184.This chapter begins by briefly outlining the main features of the five-stage consultation process which constitutes the ‘new’ approach to tax policymaking. It then goes on to consider the extent to which the process of developing the MTDfB proposals was consistent with this benchmark.
185.The new approach to tax policymaking was intended to promote a clearer, more stable and predictable tax system with more effective scrutiny of proposed tax and tax administration changes and legislation. 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.
The five stages in the policy-making cycle at each of which full and open consultation should take place as a matter of course are:
186.The main exceptions to this process, apart from changes to tax rates, allowances and thresholds, are measures to protect tax revenues or measures which carry a significant risk of forestalling.
187.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.
188.The Framework also established a ‘Tax Professionals Forum’ (TPF) to consider and report on the Government’s performance against these principles and to identify and prioritise improvements to the way in which tax policy is made.
189.Chapters 2 and 3 set out the main steps followed by HMRC in developing these proposals. They consisted of the following publications:
190.Whilst the Spring Budget 2017 deferred the implementation of the new scheme for businesses below the VAT threshold, no other decisions were announced. The outstanding draft primary and secondary legislation are due to be published with the 2017 Finance Bill on 20 March.
191.It is clear from this brief chronology of events that the first stage of the Framework’s five-stage process was omitted entirely from the development of these proposals. Indeed, HMRC said as much in launching their August 2016 consultation:
“this consultation is taking place during stage 2 of the process. The purpose of the consultation is to seek views on the detailed policy design and a framework for implementation of a specific proposal, rather than to seek views on alternative proposals.”
192.It is also clear that the third stage—consulting on the draft legislation before its inclusion in the Finance Bill—has also been seriously curtailed.
193. Views about the value of the consultation process were mixed; the suggestion was that the sheer quantity of material was overwhelming, even if of a high quality, although some complained of a lack of detail in key areas. In spite of the large number of responses to the August 2016 consultation documents and the various outreach events undertaken by HMRC, few shared Mr Harra’s view that “the consultation and engagement we have had has been the richest the department has had”.
194.Ms Riches, of Smith and Williamson, for example, felt that the consultation in general had “not been anywhere near as good as some of the previous ones on digital transformation”, citing the Self Assessment, Real Time Information and iXBRL consultations as examples.
195.The Administrative Burdens Advisory Board was more positive, however, and welcomed “the positive and constructive dialogue that we have had with HMRC … around understanding business’s new digital journey and the potential benefits and impacts that brings.” Given its formal status as an adviser to HMRC it may have had greater involvement than businesses at large.
196.The unfortunate omission of the first stage in the consultation was a point raised by a number of witnesses, including Ms Riches, of Smith and Williamson. The view of Michael Steed, of the ATT, was that:
“It felt preordained. It was the tax gap driving the whip across HMRC’s shoulders. They knew what they wanted to do. There was consultation, yes, but arguably it was not much use.”
197.The Country Land and Business Association thought HMRC’s approach “was inward looking, starting with their requirements on tax collection, which will force taxpayers to adopt entirely new processes that focus on compliance.”
198.The TPF pointed out that “failure to undertake stage 1 of the process means that consultation takes place within a fixed framework which may be sub-optimal.”
199.Omitting this first stage meant that there was no opportunity to consider alternatives, such as building on existing online reporting systems, including VAT or self-assessment—a point raised by Mr Whiting and Mr Southam, amongst others.
200.The TPF were equally concerned about the drastically truncated timetable for consulting on the draft legislation. Writing at a time when it was still expected that all the draft legislation would be published in January 2017, they commented that “it is difficult to see how this package can do more than pay lip service to the government’s tax consultation framework”. They concluded that:
“The delay in launching the response clearly provides the government with more time to assimilate the responses but, unless the implementation timetable adjusts, does so at the cost of time for consultation.”
201.On the same point, ICAS was concerned that the project was proceeding “without the overall legislative detail being available …. With tax administration detail is vital.”
202. Concerns were also raised about the extensive use of secondary legislation in establishing the framework for MTDfB. ICAS objected in principle:
“The draft Finance Bill clauses that have been published are mainly enabling legislation, delegating much of the detail to regulations that will be issued at a later date. ICAS does not support the extensive use of secondary legislation … The granting of powers, duties and functions are an important exercise of Parliament’s duties; these should be exercised through primary legislation so that there is consideration by Parliament before they are granted.”
203.A further issue is that some of the enabling primary legislation published so far is drafted so broadly that it will require particular scrutiny. For example, Clause 8(6), which requires what have been described as ‘end of year statements’, has been drafted so widely that such statements can be required at any time.
204.Many witnesses also had reservations that, despite extensive consultations, widely-held concerns (particularly about the proposed pace of implementation) had not been properly addressed by HMRC. Some questioned whether the Government was listening to what respondents to the consultation were saying. Kevin Hart, of BASDA, put it this way:
“We have regular engagement. I was on the digital advisory group for HMRC, to help point them in the right direction. We are heavily engaged, but there is a point about hearing and listening.”
205.The TPF’s annual report also reflected this sense of frustration:
“Overall the timetable for implementing a package of policy changes of this magnitude is extraordinarily short and we caution the government to reflect fully on the responses to its consultation and take the time to get it right.”
207.The time now available for consultation on the draft legislation is woefully inadequate and consigning most of the detailed provisions to secondary legislation has reduced the scope for effective Parliamentary scrutiny. Given the scale and significance of the proposals this could have been anticipated and built into a more appropriate timetable.
209.HMRC has still not adequately addressed a number of widely held concerns expressed during and after the formal consultation, particularly those concerning the pace of implementation. The 250 pages of consultation and response have done little to reassure those affected that their concerns are being listened to.
210.We recommend that when designing future tax policy initiatives, whether or not driven by Exchequer imperative, the Government allows sufficient time for full and open consultation at each stage of the policy development process, including the initial consideration of options.
211.We also recommend that where, as part of a consultation, particular concerns are widely held, the Government should provide convincing evidence that those concerns were unfounded or that they were being addressed appropriately.
172 Adopted by the then Coalition Government in 2011.
173 The conventions the then Government proposed to abide by in announcing changes outside the Budget were set out in a protocol contained in HM Treasury and HMRC, Tackling Tax Avoidance, March 2011, Chapter 4: [accessed March 2017].
174 HMRC, Making Tax Digital: Bringing business tax into the digital age, August 2016: [accessed March 2017]
175 (Jim Harra)
176 iXBRL, or inline extensible business reporting language is the system whereby accounts supporting corporation tax computations are ‘tagged’ to enable them to be digitally read by HMRC’s systems, and became mandatory in 2011.
177 (Tina Riches)
178 Written evidence from the Administrative Burdens Advisory Board ()
179 (Tina Riches)
180 (Michael Steed)
181 Written evidence from Country Land and Business Association ()
182 Tax Professionals’ Forum, Fifth independent Annual Report, December 2016: [accessed March 2017]
183 (John Whiting)
184 (Roger Southam)
185 Tax Professionals’ Forum, Fifth independent Annual Report, section B5
186 Tax Professionals’ Forum, Fifth independent Annual Report, section B5
187 Written evidence from Institute of Chartered Accountants of Scotland ()
188 Written submission from Institute of Chartered Accountants of Scotland (); see also (Jim Harra)
189 For example Huw Baker complains of HMRC’s “reluctance to accept many valid points put forward in the consultation, particularly with regard to the timetable for implantation.” See written evidence from Huw Baker ()
190 (Kevin Hart)
191 Tax Professionals Forum, Fifth Independent Annual Report, December 2016, section B5