RESPONSE TO HMRC CONSULTATION DOCUMENT: Extra-statutory concession A19
review
1.
INTRODUCTION
1.1
The AAT is pleased to comment on the issues raised in the HMRC consultation
document “Extra-statutory concession A19 review” (the condoc).
1.2
We have over 50,000 full and fellow members and 68,200 student and affiliate
members worldwide. Of the full and fellow members, there are approximately 3,650
Members in Practice (MiP) who provide accountancy and taxation services to
individuals, not-for-profit organisations and the full range of business types.
1.3
The 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 the AAT provides a membership body. We are
participating in this consultation as part of our contribution towards the public benefit
of achieving sound and effective administration of taxes. In addition, we feel that the
issues raised in this consultation paper will affect our membership.
2.
GENERAL
2.1
We always endeavour to consult as widely as possible internally when gathering
feedback in order to respond to public consultations that we consider appropriate for
us to comment upon. Recognising the significance of the proposals contained within
the condoc we have, therefore, engaged with key elements of our membership to
ensure that our response reflects the wider view of our internal stakeholders.
2.2
A typical MiP is engaged by their clients to provide practical, cost effective, day-today tax compliance services. Such members play a valuable role in relieving their
client businesses of the burden of an ever more complex tax system and in ensuring
that their clients pay the right amount of tax at the right time.
3.
OBJECTIVES OF THE CONSULTATION
3.1
We note that the consultation outlines HMRC’s aim to:
i.
ii.
iii.
iv.
v.
Improve the clarity of ESC A19 so that it is user-friendly and easily
understood by taxpayers.
Help HMRC bring greater objectivity to ESC A19.
Help HMRC align ESA A19 with the HMRC Charter and ensure that it
continues to be available in appropriate cases.
Introduce the concept of “taxpayer responsibilities”.
Remove the reference to capital gains tax.
4.
CURRENT POSITION
4.1
Following the decision in R v HM Commissioners of Inland Revenue ex parte
Wilkinson [2005] UKHL 30 the government decided to review HMRC’s extra statutory
concessions and withdraw or legislate them as required.
4.2
For a little over five years HMRC and key accountancy and taxation bodies have held
a series of meetings in an attempt to clarify the operation of ESC A19 (A19). AAT
has been engaged in this process through its involvement in the National Working
Together Steering Group.
4.3
From the perspective of the external parties involved, the outcomes arising from the
on-going meetings have been poor to non-existent. In fact, on more than one
occasion, the whole process needed to be recovered from what could only be
described as the “long grass.” However, we recognise that by releasing this
consultation document HMRC is working towards addressing the issue.
Throughout the period taxpayer awareness of the existence of the concession has
grown significantly. We believe that this growth of awareness is as a direct
consequence of the publicity given to its practicality and appropriate usage as a
remedy to the problems faced by taxpayers arising from the reconciliation problems
experienced by them when NPS was first switched on.
4.4
5
AAT POSITION
5.1
AAT recognises both the need for A19 and the nature of its operation as set out in
1.2 of the condoc. We do not, however, accept the “reasons for this consultation” as
set out at 1.4. It is our belief that the existing structure of A19 is still fit for purpose
and that the issues experienced over recent years with the operation of it has been
largely with HMRC’s interpretation.
5.2
In our opinion the existing version of A19 continues to be an appropriate and
adequate safeguard for the greater proportion of the UK taxpaying public whose only
encounter with taxation is via deduction at source through their employers’ operation
of Pay as You Earn (PAYE) rules.
5.3
A19 affords an appropriate level of protection to taxpayers protecting them against
the negative impact of when HMRC fails to act upon information that it has received
within an appropriate time frame. In general the concession is seen as a just
measure to repay the taxpayer’s trust.
5.4
In our opinion any attempt to change the existing concession at a time when public
faith in HMRC is in need of rebuilding would be ill-advised and result in long-lasting
reputational damage to the organisation.
.
6.
CONSULTATION QUESTIONS
“Do you agree with the removal of “reasonable belief” with an objective test based
around “taxpayer responsibilities”?”
6.1a
Taking into account our “Public Interest” charitable objective we cannot possibly
agree with the removal of the “reasonable belief” clause.
6. 1b
During the compilation of our response our MiPs told of the shock and disbelief they
regularly encounter from new clients when they advised them of an error in a tax
code. It was widely reported that employees placed a high degree of confidence in
HMRC to “get it right” and as part of that expectation they fully relied upon the tax
efficacy of their tax codes. Of particular concern to our MiPs is that taxpayers of all
levels of sophistication are equally surprised.
6.1c
The proposed new test runs counter to the spirit of the original test through its placing
of a more onerous burden upon taxpayers. Whilst for the more professional and
educated members of the taxpaying population this new test may not seem to be
unreasonable, our greatest concern is that the requirement to check codings and
maintain logs of contact with HMRC is unrealistic for a whole section of the greater
taxpaying public who lack the sophistication to be aware of, and act upon, such a
requirement.
6.1d
AAT believes that the requirements to keep diary notes and details of “what was said
and to whom” runs counter to HMRC Charter point 5 of “your rights” (HMRC web site
http://www.hmrc.gov.uk/charter/index.htm). The headline sentence immediately
below the title reads “Whenever you deal with us we will take responsibility for our
actions and behave in a professional way.” We consider the fact that HMRC will not
acknowledge any culpability without a taxpayer taking, retaining and producing notes
to be totally at odds with their promise to “take responsibility for our actions”.
6.1e
The requirement to complete and retain records of a conversation(s) also runs
counter to Charter point 3 “Treat you as honest”, in particular the first bullet point
“presume you are always telling us the truth”.
6.1g
If the new objective test were to be taken forward AAT would expect all future contact
from HMRC in respect of taxpayer information, such as coding notices, to contain a
“health warning” setting out clearly taxpayers responsibilities and sign-posting them
to the relevant section of HMRC’s website where they could learn more.
“Do you think that the introduction of HMRC responsibilities makes it clearer in
regard to what information HMRC must act on? Has HMRC identified the correct
responsibilities and/or are there others that should be included?
6.2a
On reading the related condoc section (page 9) we do not see the proposals as being
an introduction of new responsibilities, only a restatement of the nature and type of
responsibilities that a rational taxpayer would have deemed to have already existed.
6.2b
AAT believes that the “HMRC’s responsibilities section” would benefit significantly if
reference was made to their acknowledgement of abiding by “your rights” under the
Charter.
“Do you agree that the “Exceptional Circumstances” section is now redundant and
can be removed from ESC A19? If not, for what circumstances do you think it should
be retained?”
6.3a
The AAT does not agree that it is redundant. If HMRC is convinced (see 4.8 page 12)
that the “end of year reconciliation process now works on a continuous cycle…” and
as a result that “HMRC considers that there will be fewer instances where
exceptional circumstances …will occur…” we see absolutely no reason to remove
this section from any revised version of A19.
6.3b
AAT strongly believes that the “Exceptional Circumstances” section should be
allowed to remain standing.
6.3c
Taking into account what we have written in 6.3a – 6.3b we do not see there is
anything to be gained in setting out examples. The overarching principals
established above are sufficient in itself.
“Can you identify any issues with the removal of CGT from ESC A19? HMRC would be
particularly interested to hear examples of where a recent request has been made in
relation to CGT and ESC A19.”
6.4a
The consultation document has not put forward any reason for why CGT should be
removed from the scope of A19.
6.4b
Taking 6.4a into account we fail to see the reason for HMRC removing CGT from
A19.
6.4c
Currently, in A19 the principle is just and equitable and applies to Income Tax, CGT
and Class 4 National Insurance specifically. It could be argued that the principle
should be extended to the other taxes administered by HMRC.
“Do you agree with introducing a time limit for individuals to contact HMRC? Can you
identify any issues with HMRC adopting this approach”
6.5
We consider counteraction on a “just and reasonable basis” to be entirely
appropriate. It is presumed the employment of this basis will be by reference to the
underlying statute(s).
“HMRC plans to issue supporting guidance alongside the revised wording. What
format would be most appropriate for this? For example, online guidance, a Question
and Answer document or update in the PAYE Online Manual”
6.6a
The answer to this particular question in itself is subjective insomuch that it depends
on the perspective of the reader and future unforeseen changes in the dissemination
of information. In the absence of a panacea we believe that a hybrid approach
should be adopted to take into account the multifaceted nature of the British
taxpayer.
6.6b
AAT recognises that whilst guidance cannot be a substitute for well drafted
legislation, in the case of assisting the operation of an extra-statutory concession we
can see that it could play an extremely helpful part.
6.6c
The AAT would expect HMRC to adopt a blended approach to their provision of
support and guidance in order to recognise and reach taxpayers who have varying
levels of sophistication and engagement.
i.
Simple case studies backed up by “Q & As” might suffice for the majority of
interested parties.
ii.
However those with more sophisticated interest, such as paid agents and
representatives in the charitable sector, might have a passing interest in case
studies and Q & As and would benefit from a cross referral from, or to, the
relevant section of the PAYE online manual.
6.6d
In this age of high dependence in the use of the internet we would expect HMRC to
place a major reliance on hosting their support and guidance within their own internet
site.
6.6e
In making our comment at 6.6d we would not expect the digitally excluded to be
overlooked (see 6.6g below).
6.6f
In order to ensure the production of balanced and clear guidance AAT strongly
recommends that HMRC work with the leading accountancy, taxation and charitable
bodies (the bodies) who engage with HMRC on a regular basis through their
involvement in the Joint Steering Group, Agent Engagement Group, the Working
Together Steering Group and the ESC A19 Working Party.
6.6g
Engagement with the bodies could also help HMRC to establish the best way(s) to
ensure that their published support and guidance reaches those most in need.
“Are there any terms within the revised concessions which you feel require further
explanation or expansion.”
6.7
We did not encounter any terms within the proposed revised concessions that we felt
might require further explanation or expansion.
Summary
7.1
AAT does not see any need to revise the current version of A19. We are concerned
that the move to redraft A19 is a knee jerk reaction in response to issues that arose
from the switching on of NPS. It is our understanding, based on HMRC statements,
that NPS is now operating smoothly and, as a consequence, the need to resort to
A19 will significantly decrease.
7.2
We strongly urge HMRC to continue to work with the bodies (6.6f) to reach an
agreed common understanding of the operation of the current concession and then
to produce co-owned taxpayer guidance.
7.3
Whilst AAT cannot endorse the proposed changes we would support joint working on
guidance to ensure that the current version of ESC A19 is better understood.
.