Early results from AAT’s online research community, The Green Room, suggest that the three changes members would most like to see in 2018 are:
- For Government to publish a clear tax strategy and stick to it
- For the Apprenticeship Levy to be widened in scope to allow investment in all high-quality skills and training not just apprenticeships and
- For an increase in the skills, training and number of HMRC tax inspectors and call centre staff.
Other considerations following very closely behind are:
- To ensure the Making Tax Digital threshold is maintained in line with the personal allowance (currently £11,500) and
- For business rates to be replaced with a system that adequately takes into account the growth of online shopping.
AAT has previously called for two significant changes to the existing business rates regime – more frequent revaluations, at least every three years, and for the inflation measure to be switched from RPI to CPI.
Both would smooth off the rough edges of business rates policy, a policy that continues to cause businesses – especially SMEs – considerable financial pain each year.
Government has listened to us, and others, and earlier this year committed to making the inflation switch to CPI in 2020. On revaluations, Government has consulted widely and committed to the idea in principle but still hasn’t given a definitive date as to when this will happen.
What’s clear is that even with these changes, the business rates regime remains fundamentally unfit for purpose in the 21st Century. For example, small independent retailers face regular hikes in their rates whereas Amazon and the like face reductions for their enormous warehouse operations. There are various alternatives, each with advantages and disadvantages but a tax system that better reflects the activity of the business, rather than the building in which it operates, would be a good start.
There are strong arguments for Government to publish a clear tax strategy and, as far as possible, stick to it. By setting out Government priorities and its approach to tax at the beginning of each Parliament, the public, politicians and other stakeholders could better hold Government to account.
It would also provide greater certainty for tax and accountancy professionals and their 12 million clients, whilst assisting Government and the Treasury in providing an agreed direction of travel.
This isn’t a new idea. In 2014 the House of Lords Economic Affairs Committee said, “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.”
Although it isn’t a new idea, it’s one that’s time may have come.
Widening the Apprenticeship Levy
Approximately twenty percent of AAT’s 90,000 student base are apprentices so we have a vested interest in the success of the Levy. That said, we also recognise there are wider issues at stake.
It’s obvious that the UK’s skills needs extend beyond the scope of apprenticeships and that there are various requirements across different sectors of the economy. The way in which the Levy operates should recognise this too.
2018 represents an opportunity for a fresh start; a chance to address the collapse in Apprenticeship starts, the frustrations of many employers and the future skills needs of UK plc. The Apprenticeship Levy should be renamed as the Skills Levy and Levy monies should be freed up to spend on traineeships and other forms of high quality training that will benefit individuals, employers and the economy.
Increasing the flexibility of the Levy would foster much needed improvements in productivity across the whole workforce, deliver greater value for money and yet have no significant revenue implications for the Exchequer.
AAT surveyed MPs across all parties and found that 65% support our suggestion that the Levy should be developed to allow funding for skills other than apprenticeships. We have also found the new Skills Minister, Anne Milton MP, to be receptive to the idea of future changes that work in learner’s interests.
Arguments have long been held over the appropriate level of HMRC staffing. Despite the backdrop of cuts, HMRC staff numbers have increased slightly in recent years, by a few hundred in each quarter going back to 2016. Recruitment in 2018 is set to receive a significant boost with an additional 5,000 Brexit related roles being created according to the Secretary of State for Exiting the European Union.
That said, the cuts imposed since 2010 have had some impact on customer service. For instance, according to the National Audit Office, 5,600 job cuts in 2015 cost customers £4 for every £1 saved and left taxpayers waiting for an average of 47 minutes for their calls to be answered. One in five callers – 4.2million people – simply hung up because they waited so long without response. These problems have largely been addressed as HMRC made the sensible decision to return call centre staffing in 2016-2017 to 2013-14 levels. This meant taxpayers calls in the year to March 2017 were answered within approximately 3 minutes on average.
There are still issues around the closure of 137 of 170 local offices and their replacement with 13 regional hubs between now and 2027. In addition, irrespective of how many staff there are, where the staff are based, or whether they respond to taxpayers and their agents via telephone, post or e-mail, concerns are often raised about their technical knowledge. A greater emphasis on skills and training would certainly prove welcome.
Making Tax Digital threshold
It looks like the Government will continue with the unpopular £10,000 exemption threshold for Making Tax Digital (MTD) when smaller companies finally come into scope, probably in 2020.
AAT proposed the VAT threshold as a sensible starting point for MTD, reducing over time. Unlike other bodies who suggested it remain at the VAT threshold, we recognised HMRC’s legitimate desire to close the tax gap, that MTD could help with this and that last year’s figures indicated almost 60% of the £18.3bn SME tax gap was attributable to companies with a turnover between £15,000 and £85,000.
However, AAT doesn’t believe the £10,000 threshold is appropriate. An AAT member survey found that less than 5% of our 4,250 licensed accountants support the £10,000 limit whereas 65% supported the limit being at the personal allowance (currently £11,500).
By linking the threshold to the personal allowance, the need to regularly revisit the limit is avoided and fiscal drag should not be an issue.
A threshold of £10,000 also means many businesses whose profits are less than the personal allowance and currently pay no tax would still need to go through the MTD process. Something that the Treasury Select Committee understandably described as being “palpably absurd.”
Phil Hall is AAT's Head of Public Affairs and Public Policy.