AAT’s recommendations relate to the apprenticeship levy and apprenticeships in general, simplifying the current ISA savings regime and Making Tax Digital. These proposals will help boost productivity, encourage saving and save the taxpayer money and unlike many of the proposals you will have received from other organisations, AAT’s recommendations are largely revenue neutral.
Recommendation 1: Simplify ISA savings
In keeping with AAT’s ultimate objective of delivering a more simplified tax system, the current ISA regime requires attention because there is now an ISA for almost every day of the week, offering unnecessary complexity, bureaucracy and confusion for consumers.
The Government web site states “There are 3 types of ISA” referring to cash ISAs, stocks and shares ISAs and innovative finance ISAs whilst saying nothing of Junior Individual Savings Accounts, Help to Buy ISAs or the new Lifetime ISA.
Some have age limits, some do not, three have a maximum savings limit of £15,240 per annum, one has a £4,080 limit, another £4,000 and Help to Buy ISAs offer a £50 bonus for every £200 you save and offer a bonus of up to £3,000. In short the introduction of more and more ISAs is becoming increasingly confusing and should be stopped.
Some commentators have argued that the new personal savings allowance (PSA) has largely rendered ISAs obsolete and they should be scrapped entirely. This is because the PSA means every basic-rate taxpayer can earn £1,000 interest without paying tax on it (£500 for higher rate taxpayers) – equivalent to the interest on £100,000 in the best easy-access savings account. The PSA removes 95% of savers from paying tax on interest. AAT does not subscribe to this approach as it ignores the possibility of higher interest rates in the future; that the top paying interest accounts often require money to be locked away with no access whereas ISAs do not; and that spouses can inherit their deceased partner’s ISA allowance unlike personal allowances which cannot be passed on.
Instead AAT believes it would be far better to have one or two simple ISAs which merge the most important benefits and discard any unnecessary complexity.
ISA standardisation would make both their availability and features more widely understood and ultimately more effective in encouraging saving. This would also have the advantage of being more easily administered.
Recommendation 2: Making Tax Digital
AAT wholeheartedly supports the ambition to make our tax system the most digitally advanced tax administration in the world, but remains concerned about the timetable for implementation and the costs MTD may place on both SMEs (60% of AAT members are employed by an SME) and taxpayers more generally.
You will know from the Treasury Select Committee report published last weekend that AAT is far from alone in having such concerns.
The Select Committee report highlighted that, “…the total cost to business (including software, hardware, training, agent fees and, above all, time) might exceed the total benefits in improved tax yield.”
The amount of time small businesses are spending on dealing with tax issues is already too great and any increase would be far from welcome. Last month an AAT study found that 78% of MPs think that the time SMEs spend dealing with tax issues seriously impacts upon their ability to invest and create jobs.
Numerous concerns have been raised around timescales and the threshold for exemptions. The Select Committee described the £10,000 threshold as “palpably absurd” and the timescale for implementation as, “…too short a lead time for such fundamental change.” AAT has proposed a solution, referenced on page 12 of the Select Committee report, which would help deal with both of these issues.
AAT suggests that the qualifying threshold for MTD should be set at £83,000 (the current VAT threshold) falling to £11,000 (the personal allowance) over a three year period. This will assist SMEs whilst simultaneously helping HMRC achieve the best possible policy outcome. Revenue implications are minimal and yet the phased process of implementation would significantly increase the effectiveness and value for money of the programme.
Recommendation 3: Promote skills
Approximately twenty percent of AAT’s 80,000 student base are apprentices. AAT welcomes the Government’s commitment to 3 million apprenticeship starts by 2020, if supported by a focus on timely completions and overall quality.
However, the UK’s skills needs extend well beyond the scope of apprenticeships and it is important to ensure the introduction of the new levy in April 2017 ultimately recognises the varying requirements of different sectors and is aligned with industrial strategy.
In time, AAT would therefore like to see the Apprenticeship Levy renamed as the Skills Levy and for levy monies to be able to be spent on high quality traineeships and other forms of training that will benefit individuals, employers and the economy as a whole.
Last month AAT surveyed MPs across all parties on this issue and found that 65% support our suggestion that the levy should be developed to allow funding for skills other than apprenticeships.
Increasing the flexibility of the levy would foster improved productivity across the whole workforce, deliver greater value for money and yet have no significant revenue implications for the Exchequer.
Please do not hesitate to contact me should you have any queries or require any further information about the above.
Chief Executive, AAT
*This letter has been edited for online publication.
Mark Farrar is the Chief Executive of AAT.