AAT RESPONSE TO THE HMRC CONSULTATION ON “HOW TO IMPROVE HMRC’S COLLECTION OF DEBT: CODING OUT”
1 INTRODUCTION
1.1 The Association of Accounting Technicians (AAT) is pleased to comment on the issues raised in the HMRC consultation on “How to improve HMRC’s collection of debt: coding out”.
1.2 We have over 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 taxation.
2 THE CONSULTATION DOCUMENT
2.1 AAT notes and welcomes the fact that the issued consultation document (condoc) is inviting opinions from all interested parties in respect of the proposals to extend the principle of “coding out” as a means to collect tax debt and to increase the values which define the amount of coding out which is permitted.
2.2 It is further noted that irrespective of the outcome of this consultation the government intends to legislate on this matter to augment HMRC’s existing debt collection powers.
1 Figures correct as at 30 April 2013
3 OBSERVATIONS IN RESPECT OF THE CONSULTATION DOCUMENT
3.1 Prior to responding to the questions posed in the condoc AAT would like to observe, as follows, that:
3.2 Whilst AAT is broadly supportive of the paper’s aims we are concerned that the condoc fails to recognise the transference of the responsibility for collecting debts that are the subject of a coding out exercise from HMRC to employers.
3.3 On reviewing paragraph 2.12 of the condoc we note that HMRC’s intention to introduce automated telephone payment facilities within the debt management area, stating “This will improve the ... experience and deliver cost and resource savings for HMRC.” Through our engagement in a number of HMRC consultative forums we, along with our fellow Representative Bodies, have drawn HMRC’s attention to the fact that its existing automated telephone facilities rank very highly on taxpayers’ and agents’ criticisms of HMRC’s service provision. Whilst we share HMRC’s hopes that the new
Intelligent Voice Recognition Telephony (IVR) will drive up performance levels we feel that it is too early to be sure of this fact.
3.4 In the light of changes to the payroll process following the introduction of Real Time Information the sentence in 3.12 commencing “At the end of every tax year...” is no longer relevant.
4 AAT MEMBERS’ EXPOSURE TO HMRC’S COLLECTION OF DEBT: CODING OUT
4.1 Any changes to the manner in which debt is to be collected by HMRC will inevitably affect our members whether they are working in industry, payroll or in practice. We consider that our self-employed members responsible for the processing of payrolls on behalf of clients will face an increase in the administration work arising out of the increase in tax code changes.
4.2 In addition to the above, our licensed and regulated members in practice who are not engaged to provide direct payroll services are, nevertheless, regularly required to give advice and guidance to their employer clients who manage their own payrolls in respect of such matters as coding changes.
5 CONSULTATION QUESTIONS
Question 1: Are the graduated coding out limits for debts and tax underpayments recommended for those on incomes of £30,000 or above set at the right level?
5.1 Whilst AAT supports HMRC in its intention to protect those on lower incomes we are concerned that it creates a fragmented approach to the collection of
debt. We feel that a simpler solution than that of a £30,000 threshold would be to set the coding out limits as a percentage of income.
5.2 We are concerned with the proposal to limit coding out of debt to a “primary” source of income. It is our belief that such an approach, at least in some cases, might result in taxpayers with multiple income sources avoiding the collection of debt simply by ensuring their primary income source remains less than £30,000.
5.3 Returning to the point made in 5.1 an insistence that the upper limit of debt that can be collected by coding out is set at a percentage of taxable pay would be more equitable, simpler and possibly be much easier to manage.
Question 2: Does the proposal not to change the coding out limits for those with incomes of less than £30,000 adequately safeguard those on lower incomes?
5.4 The AAT agrees that this aspect of the condoc proposals will act as an adequate safeguard in the short term. Furthermore, we feel that a cap at the proposed level would not only protect lower-paid taxpayers it would also still send the right message to those with tax debts. However, to ensure that the threshold was not eroded in real terms year on year, we recommend that it has an automatic increase built into it that might be linked to an index such as the Consumer Price Index.
Question 3: Should the statutory safeguard to prevent PAYE deductions exceeding 50 per cent of an individual’s pay be extended?
5.7 AAT supports the proposal setting the 50 per cent regulatory limit across all tax computations. We see it as being simple to manage. It would also be helpful to employers, payroll professionals and agents, and will also protect wage earners.
5.8 Complex processes such as payroll always run more efficiently where there is a consistency in approach.
Question 4: In circumstances where a debt cannot be collected via the tax code in one year, do you agree that HMRC should use existing powers to code out part of that debt?
5.9 Whilst we can understand the merit in collecting part of a taxpayer’s debt through a partial coding out whilst pursuing the balance of the debt in another manner, we urge caution in adopting this approach. The application of two different methods of debt collection, if not properly executed, could lead to confusion.
5.11 If debt splitting is introduced HMRC must ensure that clear and unambiguous information is available both to the taxpayer and the tax helpline staff in order to minimise the risk of confusion. Historically many of the problems encountered by taxpayers and agents have arisen through the lack of a complete picture being available to HMRC staff.
Question 5: Do you have any comments or suggestions on the indicative impacts identified in the table of impacts?
5.12 The table situated at 3.39 would have been of more benefit if it had been clearer in the way that values were set out and stated. Furthermore the table would have benefited from accurate statistics estimating the volume of debt recovery which might be achieved.
5.13 We were surprised to read that the measure is not expected to have any significant economic impact. Given the object of the exercise is to recover debt due, we would expect a comment about the positive effect the collection of such debt would have on tax revenues and, therefore, the wider economy.
5.14 The failure to factor in the positive effect of HMRC’s enhanced ability to recover debt if the outlined proposals are adopted could give rise to some questioning the proposals.
5.15 In support of our comment made in 3.2 (above) we are disappointed that the impact assessment fails to fully recognise the additional administrative burden placed on employers through the proposed coding changes.
6 / 6.1 / CONCLUSIONAAT supports the overall thrust of the proposals contained within the condoc.
It is commonly understood that if HMRC is not seen to be collecting debts
due, across all Heads of Duty, it reduces the incentive for lawful taxpayers to remain compliant.
6.2 / We see the move to raise the level of debt that can be coded out for recovery through the PAYE system to be a commonsense measure that could achieve a “quick-win” in HMRC’s drive to reduce debt levels further in an efficient and cost-effective manner.
6.3 / We endorse the sentiments expressed in paragraph 2.4 in respect of “paying the right tax at the right time”. When taxpayers default on their liabilities the resultant reduction in monies available to fund public services affects the whole country.
6.4 / Furthermore, we welcome the intention of this consultation to augment
existing collection measures. However, we believe greater consistency could be achieved if the proposal to cap the maximum debt at £17,000 for those
with incomes of £90,000 and above was not implemented.
7 FUTURE AAT INVOLVEMENT
7.1 As part of AAT’s Public Interest Remit we would welcome the opportunity to help with future iterations of this, or related, consultations.
7.2 If on reading our response any points of clarification are required please contact AAT at:
email: telephone: 020 7397 3088
FAO. Aleem Islan
Association of Accounting Technicians
140 Aldersgate Street
London
EC1A 4HY