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Making tax digital

accapr —  1 September 2016 — Leave a comment

By Jason Piper, ACCA’s Senior Manager, Taxation and Business Law

If the only tool you have is a hammer then every problem looks like a nail. If you spend your whole time focused on just one topic, you can sometimes lose sight of the importance of other areas. Some topics though are too important to ever ignore completely, and when it comes to the relationship between business and society, one of those areas is tax. Every business should pay its correct share of taxes, in full and on time, both as a matter of law and as a point of principle.

But HMRC staff, who spend their whole lives engaged in just the one field, must remember that there is more to the world than tax returns.

One of the first things I was taught as a young tax trainee in practice was never to let the tax tail wag the commercial dog. It’s a sentiment HMRC subscribe to as well, especially when trying to ascribe motive in what may be an avoidance scheme. But what we’re at risk of seeing in MTD is the administrative tail not so much wagging the commercial and social dog as dragging it, unwilling, into a morass of unwanted and unfamiliar process changes.

HMRC’s own research indicates that 400,000 businesses would rather disengage totally from reporting their taxes than transmit their information over the internet to a government body. For those prepared to give it a try, the outlook is “challenging”.

The rollout programme currently envisaged by HMRC would see a huge spike in conversion to the new processes between April 2018 and April 2019, with taxpayers having to make the changeover at a rate of more than 1 every 9 seconds, day and night, week in, week out, with no break for Christmas, Easter or HMRC’s “software upgrades”.

Around 40% of them will need assistance with the new systems – or to put that in real numbers, about 1.5m. With a staff not much more than 50,000, that leaves every HMRC staff member an allocation of around 30 taxpayers to hand-hold through the process – or pass the burden onto friends, family, neighbours and Citizens Advice. Of course, helpful acquaintances may not know enough about the system (either the tax or the technology side) to really help out – while charities with experience in the sector have warned of the risk of exploitation of vulnerable taxpayers if they have to rely on third parties to handle this aspect of their financial affairs.

HMRC’s MTD proposals for big business would allow for a longer, later conversion period and provide a less pressured environment for the HMRC staff. It may be sensible to do the first tests with some volunteer big businesses, for even their (more complicated) systems are likely to suffer significant disruption. But some businesses would relish that opportunity. If they and HMRC could work together to understand how this might all be made feasible, then it’d pay dividends for everyone. In any event, some of the issues facing taxpayers (poor broadband, unfamiliarity with the internet) will heal themselves while a robust and workable system is developed for wider rollout.

The digitally disenfranchised are a poor target market for merging two of the things that many people find hardest to understand – tax and modern technology. The additional delays introduced by the Referendum vote, not to mention the related uncertainty about the future of VAT, give weight to our calls to rethink at least the timetable – and with it the chance to maybe revise the substance.

Tax systems exist for the benefit of society, not the other way around. At a time when there are concerns about the whole of the rest of what society gets up to, breaking the bit that pays for it all is the last thing we need.

By Steve Rudaini, PR manager, ACCA

This is ACCA’s response to the UK Autumn Statement 2013:

The UK Economy

Manos Schizas, ACCA Senior Economic Analyst, said: “Unlike previous Budgets and Autumn Statements, or PBRs, this Statement is aimed squarely at high-street businesses with plans for slow, steady or no growth. There is an irony in how talk of ‘rebalancing’ the UK economy has disappeared now. Growth is now once again meant to be fuelled by consumption, retail spending, and housing rather than by investment.”

Sarah Hathaway, head of ACCA UK, said: “Businesses, now more than ever, are looking for long-term, sustainable measures that extend beyond the term of Parliament or government. Quick fix, sugar-coated initiatives are not what the City and the wider UK business community are looking for and create uncertainty at a time when UK plc is looking to build on firmer ground. While many announcements in the Autumn Statement are favourable to businesses, their life span and breadth of impact will be critical for the economy. This sentiment is true for other government policies, for example apprenticeship funding, so that businesses have the foundations of both finance and skills in place to grow.

“The Bank of England has shown its understanding of businesses needs for certainty, first through its introduction of forward guidance and, just last week, its decision to make the Funding for Lending Scheme a business initiative rather than the home loan vehicle it had become. Businesses need that level of certainty about the long-term from the Treasury as well as from Threadneedle Street.”

Small and Medium Sized Business

Rosana Mirkovic, ACCA Head of SME Policy, said: “The Government has moved away from the previous focus of encouraging growth in the more dynamic SMEs towards supporting smaller enterprises through business rate inflation caps and a further promise of reforms on this front in 2017. Various measures announced for supporting the bricks-and-mortar high-street businesses show a welcome move back to supporting the smallest and micro businesses. However, braver decisions could have been made – business rates reform has been put off for 2017, when it is clear from previous, recent budgets that the system was just not designed to take spikes in inflation into account.

“Reducing National Insurance contributions for young people could help small businesses, however, whether this is aimed at helping SMEs or get young people off benefits is an important distinction. SMEs in the UK are calling for a more skilled workforce, not an unskilled one.”

Taxation and State Retirement Age

Chas Roy-Chowdhury, ACCA’s Head of Taxation, said: “Families across Britain will need to look in detail at what the Autumn Statement means for them. The married persons tax allowance is a welcome move in principle, but not everyone benefits. In having an allowance restricted to those who are basic rate taxpayers creates an even more complex tax regime as well as confusion around couples who eventually become higher rate taxpayers. It should be possible for all taxpayers living with a partner to benefit from the allowance.

“There is logic in the government increasing the state retirement age to 68 by the mid-2030s, as people live longer, but at the same time families looking to save for retirement are being penalised. The annual pension contribution limit is set to drop from £50K to £40K and the total value of the pot people can have will also drop by quarter of a million pounds from next April, so those trying to be frugal and not be dependent on the state are being squeezed.

“ACCA welcomes the decision to exempt HMRC from further budget cuts. It is vital that it is properly resourced to keep the tax system running, and help give staff the promised crackdown on those who try to evade or exploit that system. However, ‘no further cuts’ actually means cuts in real terms, making life difficult for HMRC. The Government wants to tighten tax collection, but it needs to invest in HMRC to achieve it.”

The key points from the Autumn Statement can be found here

The live tweets from ACCA can be found at @ACCATaxation @ACCA_SME @ACCA_UK and @ACCANews

Chas Roy-Chowdhury-14

By Chas Roy-Chowdhury, head of taxation, ACCA

I gave evidence to the House of Lords Select Committee on Economic Affairs recently about corporation tax and how revenue is now being secured from companies through other means.

The bigger picture needs to be looked at when it comes to how corporations are taxed in the UK. There are other and additional ways by which companies in the UK are taxed, for example through VAT and through National Insurance Contributions (NICs).

A publication produced by the Office of National Statistics back in March, shows VAT numbers have held up remarkably well since the economic downturn because, the VAT rate has gone up to 20 per cent. That is probably what we need to look at in terms of the basket of taxes that we have moved towards—those companies that we know are going to be tied into the UK rather than those that can look at different locations to do business that are more favourable for them, taking tax as one of the factors and one of the components that they look at.

The fundamental problem is that large companies are by nature multinational – their shareholders, activities and customers are spread across the world – whilst national governments are not.

There is a tax chasm between what governments seek to capture by way of corporation tax and what companies, many of which are global in terms of their shareholders, activities and customers, generate in terms of global profits.

In practice, existing rules are highly complex and differences between countries can be exploited well within the law. HMRC has adapted to this and is not sitting on its laurels as some other Parliamentary committees have suggested. They are quick and effective and have developed a greater understanding of how companies work. The majority of corporations go through the tax process with ease. HMRC has achieved this despite declining resources.

ACCA wants to see tax simplicity. But that’s a big ask. Adam Smith’s four principles of what makes a good tax system – proportionality, transparency, convenience, and efficiency – still stand centuries later. I don’t think we’re near this and I also think we are in danger of losing trust in the tax system.

The House of Lords Economic Affairs Committee also raised the issue of naming and shaming those who have promoted aggressive tax avoidance or tax evasion schemes.

ACCA believes if naming and shaming is going to be introduced for tax avoidance, which is legal, the bar needs to be set very high. The complexity of the tax system means there is a risk that mis-interpretation could result in naming and shaming of a tax adviser; this could result in severe reputational damage.

We have long been calling for greater regulation of tax advice. While ACCA and other accountancy bodies have strict regulation and standards, anyone can set up and offer tax advice without those safeguards in place.

There’s no denying that all this is a very tricky and complex situation. But it is heartening to see that the issue is being discussed at international level, from the EU, to the US; and of course the G8 will be looking at the avoidance/evasion debate in June when it meets in Ireland.

Glenn Collins, head of ACCA UK technical advisory, take a look at how the new changes to child benefit affect you

The child benefit charge on ‘high income’ families is now part of our legislation. Section 8 and Schedule 1 to the Finance Act 2012 introduces a new Chapter 8 (sections 681B – 681HI) into Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), which is the part of the Act that taxes social security benefits. The new legislation comes into effect for 2012/13, although it only applies from 7 January 2013.

It is an income tax charge intended to ensure that child benefit is effectively removed from persons earning in excess of £50,000.

The charge is the ‘appropriate percentage’ of the total child benefit received by either partner in the fiscal year. Where the adjusted net income is £60,000, the appropriate percentage is 100%: [section 681C] and the total benefit is clawed back.

What is a partner?

Taxpayers are partners if:

  • they are a man and a woman who are married to each other and are neither separated under a court order, nor separated in circumstances where the separation is likely to be permanent
  • a man and a woman who are not married to each other but are living together as man and wife
  • the persons are two men, or two women, who are civil partners of each other and are neither separated under a court order, nor separated in circumstances in which the separation is likely to be permanent
  • the persons are two men, or two women, who are not civil partners of each other but are living together as if they were civil partners.

Adjusted net income

Adjusted net income is defined in section 58 Income Tax Act 2007. It is net income after deduction of (gift aid grossed up), pension scheme contributions and losses etc.


Week means a period of seven days beginning with a Monday; it is in a tax year if, and only if, the Monday with which it begins is in the tax year. As the charge is by reference to weeks, it will apply only to those weeks of a fiscal year for which a partnership exists.


On 6 April 2013 Frances is a sole parent entitled to child benefit of £33.70 per week for her two children. Her annual adjusted net income is £55,000.

Percentage charge: (£55,000 – £50,000) / 100 = 50%

Frances is liable to a charge of 50% x £1752 (after rounding down). The charge would be £876. Note that this is the tax, not the assessable amount.

If child benefit is being paid, and a couple start living together, the charge will arise from the time the couple live together.

If a partnership breaks up the higher earning partner will only be liable from 6 April until the date the partnership breaks up.

There is an exemption if one partner had previously claimed child benefit on the basis that they were living with the child and after a period of less than 52 weeks, resumed the claim on the same basis. This would occur when a parent moves away temporarily or work purposes and leaves the child with a family member until they return.


Vicky and Andy are married, with three sons. Vicky receives child benefit for Ashley (£20.30), Daniel and Josh (£13.40 each). From 7 January to April, she receives (20.30 x 13) =£263.9 + (£13.4x2x13) = £348.4: rounded down to £263 + £348 total £611.

Andy earns £55,000 and Vicky earns £5,000.

Percentage charge: (£55,000 – £50,000) / 100 = 50%

Andy is liable to a charge of 50% x £611 (after rounding down).

The charge would be £305.

One of the major problems with this is the requirement for both partners to disclose their income. This caused a lot of difficulties prior to the introduction of separate assessment in 1990/91.

Election not to receive child benefit

Another potential problem arises from the election not to receive child benefit. If a partner’s income is in excess of £60,000, it may be preferable to disclaim the benefit in order to avoid the charge. The election takes effect in relation to weeks beginning after the election is made.

If the claimant decides to elect not to receive the benefit, because the expected income is over £60,000 and the higher income partner finds that this is not the case, the claimant can revoke the election.

The legislation provides that this can only be backdated up to two years, provided there would be no high income child benefit charge (because the income was less than £50,000). Therefore, if your income falls between £50,000 and £60,000, you would be worse off if you had elected not to receive the child benefit.

The practicalities

Child benefit should be claimed, normally when a child is born. This provides the entitlement to child benefit. Making the claim, even if the parents plan to elect not to receive the payments, is important if the parent wishes to obtain the National Insurance credits for state pension entitlement. It also guarantees that the child will be issued with a National Insurance number once they reach the age of around 15.

New claimants will be told about the new high income child benefit charge when they make their claim, to enable them to decide whether to make an election not to receive the child benefit and avoid the charge.

Existing claimants and their partners are not so easy to identify. HMRC need to get in touch with everyone who may be in the over £50,000 income bracket and either be a claimant or in a relationship with a claimant.

The charge

Child benefit itself is not liable to tax and the amount that can be claimed is unaffected by the new charge. The charge is levied upon the member of the household with the highest income.


On 6 April 2013 Lisa is a sole parent entitled to child benefit of £47.40 for her three children. Her annual adjusted net income is £55,000.

On 6 January 2014, Lisa lives with Johnny as man and wife. Johnny’s adjusted net income is £200,000.

For the period 6 April to 5 January, the child benefit received by Lisa will be clawed back by reason of her income. As there are 39 weeks in that period, the total child benefit would be £1848.60. As her income at £55,000 is between £50,000 and £60,000 there will be a charge to pay. This will be 50% x £1848, i.e. £924.

From 6 January, she is in partnership with Johnny and the benefit charge will be levied on him. This would be 100% x 13 x £47.4 = £616.20.

In certain circumstances, a person can claim child benefit even though the child is not living with them. This would occur then the person is paying for the child’s maintenance at least to the extent of the child benefit claimed.


Exemptions apply:

  • When an election has been made to disclaim child benefit
  • After the death of the child.

If you are ensure about how you may be affected by the new law you should consult a qualified accountant as every situation is different. More information can be found on the HMRC website

By Chas Roy-Chowdhury, head of tax, ACCA

The UK government are calling it a ‘victory’; critics are saying it’s unfair to honest taxpayers. So, which is the UK-Swiss tax deal?

It’s actually a bit of both, as Saffrey Champness’ Ronnie Ludwig points out here. Those hiding funds from the taxman overseas still won’t be paying the full whack, but they will, for the first time, be paying something. It brings to mind the saying ‘a bird in the hand is worth two in the bush’.

This is actually as good a deal as the Treasury and HMRC could have got. The Swiss were never going to give up banking anonymity in one fell swoop, but this deal is the first chink in the armour. Some have said that the deal means the UK is giving up tax sovereignty; this is a bit of an over-reaction and misses the bigger point: it’s better to have something than nothing, and the deal leaves the door open for prosecutions after 2013.

Certainly, if I had money held in a Swiss bank account that I hadn’t declared I would be very nervous right now, anonymous or not. HMRC are allowed to ask the Swiss for the account details of up to 500 individuals per year; for those with Swiss accounts it’s like playing Russian Roulette with more than one chamber loaded. It’s not a lottery I’d like to be part of.

The deal could cause some with Swiss accounts to move their money elsewhere, but tax evaders are starting to run out of friendly havens thanks to some good work by the Treasury and HMRC.

So, is this a fair deal for UK taxpayers? No, not in the normative sense. But is it a realistic deal? Yes, it is, and it’s an important step towards getting HMRC a significant part of the money that it’s owed. HMRC have come in for a lot of criticism recently over all sorts of issues, but here they deserve some credit.