AAT public affairs and public policy update: January 2023

Jack Withrington has started as AAT’s new Head of Public Policy and Public Affairs. He has over 12 years of experience working in politics and public affairs, including for a prominent MP, an award-winning consultancy, a FTSE100 company, and most recently for a leading housing insurer. If members would like to contact Jack about AAT’s work with government and politicians across the UK, please email: jack.withrington@aat.org.uk.

Please read below a summary of what happened in politics and policy over the past month and what AAT has been doing on behalf of its members.

Taxation policy

HMRC’s consultation response on repayment agents

On 11 January, HMRC published its response to the consultation it ran on “Raising standards in tax advice” in relation to repayment agents. HMRC proposed several actions to improve confidence in the tax advice market including: legislation to render void assignments of income tax repayments; introducing mandatory pre-contractual disclosure forms; new transparency requirements in the HMRC Standard for Agents; and requiring repayment agents to register with HMRC.

In response, AAT published a press release responding to the proposals cautiously welcoming this new approach. While AAT welcomed HMRC’s adoption of our recommendation to substitute assignments with the nomination process, we also expressed our concerns over the burden of pre-contractual disclosure forms and doubts over whether HMRC can police the agent register it intends to create. As a solution to the latter, AAT proposed that a registration requirement should be that the agent is a member of a recognised professional body, as we continue to call for in our Accountable campaign.

Public Accounts Committee report into HMRC performance

The Public Accounts Committee published its annual report into HMRC’s performance in 2021-22. While noting that HMRC collected £731.1 billion in taxes and duties, the highest on record, it still claimed that £42 billion is owed in unpaid tax and that HMRC is failing to collect around 5% of the tax it is owed each year. The committee also criticised the “unacceptable” customer service levels of HMRC and that the tax authority only expects to recover around a quarter of the estimated £4.5 billion lost to fraud and error in its COVID-19 support schemes.

R&D tax reliefs review

The Treasury has published a consultation asking for views on a simplified, single R&D (research and development) tax relief scheme. This would effectively merge the current research and development expenditure credit (RDEC) and SME schemes. While the consultation notes that a final decision on whether to merge the schemes will be taken at a future fiscal event, the document appears to favour a scheme that more closely aligns with the above the line credit scheme offered by RDEC. It also wants to explore additional targeted support for certain types of R&D or more R&D intensive companies. If implemented, the Government wants the new scheme in place for 2024-25.

AAT is requesting members for their views on these proposals. Please contact jack.withrington@aat.org.uk if you would like to contribute your thoughts to AAT’s submission.

AAT quoted in Lords Committee report into R&D tax relief

AAT has been extensively quoted in a report published at the end of January by the House of Lords Economic Affairs Finance Bill Sub-Committee which scrutinised proposed legislative changes to combat abuse of the current R&D tax relief scheme. Adam Harper, Director of Professional Standards and Policy, gave oral evidence last year to the committee and both he and AAT’s written evidence are quoted several times on the complexity of the scheme, the lack of awareness among SMEs, and the need to improve guidance from HMRC.

The Committee was supportive of AAT’s position, recommending that improvements needed to be made to HMRC’s compliance capability as well as to its support and guidance for business to reduce fraud and error. It also joined AAT in welcoming the extension of the range of qualifying expenditure for relief to include data and cloud computing costs.

You can read the full report: Research and development tax relief and expenditure credit.

Business policy

New “Energy Bills Discount Scheme” for businesses

At the start of the month, the Treasury announced details of a new discount scheme to support businesses and other non-domestic organisations with their energy bills. The discount scheme, which is less generous than the current Energy Bill Relief Scheme, will run for 12 months from April 2023 and will provide a discount when the wholesale prices go over a certain price threshold. There are also limits to the level of discount a business can receive, although energy and trade intensive industries will receive a higher level of support.

You can read more about the Energy Bills Discount Scheme.

BEIS proposes draft Code of Practice on ‘fire and rehire’ practices

The Department for Business, Energy, and Industrial Strategy (BEIS) has published a draft code of practice to address controversial ‘fire and rehire’ practices, which was prompted by the P&O Ferries scandal. The proposed statutory code sets out employers’ responsibilities when seeking to change contractual terms and conditions of employment. Once in force, courts and employment tribunals will be able to take the code into account when considering relevant cases, including unfair dismissal, and will have the power to apply a 25% uplift to an employee’s compensation in certain circumstances if an employer is found to not comply with the statutory code.

Read more about the consultation on the code and the code itself.

Political update

This month in politics has been dominated by continuing developments of the tax affairs of Nadhim Zahawi MP, current Chairman of the Conservative Party. At the time he was Chancellor under Boris Johnson, Zahawi settled a dispute with HMRC over the sale of shares in the polling company, YouGov, which resulted in a 30% penalty. Prime Minister Rishi Sunak has now sacked Zahawi after Sunak’s Ethics Adviser, Sir Laurie Magnus, found that Zahawi had broken the ministerial code by not telling officials he was under investigation by HMRC when he was Chancellor. A replacement for Conservative Party Chairman has yet to be appointed.

On 27 January, the Chancellor Jeremy Hunt MP gave a speech setting out his long-term vision to grow the economy, setting the scene for his upcoming Budget statement on 15 March. He set out the government’s goal for this year to “halve inflation, grow the economy and get debt falling” but also spoke about the four pillars of his longer-term ambitions for economic growth: Enterprise, Education, Employment, and Everywhere. Hunt also indicated that tax cuts were not his priority for the upcoming Budget statement, arguing that the “best tax cut right now is a cut to inflation”. This sets the tone for the Budget which is not expected to announce any significant cuts to business or personal taxes.

The latest polling continues to offer bad news for the Conservative Party. On 1 February, YouGov showed Labour at 45% - 2% higher than Tony Blair’s landslide victory in 1997 - and the Conservatives at 26%. Keir Starmer has also increased his lead over Rishi Sunak in terms of who would make the best Prime Minister to 12 points. Further still, a new poll from Redfield and Wilton Strategies has found that Labour lead the Conservatives by 10% in forty-two ‘Blue Wall’ seats (i.e. places that traditionally vote Conservative), causing concern for the Conservatives about retaining their safe seats as much as the all-important ‘Red Wall’ seats.