Administrative Burdens Advisory Board

Minutes of the meeting on 20 January 2009

11.00 am - 2.00 pm Boardroom, 1 Horse Guards Road

Advisory Board Attendees: Teresa Graham (TG), Andrew Hubbard (AH), Roger Southam (RS), Julie Kenny (JK), Francesca Lagerberg (FL), Simon Sweetman (SSw), John Whiting (JW), Martin Jones (MJ), Russel Griggs (RG)

Apologies: Paul Aplin, Ian Dewar, Karen Thomson, Steve Sharrat

HMRC Attendees: Stephen Banyard (SB), Roy Massingale (RM), Simon Woodside (SW), Ian Stewart (IS), Peter Faherty (PF), Jim Ferguson (JF), Mike Brown (MB), Geraldine Molloy (GM), David Richardson (DR), Mark Leech (ML), Denise Togher (DT), Callum MacFarlane (CM)

Apologies: Melanie Dawes

BERR Attendee: David Tyrall (DT)

HMT Attendees: Katherine Green (KG), Simon Bor (SBo), Michael Swan (MS)

Secretariat: Sally Beggs (SBe), Paul Oakes (PO)

Welcome and introductions

  1. TG welcomed everyone to the first Board meeting of 2009. She extended a particular welcome to the Financial Secretary Stephen Timms MP who joined the first part of the meeting. The minutes of the meeting on 22 October 2008 were agreed. The action points had been discharged, were in hand or were on the current agenda.

Item 1: Session with the Financial Secretary (FST)

  1. The FST opened by recognising the value of the Board's work and emphasising that reducing burdens for business was a priority for the Government. He also said that the Government was committed to helping business through the current economic downturn and mentioned the Business Payment Support Service launched at PBR. To date this has helped 20,000 businesses - deferring tax of over £350 million. The FST said he was pleased with the progress on the administrative burden reduction targets, and highlighted the Board's contribution, even though he acknowledged there was more to do. He emphasised that this was a continuing agenda. He was interested in looking for further opportunities to reduce burdens on business and recognised the importance of considering the administrative burden impact of new measures. The FST said he would like to hear from the Board, in particular whether there was anything else the Government could do administratively through the tax system to help business through the current economic downturn - and also for any views about future direction after the current targets come to an end.
  2. TG opened the discussion by asking what appetite there was for real policy change in the future (with HMRC and HMT working together to deliver noticeable benefits for business). The current targets focus on administrative changes that HMRC can make and she thinks that there will be a limit to how much further that can go without policy change. The FST said that Ministers would want to do more in this area and is interested in exploring how to frame stretching target(s) for the future.
  3. RS asked whether the Government had considered the costs and burdens to business in deciding to proceed with the recent VAT rate change. He explained the difficulties it had caused for a lot of small businesses. He thought the costs of the change outweighed any benefits. The FST responded by saying that the Government recognised the compliance costs for business but said the change had produced benefits for the economy and referred to the inflation figures announced that day.
  4. JW endorsed the comments about the VAT change, as did RG. On reducing burdens, JW asked whether the Government would be prepared to contemplate any 'rough edges' - he said that he thought administrative burden reduction was often sacrificed in the name of fairness. He asked whether the Government would be prepared to contemplate any losers to deliver real and noticeable simplification (reduced burdens). The FST said that the Government did not want to multiply 'red tape' and added that successful policy implementation required proper consideration of administrative burdens.
  5. RG advocated the need for better and more joined-up communication across Government. The difficulties business encounter in understanding their obligations can be a disincentive to growth.
  6. FL emphasised that the work to reduce administrative burdens had made a difference. She added that the 'time to pay' scheme had been extremely successful and would like to see this sort of idea replicated in other areas. Francesca added that swift responses from HMRC are also what business wants. TG supported this by adding that HMRC should capitalise on what it does well.
  7. SS expressed his concern about the surprises that sometimes emerge at PBR and Budget. He said that all major changes should be consulted on. He emphasised that small business does not like change - and if change happens, businesses need to be able to see the benefit. Consultation leads to better change which business will accept. The FST responded by acknowledging the importance of exploring issues properly with business before they are introduced, but said that this is not always possible in all cases. For example, the recent VAT rate change had to be implemented quickly otherwise there was a risk that consumer spending would have stopped.
  8. MJ said that uncertainty was the most difficult issue for small businesses. MJ also expressed his view that the employment model underpinning the tax system is out of date. He said that people increasingly have portfolio lives (with periods of employment mixed with periods of self-employment) and the current system only seems to be able to deal with those in stable employment - and causes a lot of difficulty and uncertainty for others. The FST accepted MJ's comments as being fair and acknowledged that the PAYE system was old. He said that the Government is currently considering some new ideas for how PAYE could possibly operate in the future. The FST invited MJ to send him the correspondence he had received from fellow small businesses about their experiences of dealing with this part of the tax system.
  9. AH explained that for him the main admin burden challenge is to make the current tax system work - and in particular improve taxpayers' interaction with HMRC. He believes that many problems would not exist if there was a greater availability of online self-service products. He added that it was often small operational issues that caused wider problems and perceptions. The FST said he was interested in hearing about the types of things that HMRC could do to make a difference.
  10. JK said there was still much to do, but she acknowledged the good progress to date and positive/committed approach from officials in HMRC. She spoke about the R&D Tax Credit specialist units and how successful she thought this initiative had been. TG echoed this and believes similar initiatives could prove successful in other areas.
  11. The FST thanked the Board and said he wanted to stay engaged with this agenda and the Board. TG thanked him for attending the meeting.

Item 2: Simplified accounting and tax calculation for small companies

  1. MS introduced the agenda item by summarising the two options included in the Discussion Document published at PBR. DT from BERR emphasised that relaxation of the EU accounting rules for micro companies opens up a wider range of options. Without EU change there can be no cash based option - but he thought that EU change was likely.
  2. TG commented on the high EU definition of 'micro' (Euro 1 million) and expressed her concern that this might compromise the amount of simplification available. She suggested that a lower threshold may be more appropriate. She pointed out that in the UK there were about 1.2m companies with a turnover of less than £50k - and asked about the trade-offs between turnover/scope, simplification and anti-avoidance protection. She asked about the items of income and expenditure listed at Paragraph 5 of the Briefing Paper (ABAB 2009/01), such as public policy disallowances, and wanted to know at what turnover level they were likely to bite and whether Government would be prepared to tolerate any 'rough edges' as discussed with the FST in the previous session.
  3. PF responded that there should be no need for lots of anti-avoidance legislation. But the issues identified in the briefing paper would need to be addressed to ensure fairness and ensure the regime worked properly in economic terms, which is important in order to keep the regime as simple as possible.
  4. SS added that 75 per cent of businesses are unincorporated and not covered by this proposal and thought there was a need to look more broadly across the piece. PF replied that the original remit had been to try and reduce the burden of Corporation Tax (CT) but agreed that the logic would be to develop something similar for the unincorporated - and that HMRC was already looking at this in the background.
  5. RS added that the treatment of accounts varies enormously and tax is not the main driver for business activities and choices. He agreed that some acceptance of 'rough edges' and exceptions from the normal rules would be needed to make this most beneficial for the smallest companies.
  6. FL explained that there was some nervousness about the work in the accountancy profession and thought it needed a lot of discussion. 'True and fair' was hard won and if it was to be replaced it needs to be replaced with something better. She did not want to replace one administrative burden with another. She also raised a concern that it could become a 'barrier' to business growth. She added that some small businesses find the accounts (in current form) useful - but acknowledged that was not true for all. She also said that the French allowed a cash accounting option and she had heard good feedback about it - so there could be something worth pursuing.
  7. MJ thought simplified accounting was a worthy objective. But he was concerned that tax policy changes further down the line would end up making it more complicated again.
  8. AH added that he thought the employment/self-employment divide was a bigger problem than CT computations. He also commented that simplifying tax calculations was only part of the picture, and for this type of change to be perceived as a benefit record keeping and reporting requirements would need to be simplified to match. PF responded that the potential EU changes would open up new opportunities to revisit reporting requirements. The smallest unincorporated businesses are able to provide three line accounts, and part of what HMRC would be looking at is the scope to simplify reporting requirements for the smallest companies using any simplified regime.

AP1: HMRC to update the Board at future meeting on the potential to simplify reporting requirements for the smallest companies using any simplified regime.

  1. RG asked what the rest of Europe is likely to do. DT said that France and Belgium already have coincidence of tax and reporting - Germany is very keen and likely to implement any change. JW agreed that it was a worthwhile initiative but cautioned against attempting to resolve all the issues in one go.
  2. IS clarified whether there was any appetite from the Board for Tax Based Statutory Accounting (TBSA) - as that had the potential to be available to companies with bigger turnovers than any cash accounting option. Board members confirmed their preference for cash accounting, with little support for TBSA. TG brought the discussion to a close by saying that she along with several other Board members were looking forward to attending Friday's (23 January) workshop to discuss the two proposals in greater depth with other stakeholders.

Powers Review

  1. JF referred to the paper he had produced updating the Board on the Powers Review (2009/02). He said he was particularly interested in the Board's views on the administrative burden impact of the proposed solution for dealing with the problem of in-year PAYE.
  2. FL said it would be particularly difficult for small businesses to get their systems right - so that they could move from a position of getting it right in 12 months to getting it right every month. JF responded by saying that the review was aimed at getting tax paid on time and was not seeking to charge more and higher penalties.
  3. RS asked about the scale of the problem. JF in response said it was a significant problem with over £1bn left outstanding each month and approximately 40 per cent of employers with less than 250 employees not paying on time. JW and AH agreed that on fairness grounds it was an area that needs to be tackled. JW added that he thought a post-year return is probably the least burdensome solution. AH questioned some of the figures in the Impact Assessment.
  4. JK thought HMRC should be more open about the scale of the problem and business would then have a better understanding of why action was needed. MJ suggested HMRC should consider charging interest. TG sympathised with the aims of the consultation but urged that whatever is decided is proportionate in these difficult financial times.
  5. ML gave an update on the new penalties regime. He emphasised that there will be no penalties for those that make errors but have taken reasonable care and that HMRC recognise the importance of applying these new rules consistently. He also added that the new penalties would need to run alongside the existing penalties for a period of time. TG said it was a big improvement in the system for genuine mistakes not to be penalised. FL made the point that as we are still at an early stage the Board could not provide sensible feedback until the new regime had bedded in. She also believes that the training of HMRC staff coupled with how they operate it in practice will be the defining marks of whether this is a success.
  6. RG suggested that if HMRC are dealing with businesses directly there may be more problems than if working through an intermediary. ML said that HMRC would be producing fact sheets for its staff setting out very clearly what is required. On the two regimes running in parallel, TG asked why we can't simply have a clean break with the old system and other Board members supported this suggestion. ML explained that this had been looked at but legally you cannot have the new penalty regime applying to events in the past.

Customer Focus Workshops

  1. Mike Brown (MB) updated the Board about Local Compliance's progress with its new customer-focussed approach to compliance (following on from the agenda item at the July Board meeting). He emphasised that there was a still more to do to bring about the necessary cultural change and updated the Board on the Customer Focus Workshops and the work to improve the tone and quality of letters (he circulated an example of a before and after letter in employer compliance) as an example of the work. He invited feedback from those Board members that had attended one of the Customer Focus Workshops (RS, SSw and TG).
  2. SSw found the experience worthwhile and noted that the participants were either very positive or very negative. TG identified differences between those acting on a personal and those acting on a corporate level. RS thought it was invaluable and sensed that there was a cultural shift taking place. He added that there are a lot of people in HMRC trying very hard to make a difference. MB emphasised that all participants take away commitments from the events and he will be sharing best practice across Local Compliance.
  3. TG asked if HMRC intended to embed the new customer focus approach in personal agreements. AH suggested that it was important that HMRC still focused on getting the job done as efficiently as possible. FL endorsed the letters work and said that training in writing letters for customers is crucial - and is something they do in the private sector. JK made the point about consistency when dealing with customers and believes this would be helped if customer feedback was taken into consideration. MB updated the Board about the research currently underway gathering evidence from businesses that have recently undergone one of HMRC's audits and inspections. The Board said they would be very interested in seeing the results.

AP2: HMRC to include the Perception of Intervention research as an agenda item for the May meeting

AOB

  1. CM reminded the Board that he had previously amended the indirect tax error correction provisions to address an 'irritant' identified by them. Partly as a follow on from that work, he was currently undertaking an informal consultation exercise on the direct tax error or mistake provisions, with a view to modernising them, for example by improving taxpayer safeguards, and aligning the two regimes more closely. He asked whether any Board members would be interested in participating - JW, SSw, AH and FL volunteered. It was agreed that a separate ABAB sub-group meeting would be arranged to discuss this issue.
  2. The Board said farewell to Roy Massingale who is retiring in March. They thanked him for the progress he had made in reducing the administrative burden of SA and wished him well for the future.
  3. DR advised the Board that he is responsible for rewriting the compliance guidance. The new style would be tiered and focus more on the customer - he invited the Board to become involved. Any immediate ideas should be emailed to David Richardson.

Next meeting: arranged for 5 May 2009 at 100 Parliament Street.