight Panel build on these achievements by taking further steps to encourage officials in both departments to improve their tax skills and their knowledge of evolving commercial practice, and to subject proposals to more rigorous challenge.

231.  We were disappointed, however, to be told that a formal review into the policy partnership was not carried out in 2011. We recommend that such a review should now be undertaken into the effectiveness of the current division of policy responsibilities between HMT and HMRC, including the scope for re-balancing those responsibilities.

Scope and Reach of Consultations

232.  We also considered evidence on whether there had been significant progress in extending the scope and reach of HMRC and HMT's consultations. Two aspects of this issue were covered by the recommendations in our 2011 Report: consulting, albeit informally, with those likely to be affected by a proposal when drawing up its initial impact assessment at stage I; and widening the range of small business and non-business stakeholders consulted throughout the policy development process.

CONSULTING EARLY ON POTENTIAL IMPACTS

233.  On the first aspect, the ICAEW assert that "impact assessments used to underpin policy changes are not based on robust and realistic costings"[224] and that officials need to consult "with business and professional advisers at an early stage to identify in detail what needs to be done and by whom so that such processes can be built into any costings."[225] And the Federation for Small Business (FSB) go further and recommend that "all tax impact assessments should be subjected to independent scrutiny at both consultation and final stage".[226]

234.  We have commented in chapter 5 on the estimated additional yield from the proposed measures on the taxation of partnerships that became evident only during the consultation period. That showed that the draft impact assessment that had been published as part of the May consultation paper was a long way wide of the mark. We regret the apparent absence of consultation in the earliest parts of this process. Building on the conclusions of the Committee's 2011 report, we recommend that, whenever possible, officials consult fully and openly with those affected when drawing up Tax Impact and Information Notes (TIINs) and costing tax proposals.

CONSULTING MORE WIDELY

235.  On the second aspect, the reach of the consultation process, Mr Murphy argued that "there is a relatively widespread understanding of what happens in big business and big partnerships, because they are the people who are being consulted and they are even on the board of HMRC" but that there were very few consultation responses from small businesses "because they do not have the resources or the funding to do it".[227] Ms McCormick thought that the most efficient way for small businesses to feed views into consultations is "through trade associations and the like, because a small business just does not have the capacity. They are too busy running their business to get involved in all of this."[228]

236.  Both Mr Murphy and Mr Brooks denied seeing any improvement in HMRC's record of consulting smaller businesses and non-business stakeholders.[229] In contrast, representatives of the largest accountancy firms argued that the breadth of views reflected in consultations was much greater than suggested, both because the firms involved in consultations took account of the views and interests of their clients, and because the membership of the various institutes covered a wide range of experience.[230] Mr Dodwell also pointed to the role of "the Low Incomes Tax Reform Group, which is part of the CIOT, to help provide that unrepresented input."[231]

237.  Mr Quelch rebutted criticism of HMRC's contacts with small business by explaining how the department engaged with its customers by way of "formal interactions through standing consultative groups, informal interactions and extensive consultations on particular proposals."[232] Mr Quelch went on to elaborate on the measures HMRC had taken to simplify procedures and guidance for small business and the extensive consultation that informed those changes.

238.  Mr Murphy suggested that the consultation process was a closed shop because the people who had real influence were those who were invited to "face-to-face meetings in the Treasury, and very few smaller firms will be invited in to do that, I suspect."[233] Mr Brooks thought that officials were unwilling to engage with individuals or organisations outside the mainstream.[234] A similar theme emerged from the OUCBT report which concluded that, in all tax jurisdictions, "tax policy is made and influenced by a very small group of people …The narrowness of the process has the potential to create unbalanced outcomes in the absence of other safeguards."[235]

239.  Asked about the difficulties individuals, academics and non-mainstream organisations might face in accessing HMRC and Treasury officials, Mr Quelch maintained that HMRC's consultation processes were very open and transparent and that he could see nothing "preventing any individuals who have an interest in UK tax legislation providing that response in that way through a consultation exercise."[236]

240.  We recognise the progress made by the Government in formalising and extending the scope and quality of consultation processes on tax policy-making. We also understand how difficult it is to engage with small businesses and with individual taxpayers, but we consider that more needs to be done to devise innovative ways of reaching out to these groups. We therefore recommend, as did our predecessor Committee in 2011, that HMRC and HMT urgently develop and publish comprehensive strategies for consulting smaller businesses, non-business stakeholders and other groups.

Post-implementation Reviews

241.  A strong theme in our 2011 inquiry was the need for post-implementation reviews of tax changes, essentially extending and formalising the final stage of the policy development process. Much of the evidence we received this year concerned the absence of any information on whether, and with what result, stage V (reviewing and evaluating the change after its implementation) of the new approach had been carried out. Most witnesses called for independent post-implementation reviews of all significant changes in line with the recommendation in this Committee's 2011 Report.

242.  Mr Murphy argued that in many cases it was not clear what the Government's objectives were and that made it difficult to evaluate policies: "How, as a consequence, can anybody undertake a review of outcome against objectives when it was not clear what government policy was in this area?"[237] Deloitte's view was that they had "not yet seen a good example of this being carried out."[238]

243.  Mr Gammie assumed that reviews took place within departments but said he "would suspect that they come at a lot of these issues with a rather more limited eye than I certainly would think desirable in trying to tackle some of the ongoing problems of the tax system."[239] Mr Sanger agreed that there was "little evidence to the outside world of those reviews being undertaken. They may be happening inside the Treasury and HMRC, but it would be good for the outcome of that to be far more visible."[240] Mr Nicholson thought that "post-implementation is good business."[241]

244.  Responding to these criticisms Ms Morgan said that

    "The Treasury and HMRC undertake a really wide range of work both internally and externally to improve the evidence base on the impact of previously implemented policies and to inform policy development going forward. If you look on HMRC's website, there are more than 300 research reports, some of which are evaluative in nature, that are a really core part of our evidence base to inform policy-making. There is a joint Treasury-HMRC steering group, which oversees the evaluation programme and ensures that our resources are being prioritised correctly in that area."[242]

She added that "All formal evaluations are published on HMRC's website" and that HMRC co-funds "the Tax Administration Research Centre, which often carries out independent research and adds to the evidence base".[243]

245.  While we recognise the large volume and variety of research carried out and published by HMRC, very few of the 300 items referred to appear to constitute post-implementation reviews of significant tax changes.

246.  Asked about plans for evaluating the partnership measures, Ms Morgan said that HMRC would

    "monitor the receipts from this sector as the change comes into effect and look at the behavioural responses that we see in the sector, to test that against the assumptions that we made when we proposed the measure. However, it is too early at this stage to commit to a more formal evaluation, or to what form that evaluation may take, because it will need to be looked at in the round against other competing pressures on that resource once the measure is in effect."[244]

This last comment suggests that there may be a long way to go before post-implementation reviews become a normal last stage of the policy-making process.

247.  We regret the lack of progress in carrying out and publishing formal evaluations of tax changes implemented so far. We reaffirm the recommendation of 2011 that the Government should commit to undertaking post-implementation reviews of all significant tax reforms, preferably with the support of independent experts, and that their results should be published.

Strategic Context

248.  There were two strands to the evidence submitted on the strategic context of tax policy changes: that individual tax proposals should be looked at in a much wider (non-tax) context and that, within the tax system, proposals need to be seen against the background of the Government's longer term strategy for that part of the tax system.

CHANGES IN A BROADER CONTEXT

249.  On the first strand Professor Freedman argued that

    "we are also still not very good at looking at these tax policy changes in a wider context and in a holistic context. We are not looking at benefits legislation at the same time as we are looking at tax. We are not looking at employment law and we are not looking at partnership law when we are changing partnership taxation. There is not enough joined-up government here, so that can cause problems."[245]

250.  Baker Tilly thought that, on the partnership measures, "there should have been a consultation across Government about clause 4(4) of the LLP Act in order to correct the defect and agree a set of rules to govern the circumstances in which a person who is a member of an LLP is treated for all purposes as an employee."[246]

251.  Ms Knott responded that the partnership consultation "was looking at the taxation consequences to make sure that the tax consequences were fair and consistent. It has focused on that rather than looking at employment law. That would be a very different undertaking and not something that we could have done from the Treasury and Revenue and Customs."[247]

252.  Some felt that the Government should have waited for the OTS's final report, or held a much wider consultation on partnerships, including the implications for employment rights of any proposed changes in tax treatment. The LSEW wrote

    "the consultation considers just two aspects of the tax rules relating to partnerships. Such a piecemeal approach is not conducive to making better tax law. In our view, it would be better to delay the introduction of the present proposals until the Office of Tax Simplification has completed its review of all aspects of the taxation of partnerships."[248]

253.  In response, Ms Morgan explained that "It would not have been appropriate, given the revenue that was at risk … for the Government to await the outcome of the OTS work before proceeding with those changes."[249]

254.  We accept the Government's reasons for not awaiting the conclusions of the Office of Tax Simplification's reports on partnership taxation, particularly where it was seeking to counter tax loss. But we have sympathy with the view that the proposals might have been developed more coherently against the background of a clearer statement of the Government's objectives for the overall tax treatment of partnerships.

CHANGES AND ROAD MAPS

255.  On the second strand, the need for the Government to outline its overall plans for different parts of the tax system, Mr Sanger pointed to the

    "ongoing benefit to providing taxpayers with a clear strategy as to the tax policies that the Government will look to adopt, both in this parliament and beyond. Whilst some of these will necessarily be political in nature, there could be a considerable amount of common ground where clarity would benefit the UK."[250]

256.  On expressing the Government's strategy in the form of a 'road map', the ICAEW wrote "In November 2010, the Government published a Roadmap for Corporation Tax which has been welcomed by business. We would now like a similar document to be published for personal tax. Certainty about the taxes individuals must pay on their income and chargeable gains is a contributory factor to a business's decision to base itself in the UK."[251] Mr Dixon argued for a long-term vision of the tax system.[252]

257.  Mr Sanger suggested that such maps should focus "on the different types of taxpayer/stakeholder, rather than the technical form of the tax … to allow the taxpayer to understand the overall strategy".[253] The ICAS wrote in similar terms and wanted to level "the inconsistencies between employment and self-employment."[254]

258.  Ms Morgan replied to the call for further road maps by saying that

    "The road map that was published for corporation tax has been very popular and widely endorsed by many stakeholders. We receive regular calls for similar road maps to be published on a wide range of aspects of the UK tax system. Ultimately, a decision to do that has to be one for Ministers, but as far as possible we try to signal what the Government's approach might be towards a particular area of taxation."[255]

259.  We recognise the political dimension to tax reform and the fact that the Government cannot bind the hands of its successors. However, we agree that the Government should, as far as possible, avoid making piecemeal, reactive changes to the tax system. We continue to believe that tax policy would be developed more coherently if, at the beginning of every government, clear statements were to be published, similar to the 2010 company tax road map. These would give details of the government's overall strategic aims for different parts of the tax system. We recommend this for the future.


170   Select Committee on Economic Affairs, The Finance Bill 2011 (4th Report, Session 2010-12, HL Paper 158). Back

171   The Government's Tax Consultation Framework: Summary of Responses and finalised Framework, HMT and HMRC, March 2011. Back

172   Tackling tax avoidance, HMT and HMRC, March 2011, Chapter 4: Protocol on unscheduled announcements of changes to tax law. Back

173   Select Committee on Economic Affairs, The Finance Bill 2011 (4th Report, Session 2010-12, HL Paper 158),paragraph 52. Back

174   Ibid., paragraph 56. Back

175   Ibid., paragraph 76. Back

176   Ibid., paragraph 90. Back

177   Ibid., paragraph 95. Back

178   Ibid., paragraph 102. Back

179   Ibid., paragraph102. Back

180   Select Committee on Economic Affairs, The Finance Bill 2011 (4th Report, Session 2010-12, HL Paper 158),.paragraphs 107, 108. Back

181   Ibid., paragraphs 121-123. Back

182   Tax Professionals Forum, Independent Annual Report, 6 December 2011, page 10 section 3. Back

183   Tax Professionals Forum, Second Independent Annual Report, 27 March 2013. Back

184   Ibid., page 5, section 4. Back

185   Ibid., page 6, section 4. Back

186   Tax Professionals Forum, Second Independent Annual Report, 27 March 2013, page 12, section 8. Back

187   Select Committee on Economic Affairs, The Finance Bill 2013 (1st Report, Session 2012-13, HL Paper 139), paragraph 171. Back

188   Ibid., paragraph 244. Back

189   Partnerships: A review of two aspects of the tax rules, Consultation document, HMRC, 20 May 2013, Annex A. Back

190   Baker Tilly, paragraph 8. Back

191   Ibid., paragraph 9. Back

192   LSEW, paragraph 20. Back

193   Grant Thornton, paragraph 4.2. Back

194   Q 93. Back

195   Q 61. Back

196   Q 52. Back

197   CLLS, paragraph 24. Back

198   Mazars, paragraph 10.4. Back

199   Deloitte, paragraph 4.3. Back

200   Q 133. Back

201   Q 28. Back

202   BBA, page 1. Back

203   Q 12. Back

204   Q 12. Back

205   Q 64. Back

206   Structures, processes and governance in tax policy-making: an initial report, C J Wales and C P Wales, OUCBT, December 2012, page 120. Back

207   ACCA, paragraph 18. Back

208   CBI, paragraph 8. Back

209   ICAEW, paragraph 39.2. Back

210   ICAS, paragraph 28. Back

211   KPMG, paragraph 2. Back

212   Tax Professionals Forum, Second Independent Annual Report, 27 March 2013, page 12, section 8. Back

213   Select Committee on Economic Affairs, The Finance Bill 2011 (4th Report, Session 2010-12, HL Paper 158), paragraphs 72-74. Back

214   Q 13. Back

215   Q 138. Back

216   HMRC and HMT, further evidence, page 1. Back

217   Ibid., page 1. Back

218   Q 28. Back

219   Q 39. Back

220   Q 45. Back

221   Q 129. Back

222   Q 131. Back

223   Chris Sanger, supplementary evidence, page 2. Back

224   ICAEW, paragraph 39.1. Back

225   ICAEW, paragraph 40. Back

226   FSB, paragraph 6. Back

227   Q 39. Back

228   Q 112. Back

229   Q 40. Back

230   Q 112. Back

231   Q 112. Back

232   Q 133 Back

233   Q 39. Back

234   Q 40. Back

235   Structures, processes and governance in tax policy-making: an initial report, C J Wales and C P Wales, OUCBT, December 2012, page 7 (Executive Summary). Back

236   Q 134. Back

237   Q 41. Back

238   Deloitte, page 6. Back

239   Q 30. Back

240   Q 30. Back

241   Q 116. Back

242   Q 136. Back

243   Q 136. Back

244   Q 136. Back

245   Q 28. Back

246   Baker Tilly, paragraph 30. Back

247   Q 135. Back

248   LSEW, paragraph 20. Back

249   Q 135. Back

250   Chris Sanger, supplementary evidence, page 1. Back

251   ICAEW paragraph 43. Back

252   Q 111. Back

253   Chris Sanger, supplementary evidence, page 1. Back

254   ICAS, paragraph 20. Back

255   Q 135. Back


 
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