AAT RESPONSE TO THE HMRC CONSULTATION ON “SIMPLIFYING THE
NATIONAL INSURANCE PROCESSES FOR THE SELF-EMPLOYED”
1.
2.
INTRODUCTION
1.1.
The Association of Accounting Technicians (AAT) is pleased to
comment on the issues raised in the HMRC consultation document on
“Simplifying the National Insurance processes for the self-employed”.
1.2.
AAT is a professional accountancy body which has 50,300 full and
fellow members and 71,000 student and affiliate members worldwide.
Of the full and fellow members, there are 3,800 Members in Practice
(MIPs) who provide accountancy and taxation services to individuals,
not-for-profit organisations and the full range of business types.1
1.3.
AAT is a registered charity whose objectives are to advance public
education and promote the study of the practice, theory and
techniques of accountancy and the prevention of crime and promotion
of the sound administration of the law.
1.4.
In pursuance of those objectives AAT provides a membership body.
We are participating in this consultation not only on behalf of our
membership but also from the wider public benefit perspective of
achieving sound and effective administration of taxes.
1.5.
AAT’s approach to responding to this consultation has been to
comment on the principles of the proposed measures, rather than
providing detailed comments on the draft legislation itself.
VESTED INTERESTS
2.1
3.
1
AAT is responding to the consultation from the wider public benefit
perspective of achieving sound and effective administration of taxes.
OVERVIEW
3.1
This consultation looks at the option of collecting Class 2 National
Insurance Contributions (NICs) alongside Class 4 NICs and income
tax through the Self Assessment process.
3.2
We note that that it is also seeking “views on whether the proposed
changes would lead to a simpler, more straightforward system”.
3.3
We are, also, pleased to note that at this point in time a decision has
not been taken that commits the collection of Class 2 NICs through
Self Assessment.
Figures correct as at 30 April 2013
4. GENERAL OBSERVATIONS
4.1
AAT is supportive of any appropriate move to introduce simplification
within UK taxation.
4.2
We were particularly encouraged to read in the Exchequer Secretary
to the Treasury's foreword that “The Government is keen to minimise
the barriers that hinder those who want to start and run their own
business.”
4.3
AAT's members in practice are regularly engaged by owners of microbusinesses and as a consequence are all too aware of the
administrative burden that such entities face. Indeed, the condoc
acknowledges that the current system is “confusing” (1.8, condoc).
4.4
Whilst we are extremely supportive of the thrust of the consultation
there are two areas of concern:
4.4.1
The first is in respect of the possible short term reduction in
cash-inflow to the public purse arising at the time of the
change from the existing Direct Debit method of payment to
what is effectively a payment in arrears basis.
4.4.2
The second is in respect of the problems that could arise for
Universal Credit claimants (4.12 to 4.18, condoc); the change
could cause benefit claimants significant financial hardship
through the potential delay in qualifying.
4.6
Given our understanding that part of the Office for Tax Simplification's
(OTS) Terms of Reference was to ensure that any changes they might
recommend should be revenue neutral, we are concerned by the
complete absence of consideration of costs within the condoc’s
Assessment of Impacts (Section 6).
4.5
Finally, we feel that it should be recognised that any reduction in
administration for small-businesses is likely to be met with a similar
reduction for HMRC.
5. REPLIES TO QUESTIONS - SIMPLIFYING THE NATIONAL INSURANCE
PROCESSES FOR THE SELF-EMPLOYED
Q1a) Overall would collecting Class 2 NICs through the Self Assessment
system be simpler?
Q1b) What benefits do you think this could bring to customers?
Q1c) Do you see any drawbacks?
5.1
AAT is of the opinion that the transfer of collection of Class 2 NICs (C2
NICs) away from a Direct Debit process to the Self Assessment (SA)
collection regime would have both simplification and administrative
benefits for both the self-employed (5.2) and also HMRC.
5.2
The switch to retrospective collection would mean that the newly selfemployed would no longer need to immediately concern themselves
with arranging direct debits to make modest payments, in respect of
C2 NICs.
5.3
As highlighted at 3.8 (condoc) the move to retrospective collection of
C2 would, at a single stroke, remove the need for the Small Earnings
Exception (SEE) process.
5.4
We believe the switch to retrospective collection of C2 NICs via the
SA platform offers the potential to establish the combined C1 NICs
and C2 NICs in relation to the annual maximum calculation (3.10,
condoc). Currently, the recovery of excess NICs is a cumbersome
process which as a consequence acts as a deterrent to the recovery
of over-payments by those affected.
5.5
Please refer to 4.4 et seq for drawbacks.
Q2) What do you consider will be the transitional challenges of moving
from the current system to collecting Class 2 NICs through the SA system?
5.6
As previously observed (4.4.1), HMT is likely to face a reduction in
cash-inflows during the transitional period. Unfortunately, due to an
absence of financial data within the condoc’s Assessment of Impacts,
it is not possible to quantify the effect (see also 4.6).
5.7
It should be noted that our observation at 5.6 is made on the
assumption that taxpayers will cease paying C2 NICs at the end of
one tax year and not be expected to make further contributions until
the 31 January following.
5.8
A further challenge, this time for HMRC, will be the need to undertake
an education programme to ensure that those likely to be affected are
made aware of the changes, why they are happening, when and what
it will mean to them.
5.10
As previously observed (5.6) AAT is concerned that the absence of
financial data within the Assessment of Impacts prevents any financial
assessment of the impacts arising out the matters outlined by us in 5.6
and 5.7.
Q3.Would complete abolition of the SEE process and removing liability to
pay Class 2 NICs from people who have profits below the SEE limit be
simpler than the current system? What benefits could this bring and do
you see any drawbacks?
5.11
AAT would be supportive of a move to completely abolish the SEE
process.
5.12
The drawback that has been highlighted in paras 5.4 and 5.5 (condoc)
is that the lower-earning self-employed would lose their rights to
certain benefits, which, to them, would be a significant issue.
5.13
AAT is concerned that the observation contained within the condoc
(5.4) that the lower earning self-employed could avoid their loss of
entitlement through funding voluntary Class 3 NICs (C3 NICs) does
not seem appropriate. If the effect of the suggestion is those,
potentially, least able to afford an increase in their NICs contribution
(from £2.70 p.w. (C2) to £13.55 p.w. (C3)) would be required to pay
£564.20 per annum more.
Q4) Would aligning the liability to pay Class 2 with the liability to pay Class
4 NICs be a simpler system for the majority of self-employed individuals?
What benefits could this bring and do you see any drawbacks?
5.14
Q4 is not entirely clear if it is seeking comment upon whether it would
be easier for the self-employed if the C2 and C4 thresholds were set
at the same rate, the answer to the question would, inevitably, be yes.
5.15
Assuming that C2 and C4 NICs would, for all other intents and
purposes, still be operated as it is now we do not perceive there would
be any corresponding reduction in the administrative burden if the
thresholds were merged.
5.16
We believe that a more beneficial simplification measure would be the
merging of C2 and C4 NICs into one class.
Q5) What groups might be excluded from paying Class 2 NICs if liability to
pay Class 2 NICs aligned with the current Class 4 rules?
5.17
Para 5.6 (condoc) sets out those who would not be excluded.
Therefore, taking this into account, those carrying out a property
investment business would appear to be excluded.
Q6) Do you have other ideas that might deliver further simplification for the
collection of NICs from the self-employed?
5.18
Please refer to 5.16.
Q7) Are there any direct or indirect equality impacts from any of the
changes discussed in this document?
5.21
Taking into account that the Assessment of Impacts contained within
the condoc is high-level in its nature it is hard to comment upon
indirect equality issues.
5.22
It is, however, clear from reading the condoc that all groups that are
potentially to be affected are going to impacted in the same way.
Q8. Do you have any comments or suggestions on the indicative impacts
identified in the table of impacts?
5.23
6
AAT does not wish to make any further comment.
CONCLUSION
6.1
In principal AAT is supportive of the proposals contained within the
condoc.
6.2
In fact, we would support the more radical move of merging and not
just aligning the two classes of NICs.
6.3
Our support to the condoc’s proposals is given on the proviso that
serious consideration must be extended to the resolution of the
potential issue that might be faced by benefit claimants in advance of
the implementation of any changes.
6.4
We do not believe that those generating the least income, and who
might as a result of the proposed changes lose their entitlement to
certain benefits, should have to incur significant additional costs of
contribution through an election to pay voluntary (C3) NICs in order to
maintain their entitlements.
6.4
We believe that there is a clear need for any change which might
emerge as a consequence of this consultation to be supported by an
awareness campaign to ensure that the self-employed fully
understand the effects on them.
6.5
As observed within our response we have a concern that the cashflow
impact of the switch does not seem to have been covered in the
Assessment of Impacts.
If you have any questions or would like to consult further on this issue then please
contact the AAT at:
email: consultation@aat.org.uk
telephone: 020 7397 3088
FAO. Aleem Islan
Association of Accounting Technicians
140 Aldersgate Street
London
EC1A 4HY