Administrative Burdens Advisory Board

Minutes of meeting on 30 April 2008

Draft minutes of the meeting on 30 April 2008

15.00-17.00 Room G.57 - 100 Parliament Street

Advisory Board Attendees: Teresa Graham (TG), Andrew Hubbard (AH), Roger Southam (RS), Dr Martin Jones (MJ), Julie Kenny (JK), Francesca Lagerberg (FL), Karen Thomson (KT), Simon Sweetman (SSw), John Whiting (JW), John Endacott (JE)

Apologies: Steve Sharrat, Ian Dewar

HMRC Attendees: Melanie Dawes (MD), Stephen Banyard (SBan), Judith Knott (JK), Simon Woodside (SW), Sally Beggs (SBe), Ian Stewart (IS), Peter Faherty (PF), Karina Immanuel (KI), David McDowell (DM), Leonora Robertson (LR), Don MacArthur (DM)

Apologies: Roy Massingale (RM), Geoff Lloyd

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

Secretariat: Jon Sherman (JS), Paul Oakes (PO)

Welcome and introductions

TG welcomed everyone to the second meeting of the Board for 2008. The minutes of the meeting on 16 January 2008 were agreed. The action points had been discharged, were in hand or were on the current agenda.

Item 1: General Budget update

KG introduced the agenda item. She highlighted elements from the Budget Tax Simplification package including reforms to the associated company rules, small capital allowance pools and a new Simplification Review aimed at small companies (covered later on the agenda). She also explained that the three Simplification Reviews announced at PBR 2007 were still on going and JK provided an update on the Anti-Avoidance Review. KG emphasised that the Treasury are always open to new simplification ideas or suggestions that could feed into future PBRs or Budgets.

FL raised a concern about the new Powers legislation and thought it had the potential to lead to a big increase in admin burdens especially in the next couple of years. AH emphasised the importance of not creating new admin burdens for small business. Board members agreed that this was an area they wanted to prioritise and suggested a substantive discussion about the practical implications of the Powers legislation at the next meeting.

AP1: ABAB Secretariat to include Powers as a substantive agenda item for the Board meeting in July.

JW asked about the scope for further changes to charities and Gift Aid following the recent consultation. KG responded that there had been some minor changes at the Budget and she suspected that the review had been concluded but promised to report back by the next meeting.

AP2: KG to report back by the July meeting about scope for future changes on charities and Git Aid.

FL asked about the Board’s role in relation to small business taxation. KG responded by saying that the Board’s role was necessarily constrained in relation to advising on policy development but that it had a key role to play in advising on the implementation of changes – and is a first port of call.

The discussion turned to the deferral of income shifting announced at the Budget. Board members were interested to know about next steps and what opportunity they would have to advise on the administrative burdens of any future proposals. KG explained that there was a lot of work going on internally but that it was not yet at a stage to be discussed externally. KG agreed that, at the appropriate stage, the Board would get an opportunity to debate the income shifting proposal. RS said it was important that Ministers had a proper understanding of the problem before making any decisions. AH added that the Board should have the opportunity to critique the admin burden implications of any future proposals.

AP3: ABAB Secretariat to include income shifting as an agenda item for the July meeting.

TG summed up the discussion. She said that the removal of IBAs and ABAs addressed a priority irritant for a great many businesses. She emphasised that true simplification does mean losers and that this point had been recognised in discussions with the Institute of Directors (IOD). She hoped that ABAB’s views on the AIA would be taken on board and that the outcome would be a genuinely simple system. The Government should err on the side of keeping it simple – in the knowledge that if they started to see abuses, they could then tighten the system up (rather than building in complex anti-abuse rules that might well not be needed). TG asked BW to come back to a future ABAB and test their emerging findings with the board.

AP1: Secretariat to invite BW to attend future meeting of the Advisory Board for a further discussion on how the reform was developing.

Item 2: CT Simplification Review

IS introduced the session by explaining that the purpose of the review was to explore the feasibility of simplifying obligations and procedures for smaller companies in calculating Corporation Tax liabilities – and that the Review team are receptive to new ideas.

PF set the scene by outlining the strands of work being considered: simplification issues, integration between companies and individuals, and looking at how far we can focus statutory accounting for small companies on what is needed for tax purposes. PF emphasised that there would need to be interface between the Department for Business Enterprise and Regulatory Reform (BERR), HMRC and the Accounting Standards Board (ASB).

TG referred to the Financial Reporting Advisory Group (FRAG) that she sits on and made the point that financial reporting is becoming increasingly irrelevant to small business. She emphasised the need for true alignment between accounts and tax rather than something that requires a series of adjustments. She asked whether there was a better chance of small businesses getting something really simple if the £750k threshold in the Review document was reduced. PF responded by saying that any new system would not necessarily be aimed at any specific threshold. And it may be that a simpler system would become self-selecting and small companies could decide to either opt in to out. Changes which give worthwhile benefits to 80 per cent of smaller companies may be better than those which give smaller benefits to a large number of smaller companies. JK agreed that reporting is a chore and has no bearing on how small businesses run their activities.

JE asked if there was any data about the number and types of adjustment made by small companies – as in his experience there were not that many. AH was supportive of the Review but thought we needed to ensure that the outcome did not benefit accountants more than businesses. He added that he thought the CT profit was reasonably easy to get at but that it was the boundary between business and private that caused the problems. He encouraged HMRC to be bold and suggested some form of flat rate scheme as an idea. JW agreed with the earlier point about the limited number of adjustments on small companies. He added that as CT Returns are annual events the introduction of one regime for small companies and self-employed would be a big winner.

FL thought that a new approach to accounting requirements for small business was needed and hoped that the Accounting Standards Board (ASB) would be on board with this and that this work had Ministerial backing. On this point TG reminded the Board that the admin burden targets were set by the Chancellor.

PF added that simplification was the priority for the Review. KG responded that there would not have been an announcement at Budget if the Government was not committed to doing something. But she added that Ministers would need to consider the trade offs for simplification eg winners and losers would need to be carefully considered. PF explained that it may be possible to devise a proposal without losers if there was some level of optionally included. TG said simplification does bring losers and that is something that the Board recognises and accepts.

TG concluded by saying that the Board was very supportive of the Review. She encouraged the team to be bold but would accept stepping stones to being bold. She said that the Board looked forward to being updated and consulted as the Review progressed.

Item 3: Pay rolling consultation

LR introduced David McDowell as her successor on this issue. LR summarised the range of consultation activity that had taken place. She said that HMRC was very pleased with the level of response (69 responses) and reported back that the consultation proposals received a mixed reaction. Those in favour wanted a better package with some tweaks around tax exemptions, dispensations and charging provisions. The savings from the proposal would come from abolishing the P11D and P9D.

Those against the proposal wanted simplification of the charging provisions and some respondents had no problem with the existing P11D process.

There was some support for voluntary payrolling but HMRC had some concerns about the potential impact on individuals with a voluntary system. LR emphasised that dispensations and PAYE Settlements would all need to be considered as part of any package. She explained that the next stage would be for HMRC to fully analyse all the information and views received and report back to Ministers.

KT was encouraged by the initial HMRC response. She made a number of points on the consultation. Firstly not everyone had appreciated that this was a very ‘green’ consultation to test the broad principle and approach – rather than consultation on a fully worked up set of proposals. Secondly Ministers would have to accept that payrolling would bring both winners and losers and she was disappointed with the announcement that Minsters had decided not to proceed with abolishing the £8500 threshold.

LR responded by saying that the decision on the threshold had been made but that everything was still up for consideration on pay rolling benefits.

SS added that the real problem was the complexity of the benefits regime and thought it was more of a policy issue rather than an administrative one. JK pointed out that there had not been a lot of responses compared to the number of UK businesses. She went on to say that although the P11D was burdensome, if payrolling was associated with the need for monthly payments that would not be welcome and would increase burdens.

AH believed that the consultant had been good and the ‘blue skies’ approach an excellent one but thought there were different issues for small and large businesses. LR explained that discussions had taken place between HMRC and large and smaller businesses during the consultation exercise and that as a consequence HMRC recognised that there were very different perspectives. TG agreed that this was an excellent consultation and a model for future consultations.

AP4: ABAB Secretariat to include payrolling as an agenda item for a future meeting in either July or October.

Item 4: Maximising the Board’s effectiveness

TG opened the general discussion by asking the question ‘What does success look like for Board members?’

FL made some general comments before she left the meeting. She thought the Board needed to keep their remit tight with a clear burden focus. There should be more contact with Challenge Panels and the Board should have clear Key Performance Indicators (KPIs).

SS suggested that it was about making a noticeable difference to business and not about the Standard Cost Model numbers. Success is when small businesses start to notice and comment favourably on changes. JK added that it was difficult to distinguish sometimes between policy burdens and reducing admin burdens. JK added that the Board needed something indicative to demonstrate whether they are making a difference – such as reducing the amount of time needed to complete a tax return. But she emphasised it needed to be KPIs that businesses understand – not SCM numbers.

MD talked about the methodology for measuring the targets and that HMRC should be addressing things that really matter and not simply those things that score. JKn asked whether there was scope to further exploit the work on irritants. MJ pointed out that progress had not been made on all the original irritants but said that many positive things were happening and cited the Employers CD-ROM as an example.

AH said that the Board should not be driven primarily by the findings in the KPMG Report. What they needed was an early warning system and an assurance that a system was in place so that no changes were introduced without a proper admin burden assessment. AH suggested that success over the next 12 months would mean that every significant change announced by HMRC included an impact assessment with a credible admin burden costing.

MD referred to Challenge Panels and the fact that Directors were accountable for delivering on this agenda. SB supported this view and went further by saying that Challenge Panels had changed behaviour and culture within HMRC. SB also made the point that HMRC needed new ideas from the Board.

RS was positive about HMRC’s admin burden programme but did not think enough was known about the work of the Board externally – and communications could be strengthened. TG welcomed HMRC’s proposal to submit a six monthly progress report to the Board for them to comment on. TG suggested that Board members should become more vocal and be prepared to get goods news messages out there.

Board members agreed in principle with the idea that the Board should produce some from of Annual Report commenting on things that the Board has achieved and highlighting areas for further work – and there was general discussion about the format. MD said she would welcome an open letter from the Board to HMRC on progress and promised that it would be made public.

The Board went onto discuss the setting of properties and agreed that it was time to consider a fresh irritants or ‘priority areas’ list. MD was in agreement and said that HMRC really needed to know about the main irritants. TG agreed to an irritants refresh in either July or October.

TG closed the debate by asking how the Board could get closer to Challenge Panel activity and asked HMRC to consider whether it would be possible for other members to deputise for her if she was unable to attend.

AP5: HMRC to produce a six monthly report to Board updating progress against the targets starting at the October meeting.

AP6: Board to review irritants list at a future meeting (probably October) – to ensure Board is focusing its activities on those areas that matter most to business and on areas where it can made a difference.

AP7: Board to write annually to HMRC reporting on its successes and identifying areas for further work – HMRC are to publish letter on Internet. HMRC to advise Board at next meeting about timing and scope of letter.

AP8: HMRC to consider whether it is possible to allow Board members to deputise for Chair at HMRC’s Challenge Panels – HMRC to report back to Chair.

AP9: HMRC/HMT to explore whether Financial Secretary would be available to attend a future Board meeting.

5. Intrastat

TG gave a brief update on intrastat and the latest European proposals. She emphasised the need for any short term proposals to be tied in with a definite commitment and timetable for Single Flow.

6. HMRC’s new operating structure – including new focus on SMEs

SB began by explaining that matrix management had been right for the first two years of HMRC but it was now time for a change for accountability purposes. This means the focus is now much better and concentrates on specific business streams. SB outlined the new HMRC operating structure and explained that the Business Customer Unit (BCU) was taking on end to end responsibility for SMEs.

He asked the Board for their views on how HMRC should engage with SMEs. SS suggested that HMRC needs to ‘go local’. SS suggested the use of local small business organisations. AH made the point that SMEs mainly support families so there may be a benefit in involving personal tax specialist in any discussions. KT mentioned Regional Development Agencies and the various business links. JK believes that HMRC will need to go out to small business as they won’t come to HMRC.

7. AOB

None

Next meeting: Arranged for 14 July at 100 Parliament Street.