What is the tax gap?

In simple terms, the tax gap is the gap between the total amount of tax expected to be paid, and the amount of tax actually paid. The latest tax gap is estimated by HM Revenue and Customs’ (HMRC) annual Measuring Tax Gaps publication.

Jonathan Athow, Director General for Customer Strategy and Tax Design at HMRC, commented: “The tax we collect funds the country’s public services and we want to ensure everyone pays the correct amount. These figures show most taxpayers and businesses pay what they should.

“This important research enables us to better help those making common mistakes or failing to take sufficient care, as well as tackling the minority deliberately hiding their income.”

History of the tax gap

The figures show that in recent years, the tax gap has dropped from 7.5% in the 2005-2006 tax year to 4.8% in the 2020-2021 tax year, where it remains.

When the gap is expressed in monetary terms, the difference is estimated to be £36 billion for the 2021 to 2022 tax year. Estimated tax liabilities for the same tax year, meanwhile, are £739 billion.

Who is responsible for the tax gap?

It is important to note that the existence and significance of the tax gap cannot be attributed solely to one party; there are a number of elements and groups that help contribute to its existence.

According to the figures, small businesses represent the largest proportion by group, at 56%, or £20.2 billion. This is followed by criminals, with an 11% proportion (£4.1 billion), large businesses (£3.9 billion), and mid-sized businesses (£3.8 million).

Outside of businesses, wealthy individuals are thought to account for around 5% of the tax gap, at an estimated £1.7 billion, and other individuals for the remaining 6%, at an estimated £2.1 billion.

Looking at the specific types of tax that account for the gap, Income Tax, Capital Gains Tax, and National Insurance contributions make up 35% of the gap (around £12.7 billion). Corporation Tax takes another 30%, or £10.6 billion.

Meanwhile, the VAT gap is now 5.4%, or £7.6 billion, compared to the 14% (£11.9 billion) recorded for 2005 to 2006.

What are the most common causes of the tax gap?

There are a number of elements that come together to cause the tax gap, and some of the most common include:

• Failure to take reasonable care and error

It seems that simply failing to take reasonable care, and human error, play the most significant role in the tax gap, and are responsible for 45% of the overall figure. This essentially means that a number of taxpayers fail to double-check their tax returns for accuracy, causing mistakes and errors which result in less tax being paid.

• Evasion

Deliberate evasion makes up just 13% of the tax gap – a figure that might surprise many. This can include false expenses, and using tax evasion techniques to minimise the amount of tax that is paid by a business or individual.

• Legal interpretation

Legal interpretation makes up 12% of the tax gap – this can include using technically legal methods and interpretations of tax laws to minimise the amount of tax paid.

• Criminal attacks

Criminal attacks make up around 11% of the tax gap – this refers to deliberate criminal activity that is used to avoid tax.

• Non-payment

Finally, classic non-payment makes up 9% of the tax gap, and this refers to individuals who simply fail to pay the tax that they owe.

Are you keeping on top of your own tax obligations?

Has reading about the latest HMRC findings in relation to the “tax gap” reminded you of your need to ensure you fulfil your own tax responsibilities?

If so, please don’t hesitate to reach out to your nearest TS Partners office to learn more about the high-quality and responsive HMRC help for business in Plymouth, Newton Abbot, or Wellington that we can provide.

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That’s because, since HM Revenue & Customs (HMRC) announced its Making Tax Digital (MTD) scheme in the mid-2010s, the tax office has been seeking to revamp its own systems for three business taxes – VAT, income tax self-assessment, and corporation tax.

The focus of the initiative has been on digitising records and moving bookkeeping online. However, the digital tax drive has now been the subject of criticism from the National Audit Office (NAO), which has said the programme is more than three years late and has exceeded its original budget by more than £1 billion.

What has the NAO said about the situation with Making Tax Digital?

In its report entitled “Progress with Making Tax Digital”, Parliament’s spending watchdog said that HMRC’s plan for the digital transformation of tax had failed to properly take into account the upfront costs imposed on millions of taxpayers.

The NAO report stated that the tax body had left out significant costs to customers from key business case documents that had sought approval for additional funding.

HMRC had intended to transfer its tax systems and records onto a modern tax management platform by 2020. However, the NAO said that this original deadline for getting the system up and running was “not realistic”, with it now being anticipated that the scheme will cost £1.3 billion, compared to the £226 million officials had budgeted for in 2016.

Although there have now been four delays to Making Tax Digital, the taxman has made a certain amount of progress with the initiative. Some 3.2 million tax records have been moved onto the new HMRC IT systems, but more than 14 million files are still awaiting transferral.

Since 2019, VAT has been processed with the use of tools from Making Tax Digital. Self-assessment, though, has ended up being “far more complex”, and has been subject to continued delays.

The tax office’s efforts to deliver the new system on time have also been hampered by a need to redirect resources to deal with Brexit, as well as staffing constraints during the COVID-19 crisis.

In May last year, HMRC had forecast that taxpayers would face total net ongoing costs of around £900 million over five years in order to achieve MTD compliance.

However, the tax body’s business case for the project had not accounted for the cost of obtaining tax advice, and the expense that customers would incur in updating their own systems.

Was the original aim of putting MTD in place by 2020 “never viable”?

Chairman of Parliament’s Committee of Public Accounts, Meg Hillier, said that it was “never viable” to implement Making Tax Digital for a 2020 deadline, adding: “HMRC wanted to increase tax revenue, but completely underestimated the cost and scale of work required to move from its legacy systems and by business taxpayers to move to digital records.

“Eight years on, many tax professionals remain unconvinced by the proposed approach, which imposes significant costs and burdens on many self-assessment business taxpayers… [HMRC] now needs to demonstrate its plans add up.”

A spokesman for HMRC, however, said it welcomed the watchdog’s “recognition of our progress in digitalising the tax system, and its confirmation that our plans can improve the system’s efficiency and effectiveness.”

The tax office added that MTD would “deliver a strong return on investment for the taxpayer.” It has now targeted 2027 for the implementation of its digital tax regime for self-assessment, although the review body said this still seemed to be a “very challenging plan”.

Reach out to TS Partners to learn more about our own services in digital accounting

As professionals with no shortage of expertise and experience ourselves in digital accountancy in Plymouth, Newton Abbot, and Wellington, our team at TS Partners will certainly keep a close eye on how HMRC’s tax transformation efforts continue to take shape.

In the meantime, if your own organisation requires specialised knowhow in such matters, please don’t hesitate to enquire to us to learn more about how we can help.

It isn’t just businesses up and down the South West of England and beyond – including many that have reached out to TS Partners about our digital accountancy in Plymouth, Wellington, or Newton Abbot – that have been looking to modernise their approaches to tax in recent years.

That’s because, since HM Revenue & Customs (HMRC) announced its Making Tax Digital (MTD) scheme in the mid-2010s, the tax office has been seeking to revamp its own systems for three business taxes – VAT, income tax self-assessment, and corporation tax.

The focus of the initiative has been on digitising records and moving bookkeeping online. However, the digital tax drive has now been the subject of criticism from the National Audit Office (NAO), which has said the programme is more than three years late and has exceeded its original budget by more than £1 billion.

What has the NAO said about the situation with Making Tax Digital?

In its report entitled “Progress with Making Tax Digital”, Parliament’s spending watchdog said that HMRC’s plan for the digital transformation of tax had failed to properly take into account the upfront costs imposed on millions of taxpayers.

The NAO report stated that the tax body had left out significant costs to customers from key business case documents that had sought approval for additional funding.

HMRC had intended to transfer its tax systems and records onto a modern tax management platform by 2020. However, the NAO said that this original deadline for getting the system up and running was “not realistic”, with it now being anticipated that the scheme will cost £1.3 billion, compared to the £226 million officials had budgeted for in 2016.

Although there have now been four delays to Making Tax Digital, the taxman has made a certain amount of progress with the initiative. Some 3.2 million tax records have been moved onto the new HMRC IT systems, but more than 14 million files are still awaiting transferral.

Since 2019, VAT has been processed with the use of tools from Making Tax Digital. Self-assessment, though, has ended up being “far more complex”, and has been subject to continued delays.

The tax office’s efforts to deliver the new system on time have also been hampered by a need to redirect resources to deal with Brexit, as well as staffing constraints during the COVID-19 crisis.

In May last year, HMRC had forecast that taxpayers would face total net ongoing costs of around £900 million over five years in order to achieve MTD compliance.

However, the tax body’s business case for the project had not accounted for the cost of obtaining tax advice, and the expense that customers would incur in updating their own systems.

Was the original aim of putting MTD in place by 2020 “never viable”?

Chairman of Parliament’s Committee of Public Accounts, Meg Hillier, said that it was “never viable” to implement Making Tax Digital for a 2020 deadline, adding: “HMRC wanted to increase tax revenue, but completely underestimated the cost and scale of work required to move from its legacy systems and by business taxpayers to move to digital records.

“Eight years on, many tax professionals remain unconvinced by the proposed approach, which imposes significant costs and burdens on many self-assessment business taxpayers… [HMRC] now needs to demonstrate its plans add up.”

A spokesman for HMRC, however, said it welcomed the watchdog’s “recognition of our progress in digitalising the tax system, and its confirmation that our plans can improve the system’s efficiency and effectiveness.”

The tax office added that MTD would “deliver a strong return on investment for the taxpayer.” It has now targeted 2027 for the implementation of its digital tax regime for self-assessment, although the review body said this still seemed to be a “very challenging plan”.

Reach out to TS Partners to learn more about our own services in digital accounting

As professionals with no shortage of expertise and experience ourselves in digital accountancy in Plymouth, Newton Abbot, and Wellington, our team at TS Partners will certainly keep a close eye on how HMRC’s tax transformation efforts continue to take shape.

In the meantime, if your own organisation requires specialised knowhow in such matters, please don’t hesitate to enquire to us to learn more about how we can help.

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The significant tax bill – as reported by Computer Weekly – was discovered after a review of the public sector organisation’s arrangements for IR35 compliance found that historic errors had been made in how it classified some of its contractors’ employment status.

UKRI receives sponsorship from the Department for Science, Innovation and Technology (DSIT), and supports the work of nine different research councils – one of which is Innovate UK, the country’s innovation agency.

What else is known about the organisation’s unanticipated tax bill?

It was UKRI’s annual report and accounts for the financial year of 2021-2022 that revealed Innovate UK had been in breach of HMRC’s IR35 legislation that is designed to tackle tax avoidance. A review revealed that mistakes had been made in the agency’s classification of its monitoring and assessment officers.

As a consequence of these errors, UKRI has been left owing the tax body some £36 million in unpaid income tax and National Insurance Contributions (NICs) for the tax years from 2018-2019 to 2021-2022, according to the organisation’s accounts.

The document stated: “Following a review of the IR35 status of monitoring and assessment officers engaged by Innovate UK, UKRI has concluded that some of these monitoring and assessment officers should have been considered to be inside the scope of [the] IR35 regulations, and thus subject to income tax and National Insurance Contributions”.

The mistakes happened after the way in which IR35 rules work in the public sector was reformed in April 2017. Prior to that date, it had been permitted for contractors to determine for themselves whether the work they undertook – and how it was performed – meant they should be taxed the same way as salaried workers (inside IR35) or off-payroll employees (outside IR35).

By contrast, from April 2017 onwards, it became the responsibility of public-sector end-hirers to determine whether the contractors they engaged ought to be classified as working inside or outside IR35.

If there is any solace for Innovate UK, though, it is that it is far from the only public-sector organisation to have ended up with a hefty unpaid tax demand from HMRC following the 2017 IR35 reforms; others have included the Department for Work and Pensions (DWP) and the Department for Environment, Food and Rural Affairs (Defra).

Nonetheless, the irony of the situation was not lost on Dave Chaplin, the CEO of an IR35 compliance firm, who said to Computer Weekly that it illustrated the difficulties IR35 imposed on public-sector organisations that depended on “frictionless access to talent” in order to thrive and expand.

He observed: “UKRI is supposed to be helping firms to innovate to ensure that the UK can compete and succeed on a global stage – to do that, the likes of Innovate need frictionless access to the talent they need when they need it, without risk.

“It is therefore somewhat ironic to learn that the very arm of the UK that is funded by the taxpayer to promote UK growth is being hit with a significant IR35 tax bill.”

We can provide a wide range of support with your tax and accounting responsibilities

If you would like to put yourself – or your organisation – in the strongest possible position from an accounting and tax perspective for years to come, please don’t hesitate to enquire to the TS Partners team to find out more about how we could assist.

Whether you would appreciate help with Self-Assessment in Plymouth, Corporation Tax in Wellington, or payroll services in Newton Abbot – to cite just some of our areas of knowhow – it couldn’t be easier to get chatting about your needs to our excellently qualified professionals.

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Such firms have expressed fears that the “tourist tax” is holding back the UK economy. There are concerns that big and small businesses alike, up and down the UK, are losing out on potential business due to tourists choosing other European destinations.

What impact has the “tourist tax” had on the UK economy?

As set out by the Daily Mail story, businesses have signalled their concern that the removal of VAT-free shopping since 2021 has put tourists off from coming to London, and that they may instead be visiting cities such as Paris, Milan, and Madrid.

The argument put forward by some – including former Chancellor of the Exchequer Sajid Javid – is that restoring VAT-free shopping has the potential to help grow the UK economy, because it could bring in more income than it would cost. Research has suggested that bringing back VAT-free shopping could give the UK’s GDP a more than £4 billion boost, as well as support some 78,000 jobs.

Despite this, the Treasury is maintaining that a return to VAT-free shopping would cost two billion pounds in lost taxes. Yet, experts have estimated that abandoning the “tourist tax” could bring in a net gain of about £350 million a year.

Are travellers visiting elsewhere?

Recent arguments in favour of ditching the “tourist tax” have referred to statistics such as those showing the extent of tourism from America and the Middle East to the UK, compared to the equivalent figures for American and Middle Eastern visitors to France and Paris.

There are concerns that as the UK continues to plot its longer-term recovery from the COVID-19 pandemic, prospective foreign visitors are noting that every country in the European Union (EU) offers tax-free shopping, while the UK does not.

In effect, as far as such visitors are concerned, the UK is charging 20% more than neighbouring countries for the exact same goods.

Proponents of reversing the “tourist tax” therefore argue that the UK Government needs to consider making changes for the good of the economy, and all UK businesses, especially those in retail, tourism and hospitality that are directly affected by the tax, due to the risk of them missing out on valuable overseas customers.

We can help put your business in a stronger position to succeed in 2023

Whether your own business in the UK is thriving or struggling, you are likely to be appreciative of any specialist support that you can get, particularly in relation to such matters as accounting, tax, and payroll.

As a trusted provider of digital accountancy in Devon and Somerset here at TS Partners, we can provide such assistance. So, please feel free to reach out to our professional and friendly team to learn more about the solutions we can provide to help your business survive and grow this year, and for many more years to come.

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The scheme has allowed companies to claim a 130% super-deduction capital allowance on qualifying plant and machinery investments, as well as a 50% first-year allowance for qualifying special rate assets.

The UK Government sold the super-deduction as an opportunity for companies to reduce their tax bill by as much as 25p for every £1 they invested. Fast-forward two years, and a Confederation of British Industry (CBI) survey has indicated that a fifth of business investment planned while the scheme was in place would not have happened without it. Furthermore, the business organisation said another fifth of investment was brought forward in order to benefit from the scheme.

So, can we say in light of the above that the super-deduction has been an unqualified success? Well, perhaps not quite, as other recent research has indicated that some small businesses were left underwhelmed by the scheme.

The super-deduction seems to have been more attractive for some industries than others

As reported by Business Leader, an independent finance broker recently polled UK SMEs and found that less than half (48%) of those questioned had utilised the super-deduction scheme. Alongside this, more than half of respondents – 58% – expressed the view that the Government wasn’t doing enough to support SME investment.

One of the other interesting trends to emerge from the study was the often significant variance in super-deduction uptake from one industry to the next. Specifically, the Business Leader report stated, some 74% of environment and agriculture-related SMEs had taken advantage of the scheme, yet a mere 40% of those in transport and logistics had done so. Among SMEs in the property and construction sector, meanwhile, the rate of participation was as low as 34%.

It seems that one of the reasons for the super-deduction scheme not achieving greater cut-through among the UK’s small firms was inadequate communications and guidance. Approximately a quarter (23%) of SMEs weren’t aware that a business of their size could take advantage of the super-deduction, while 17% of those surveyed didn’t know how to claim the tax relief.

However, there were also signs that communication was not the sole factor in the lack of uptake; on a backdrop of considerable economic turbulence, nearly a fifth (19%) of study participants said they couldn’t afford to invest even with the help of tax break incentives.

SMEs are showing optimism, despite the challenges – but could more be done?

Given the sometimes downbeat findings of the aforementioned poll, it is interesting to see the indicators in the Business Leader story that small and medium-sized businesses in the UK are actually still optimistic to some degree.

Although a mere 59% of the SMEs questioned made a significant business investment during 2022, 92% anticipated at least some investment being made in 2023. Indeed, an average of £314,000 was planned over the course of the year.

Nonetheless, the CBI has voiced concern about the competitiveness of the UK’s tax regime going forward, given that the super-deduction scheme is set to end as the Corporation Tax rate is planned to go up by six points. The business organisation has therefore called for a permanent investment deduction of 100%, which it has said could unleash £53 billion of additional investment a year by 2030/31, in addition to giving a 2% boost to GDP.

Our tax and accounting experts can be by your business’s side throughout 2023

Whatever your own thoughts on the situation may be as a business owner, very few observers doubt that the UK’s economic environment will continue to be an exceedingly challenging one for many firms in 2023.

To learn more about how our own expert accounting services in Newton Abbot, Plymouth, or Wellington could help make that environment a little easier for your firm to deal with over the coming months, please don’t hesitate to reach out to your nearest TS Partners office.

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Chancellor Jeremy Hunt revealed in his Autumn Budget in November that the tax relief for small firms would be slashed from 14.5% to 10%. The move has raised fears that many SMEs in the UK could be left struggling to obtain sufficient funding for R&D – and with the Spring Budget now looming on 15th March, the FSB has called on ministers to scrap the plans.

The FSB – which is the UK’s biggest business group – has said that the R&D tax relief cut would lead to many UK small and medium-sized firms withdrawing from innovation projects.

However, as reported by City A.M., the Treasury has hit back, stating that it recognises R&D as “hugely important”, and that the tax relief review will “ensure taxpayers’ money is spent as effectively as possible”.

Signs that thousands of UK small businesses will lower their innovation investment

The Chancellor stated in his previous announcement that he was scaling back the rebate in order to reduce fraud. He did heighten the R&D expenditure credit (RDEC) from 13% to 20%, but RDEC is not as valuable for start-ups, given that it doesn’t provide a cash repayment.

And the FSB’s own research has already indicated what the consequences of these decisions could be. The organisation found that 64% of the firms to have earned the tax credits in the last three years would now lower their innovation investment as a consequence of the changes – the equivalent of about 50,000 small businesses.

A quarter of firms that the FSB polled said that the move would prompt them to switch their focus to “lower-risk” projects. Meanwhile, around 12% of respondents said the changes had already led to them freezing recruitment and laying off staff.

“The single most successful industrial policy of the last decade”

Martin McTague, National Chair at the FSB, said that the findings underscored the crucial role the R&D tax relief played. He added that the Treasury was now coming up to “deadline day” to decide whether to scrap the planned reduction.

He commented in a statement: “The UK risks being left in an innovation wasteland if Jeremy Hunt does not take control of Treasury innovation policy and restore the single most successful industrial policy of the last decade.

“Our findings are a reminder to the Chancellor that the Government still has time to do the right thing – delay or scrap the plan to cut R&D tax credits for small businesses from April.”

However, in response, a Treasury spokesperson said to City A.M. that “the Government recognises the hugely important role that R&D and innovation play for the economy and society.”

The spokesperson added: “Our ongoing R&D tax reliefs review will ensure taxpayers’ money is spent as effectively as possible while improving the competitiveness of the RDEC scheme, as well as taking a step towards a simplified, single RDEC-like scheme for all.

“The Government will work with industry over the coming months to understand whether further support is necessary for R&D-intensive SMEs.”

Is your firm tapping into the maximum benefits of R&D tax credits in Newton Abbot, Wellington, or Plymouth?

Whatever occurs in the future with R&D tax relief for small businesses in the UK, it is important that your own company is well-informed on how the available R&D tax credits in Newton Abbot, Plymouth, or Wellington could support your innovation and investment plans.

To learn more about our own expertise in R&D tax relief or about any of our other services for SMEs in the South West of England and beyond, please reach out now to your closest TS Partners office.

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A key demand of CBI Director General Tony Danker has been for Chancellor of the Exchequer Jeremy Hunt to replace the “super deduction”, which is a soon-to-expire policy that reduces a business’s taxes by 25p for every pound it invests.

The Government has not confirmed there will be any replacement for the investment tax-relief, which is set to cease at the end of March. So, with the Spring Budget scheduled for the 15th of next month, all eyes will be on the Chancellor to see whether he decides to extend this incentive.

Incentives to invest being withdrawn “just at the time we need them most”

The CBI said that although the Government’s focus so far on ensuring stability had “cleared a path for the country to focus on growth”, the Spring Budget represented an “opportunity to get the UK out of any recession sooner rather than later and transform the UK into a high-growth, innovation economy.”

However, the business organisation expressed concern that investment incentives such as the “super deduction” were “being pulled away just at the time we need them most”. Corporation Tax, too, is set to go up in April from 19% to 25%, which will exert fresh pressure on firms across the UK.

The CBI argued that “full expensing” – whereby businesses could immediately claim back the cost of investment against tax liabilities – would help rescue the UK from a “low-growth trap”, bolstering business investment by as much as £40 billion a year by 2026.

By contrast, Mr Danker said, failure to replace the “super deduction” would “have a huge impact on investment and leave the UK falling behind its competitors”.

Is there much chance that the Government will heed the CBI’s call?

The short answer, it would seem, is no, at least according to reporting of the story. The Yorkshire Post cited “Treasury sources” as suggesting that the business organisation would not see the Chancellor announce any extension to the “super deduction”, which has reportedly cost the Treasury around £25 billion over two years.

The Government also said back in May about the notion of extending the tax break that “no other country in the G7 has implemented this on a permanent basis” – a hint that the “super deduction” was always meant as a time-limited policy to help power the UK economy out of the COVID-19 crisis.

Is your own business looking ahead with dread, or instead optimism, to the nearing Spring Budget announcement? Whatever the exact situation for your firm, the TS Partners team would be pleased to talk to you about how our tax compliance services in Newton Abbot, Plymouth or Wellington could help give your business fewer pressing worries in 2023.

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As the 2023 Spring Budget looms on 15th March, five trade associations have penned a joint letter to Chancellor of the Exchequer Jeremy Hunt, arguing that he should introduce measures in his upcoming Budget to help prevent the UK from falling behind the United States and the European Union in its green competitiveness.

The organisations behind the letter said that delays had hit a number of projects as supply chain companies found themselves battling high inflation and the energy crisis.

“No clear government plan to deliver green economic growth”

The joint letter from the chief executives of RenewableUK, Energy UK, Scottish Renewables, Solar Energy UK, and the Nuclear Industry Association said: “Despite our industry’s commitment to the low-carbon energy transition, we are concerned that there is no clear government plan to deliver green economic growth and continue attracting clean energy investment into the UK.”

The letter added that “many project developers and supply chain companies which were already operating within very small margins are now finding that profits are disappearing completely.”

The trade associations suggested that capital allowances should be reformed and financial incentives offered for investment in low-carbon energy, in the face of those the US and EU are offering in the Inflation Reduction Act and REPowerEU package, respectively.

Also pointed out by the letter was that while the UK Government had created an Energy Profits Levy providing 91% investment relief for oil and gas, it also had an Electricity Generators Levy, which offered 0% relief for clean power generators.

The organisations said that Mr Hunt’s Spring Budget could address this through the inclusion of an investment allowance in the Electricity Generators Levy. This, the trade associations argued, would allow for a level playing field with fossil fuels as part of a broader reform of the UK’s capital allowances system.

As Dan McGrail, CEO of RenewableUK, characterised the group’s position: “Investments in renewable energy and new supply chains may dry up unless the Chancellor takes decisive action and implements the key measures which we have set out in our letter to secure tens of thousands of high-quality jobs and attract billions in private investment”.

It’s time to make moves to maximise your own business’s competitiveness in 2023

There is simply no time to waste for ambitious organisations that are looking to survive and thrive in their sector during the months immediately ahead. TS Partners’ know-how and track record in relation to such areas as accounting, payroll, and research and development tax relief in Wellington, Plymouth, and Newton Abbot could be of immense importance during 2023.

To learn more about our advice, help and solutions, and the difference they could make to your organisation’s prospects in the short, medium and long term, please do not hesitate to reach out to your nearest TS Partners office.

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The report that reached this conclusion was published by a House of Lords economic affairs committee. It provided a critical assessment of new compliance changes for R&D tax relief, suggesting that they lacked focus and would not be effective “in isolation”.

Lord Leigh of Hurley, chair of the Economic Affairs Finance Bill Sub-Committee, said to Accountancy Age: “Reforming the tax relief in itself isn’t enough. HMRC has come up with some ideas for compliance, which are put back onto the taxpayer, but what we’d like to see is HMRC putting more resources into ensuring that compliance works.”

What else has the subcommittee’s report said about the R&D tax relief changes?

The subcommittee’s report comprises views gathered from an industry consultation phase and scrutinises the UK Government’s proposed R&D reforms, as outlined in its latest draft Finance Bill.

The subject of R&D-related error and fraud is an especially urgent and relevant one at the moment, given that the aforementioned estimate of £469 million for the 2021/22 financial year represents a 40% year-on-year rise.

By way of reform, the Government has proposed a requirement to provide more information in relation to R&D tax relief claims. It will also be necessary to name any tax adviser involved and to have a senior officer of the company endorse the claim.

However, the subcommittee’s report urged the Government to take “a more focused and targeted approach to identifying suspect claims”. It reserved specific criticism for the current regime’s “process now, check later” approach, arguing that the improvement of guidance and communications to businesses could allow them to mitigate any errors prior to a claim being made.

In Hurley’s words: “The way the system works at the moment is HMRC first pays out and then investigates afterwards. And, of course, when HMRC attempts to recoup the money, the taxpayer may be there, but the agent has disappeared.

“We think HMRC should clarify that this is a payment which is subject to subsequent review.”

Nor did the report take a favourable view of the Government’s plan to refocus relief activity to expenditure in the UK instead of offshore. As an alternative, the subcommittee said there should be a form of “transitional relief expenditure” for specialised resources that cannot presently be found in the UK.

The report concluded that it was important for the Government to look beyond the draft Bill and consult on ways to improve the scheme.

To learn more about R&D tax credits in Wellington, Plymouth or Newton Abbot, don’t look further than our team

Not all businesses are aware that they are carrying out activities that would render them eligible for R&D relief – and if this is the case for your company, such tax credits could be highly advantageous from a financial point of view.

Here at TS Partners, we’re here to guide your organisation in the direction of opportunities such as R&D tax credits in Wellington, Newton Abbot, or Plymouth. To find out more and to receive tailored advice and guidance, please don’t hesitate to enquire to our tax and accounting professionals today.

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The UK Government confirmed on Monday, 19th December, that it was “giving a longer period to prepare” for Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA).

The news of the delay comes on the back of critics stating that government IT systems had not been adequately tested and that there was little awareness of the reforms among taxpayers.

What is the latest news on Making Tax Digital for income tax?

The Treasury said that the decision had been made to put back the date from which affected taxpayers would be required to use HM Revenue & Customs’ (HMRC) Making Tax Digital scheme for self-assessed income tax from April 2024 to April 2026.

The Government said it had delayed the date for the beginning of mandatory use of new software due to its understanding that “self-employed individuals and landlords are currently facing a challenging economic environment”, and because the transition to MTD for ITSA “represents a significant change to taxpayers and HMRC for how self-employment and property income is reported”.

The scheme, which is meant to help boost efficiency while minimising fraud, was first unveiled in 2015. When it does finally take effect, it will involve self-assessment tax returns being reported on a quarterly rather than an annual basis.

In addition to the two-year delay, the Government has changed the annual income threshold for MTD, from its initial proposal of £10,000 to £50,000 from April 2026. This change, according to the Financial Times (FT) newspaper, was made due to fears that the lower limit would be overly burdensome for small businesses. The threshold is set to be reduced to £30,000 from April 2027.

The Treasury said it would consult on the requirements of businesses that will eventually fall below the £30,000 threshold to ensure the income tax digitalisation is in line with their needs.

Tax agents ‘uncomfortable with low taxpayer awareness of MTD’

The announcement of the latest MTD delay is in many ways unsurprising; Alison Hobbs, who chairs the digital strategy committee of professional bodies the Chartered Institute of Taxation (CIOT) and the Association of Taxation Technicians (ATT), said the postponement “had to happen” as a result of “incredibly limited testing” of MTD and the “significant problems still to be resolved”.

The FT also referenced a poll of tax professionals undertaken by CIOT and ATT earlier in December, which found that 97% of tax agents were uncomfortable with the low level of awareness of MTD among taxpayers. A mere 36% of respondents thought it was a useful move to switch from annual to quarterly reporting.

With HMRC’s original 2015 proposals reportedly having been intended to see a launch of MTD for income tax in April 2018, it is clear that the scheme’s implementation is now severely delayed – leading one tax professional quoted by the FT to describe it as “the Crossrail of tax reform”.

HMRC chief executive and first permanent secretary Jim Harra said the department was still committed to delivering MTD “as a critical part of our strategy for digitalising and modernising the tax system”. He added, though, that “we want to make sure we get this right and deliver it effectively.”

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