Taxation under review
As I said in January 2021, future academics and historians are scrambling to write about the impact of the COVID-19 crisis. Although 2021 was a year where we started to recover from the crisis, at the time of writing this article the jury was out on whether there would be a resurgence of it in winter and some countries are on. the point of imposing containment measures on unvaccinated citizens. Whatever happens, COVID-19 is clearly not going to go away and it is likely to cast a shadow over the UK tax system, especially public finances, for many years to come.
Count the cost
As the year progressed and the restrictions were lifted, we saw a return to the tax status quo. We even had two budgets. The first, in March 2021, depicts a rather dire financial situation, while the second, in October 2021, the situation has improved somewhat compared to previous forecasts. However, it is clear that the COVID-19 crisis has cost the UK nearly Â£ 300bn and revealed that UK public debt now stands at almost Â£ 2.4bn, i.e. about 36,000 pounds sterling for every person in the UK.
Last year I said the Chancellor would burn the midnight oil trying to find a way to put the UK’s finances back on some sort of path to stability and that some tough decisions lay ahead, at the both on fiscal policy and probably also on spending. However, I predicted that his priority in 2021 would be stability rather than tax increases. Well, I don’t think anyone saw the announcement coming on September 7, 2021 of a new tax – the health and social levy.
This new levy is intended to fund increased NHS spending and also to reflect proposed changes to the rules for funding social care. While the timing of the announcement came as a surprise – we still wonder why this approach was taken – we were disappointed that this extra money was being collected through a new tax.
The new tax was billed as mortgaged to the NHS, a statement which is arguably only partially true and will only cover a small portion of the total NHS budget, which will drop from Â£ 136bn in 2021/22 to 163 billion pounds sterling. in 2023/24. It remains to be seen how the mortgage on new NHS taxes will decrease with the public, especially if citizens don’t see much in return for the extra money spent.
Another area of ââgrowing public concern is HMRC’s performance standards. The diversion of HMRC resources to deal with the crisis and the relocation of staff forced to work from home had a major impact on performance in 2020 and this state of affairs continued into 2021. It was not unreasonable to expect that, as the immediate crisis subsided, standards would begin to show steady improvement. However, this does not appear to have happened.
At the time of writing, in November 2021, we are receiving disturbing reports of a further drop in standards, with recurring long waits on the phone and response times to post stretching for up to six months – or even more in some cases. . Obviously, HMRC has been on the front lines in responding to the COVID-19 crisis and has done a great job of building the grant programs from the ground up and making them work, reflecting great credit on their part. . However, our members have also been on the front lines in helping to keep businesses and the UK economy running and HMRC’s continued poor performance raises concerns as to whether there are systemic and deeper issues underlying it. this poor performance.
HMRC’s commitment to consulting and listening to the profession presented a mixed picture. The consultation on the tax administration framework went well, although the idea of ââtearing up the HMRC powers rulebook again is a concern, given that we have already had a stab ” once in a generation âfollowing the creation of HMRC in 2005.
There is a real and urgent need to put UK tax laws in order. We have not had any consolidation of tax legislation for over 10 years and it shows. A great place to start would be a consolidation of all provisions relating to the powers of HMRC into a new tax administration law – it has now been over 50 years since the last consolidation and the next one is long overdue.
Regarding Making Tax Digital (MTD), we welcomed the announcement of the one-year postponement of MTD’s income tax self-assessment. It was the good news. Proposals to reform the base period rules have been less well received, as they are likely to impose significant additional burdens on businesses, especially international partnerships, whose year-end is December 31. Some welcome changes to the base period rules were announced in the fall 2021 budget, but that doesn’t change the fact that the reform will impose significant additional costs and uncertainty for the businesses that are affected.
In this regard, the question has also been raised by the Office for Tax Simplification (OTS) whether the UK should adopt a different fiscal year end. From an international competitiveness standpoint, adopting a December 31 year-end would make a lot of sense, but would cause a lot of transition difficulties along the way, as well as give the government’s accounting system a stroke. In this case, it is not surprising that the idea was parked in favor of an approach which could be summed up as follows: “Let’s imagine that March 31 is April 5”. It may be a small step, but taking a calendar quarter approach is a start in trying to streamline the UK tax system, which is far too complicated for its own good.
However, we need to design systems that work for taxpayers and their agents and ensure that they are fully tested and working before they go live. The introduction of the 30-day capital gains tax reporting and payment system was a salutary lesson in what can still go wrong when you design a stand-alone system that does not interact with the rest of the world. tax system, duplicates and increases the possibility of errors. The announcement that the reporting and payment window would be extended to 60 days, as recommended by the OTS, was welcome, but with more thought and consultation initially, much of the debacle that followed would have could be avoided.
Where in 2022?
Considering the events of the past few years, I am rather reluctant to make predictions for 2022. I predicted last year that even though we would return to the office before the end of the year, our working arrangements were likely to change. change irrevocably and, indeed, it seems like working from home for at least part of the week is here to stay.
The pressure on government finances and the rising costs of health and social services will keep taxation at the forefront. Will opening Pandora’s box of mortgaged taxes to fund health and social services spur a national debate about how much we are willing to pay for them, and what we might expect in return?
If the past is any guide to the future – I remember Gordon Brown asking the same question when he raised national insurance premium rates to pay for increased NHS spending – my prediction is that ‘We are unlikely to have such a debate anytime soon. Rest assured that whatever happens, the Faculty of Taxation is there to support you in 2022.
About the Author
Frank Haskew, Director of the Faculty of Taxation