Panellists

• Stephen Relf, Technical Manager, Tax, ICAEW
• Lindsey Wicks, Senior Technical Manager for Tax Policy, ICAEW
• Frank Haskew, Head of Taxation Strategy, ICAEW

Producer

Ed Adams

Transcript

Stephen Relf: Hello and welcome to The Tax Track, the podcast series from ICAEW, where we explore the latest developments in the world of tax. In this episode, we’ll look back at 2024, including the Budget on 30th October, before focusing on some of the areas that have kept us busy during the year and are likely to again in 2025.

Frank Haskew: We were particularly interested in the budget, focusing on growth. Whether that will be the case is a question.

Lindsey Wicks: This has again been a year of two halves in terms of direction of travel.

SR: I’m Stephen Relf, Technical Manager, Tax at ICAEW. Today, I’m joined by two colleagues in the institute’s tax team, both of whom have an encyclopaedic knowledge of tax. Welcome Frank Haskew, Head of Tax, and Lindsey Wicks, Senior Technical Manager for Tax Policy.

LW: Hi, Stephen.

FH: Hi Stephen, thank you very much for that warm-up.

SR: So then, 2024 will be remembered for the general election, which saw a change in government, with the Labour Party taking power for the first time since 2010. Frank, clearly it has been a very busy year politically, but what has that meant for tax?

FH: Well, it was certainly a year of two halves, wasn’t it? So in the first six months we had, of course, the spring Budget from the previous government, which, as we saw, there were tax cuts in the form of employees’ national insurance. But also, of course, the previous government did announce changes to things like non-domicile status and furnished holiday lettings, which are still continuing today. There was, then, of course, feverish speculation after the general election was announced. There were obviously a lot of manifesto commitments. We had, in particular from the Labour Party, which I’ll just quote you from it: “Labour will not increase taxes on working people, which is why we will not increase national insurance, the basic, higher or additional rates of income tax or VAT”, which, as we now know, is somewhat short of all the potential taxes.

That did kick-start a debate about what was meant by working people. You know, I’ve been in tax a long time, coming up to 40 years, and I think in all that time, I’ve never seen so much feverish speculation in terms of what was going to be in the Budget on 30th October. We saw, obviously, a lot about closing the tax gap, one of the major features of it, but we also saw, obviously, changes, further stiffening of the non-dom rules was on the cards, business rates and VAT being applied for private schools, carried interest was another. So we knew some of the things that were likely coming down the track, but I think it’s fair to say that when we actually saw the Budget, it was a bit of a surprise, I think it’s fair to say, in terms of its overall revenue raising. We’d also had quite a lot of discussion about a £22bn black hole left by the previous government, so I think when it finally arrived, in some ways, it was a bit of a relief that the speculation was over, but I think, you know, we’re having to now live with the aftermath of it.

SR: You’ve mentioned the word speculation quite a lot there, and I think all of us realised there was an awful lot of chat before the Budget, I think because we had such a long lead-in time, and a lot of that did centre around the possible increase in employers’ national insurance. Now we now know that that did happen. Lindsey, that was probably the headline from the Budget, I would guess. Could you maybe tell us more about it?

LW: As you say, it was the biggest measure in the Budget. And really, there were four changes around employers’ national insurance. The first was the rate increase of 1.2 percentage points, so the rate will increase to 15% from next April; the secondary threshold will decrease from £9,100 to £5,000. The employment allowance that can be offset against employers’ national insurance will increase from £5,000 to £10,500. But the employment allowance currently has a restriction of £100,000 secondary class one national insurance – that’s going to be removed, so more employers will be able to benefit from that employment allowance as well.

SR: So then this is a package of measures, which, taken together, do represent a significant tax rise, but that doesn’t necessarily mean that all businesses will pay more. So just looking quickly at the government’s estimates, 250,000 employers are actually expected to pay less, 820,000 shouldn’t see a change, and 940,000 will pay more. So, Lindsey, what is this likely to mean for those employers who will find themselves out of pocket?

LW: Well, I think that for many it’s going to have a big impact on their investment plans and potentially growth of the economy. It was interesting, the OBR, in its fiscal outlook published alongside the Budget, actually anticipated that 60% of that increase will be passed on, either through lower wages or through higher prices. And the lower wages piece is quite interesting, given the language used by the Labour Party in its manifesto about working people not seeing higher taxes on their payslips, but the reality is that their pay may not increase by as much as they’d hoped. And I think one concern that we have at ICAEW is that these high rates could distort behaviour, because there is a big cost to employers hiring people as an employee, compared to taxes on self-employed, for example.

SR: Okay. So, Frank, you mentioned earlier about some of Labour’s manifesto commitments, particularly around private school fees, and also that contentious area of working people. One of those commitments, though, was to publish a business tax roadmap at the Budget. Could you tell us a little more about that?

FH: They’re following in the footsteps, really, of previous governments. We had a business tax roadmap back in 2010, when the Conservative/Lib Dem coalition came into power. We actually saw the Minister about a month before the Budget, and he was at pains to stress it was a corporate tax roadmap, not a business tax roadmap. I think pretty much everybody around the room said that we need a holistic look at business taxes, and I think what we’ve seen subsequently in the Budget probably explains why he was keen to emphasise it was a corporate tax roadmap and not a business tax roadmap, because obviously we had the changes to national insurance, which, on the face of it, I think, you know, as Lindsey’s just said, pretty much cut across potentially some of the principles behind the corporate tax roadmap. But if we put that aside, the corporate tax roadmap, I think, was certainly seen as helpful to businesses and the words that they’re using in it are ‘enabling growth’, ‘investment’, ‘predictability’, ‘stability’, ‘certainty’. So there were some pretty extensive commitments, actually, in the business tax roadmap. And we had a commitment that the CT rate will be capped at 25%, and that the small profits rate and marginal reliefs would be kept at the same rate. We also had quite a lot on capital allowances. Effectively, the existing system was pretty much going to be maintained for the life of this Parliament, so full expensing, annual investment allowance, writing down allowances, structure and buildings, etc.

There’s going to be some exploring greater clarity on what qualifies for capital allowances and some simplification. It does look as though we might actually get, for the first time for many years, a consolidation, because there’s talk of potentially consolidating the Capital Allowances Act, or reconsolidating. R&D will be maintained at its existing rates, and all the patent box, intangible assets, fixed assets, etc, all of those would continue. There’s going to be a consultation on the effectiveness of land remediation reliefs. We have, of course, seen in recent months, efforts to … I would say avoidance, in the whole land remediation area. So that could be quite interesting. There’s also quite a lot about international corporation tax. It’s continued to support pillar one and pillar two, but I think at this rate, we could find that that all needs to be reviewed in short order at the beginning of 2025. It was a welcome move, but already some events elsewhere have sort of made businesses very concerned about stability and certainty.

LW: Yeah, I think it’s a shame it wasn’t a holistic business tax roadmap, and some of the language was interesting. So we’ve got a lot of consultations so, again, they don’t necessarily give that certainty. They do signpost that there could be a change, and also they might make a commitment to maintain allowances, but they don’t commit to a rate, so I think the only commitments that we’ve got are in terms of the corporation tax rates and the R&D rates.

SR: It’s an interesting point you make about language there Lindsey, especially given what we’ve said already about the definition of working people and the language used in the manifesto. So perhaps the Labour government have learned from that situation and have potentially giving themselves a little bit more wriggle room now with the language used in the roadmap.

LW: Yeah, I’d agree with that. They haven’t necessarily boxed themselves in, but equally, it does then raise the question about whether it delivers the certainty required.

SR: Okay, so there is some positive news from the Budget in the form of the business tax roadmap. But this does remain a significant tax-raising Budget. How, then, does it deliver on ICAEW’s pre-Budget asks, Frank?

FH: We’d obviously asked for a business tax roadmap, and we got a corporation tax roadmap. So that was, you know, a good tick in the box. We were particularly interested in the Budget focusing on growth. Whether that will be the case is a question. We also asked for a sort of fundamental review of the effectiveness of the tax system, simplification of CT and potentially a new reconsolidation of capital allowances. So we do have some measures that could be a long-term move towards simplification. But I think, my personal view is, I think we’re as far away from simplification as we’ve ever been.

But just, I mean, just going on to the spending policy decisions, I mean I have to say, I was pretty shocked when I saw the Red Book, to be honest. I mean, we all remember what happened to Kwasi Kwarteng when he presented figures which had £40bn net spending, but the fact was that this Budget was looking to, is raising about £40bn a year by the end of this Parliament, but that’s dwarfed by the almost £80bn extra spending. So we’re coming down to a net spend, even so, of £40bn a year. Well, as we saw back in 2022, you know, that’s seriously on the markets. We haven’t had quite that reaction so far, but I don’t think it would take much to sort of go off course. I mean, the Chancellor was at pains to stress, really, that this was a Budget and was, like, almost once and done, and they wouldn’t be coming back to a lot of these tax-raising measures in the future. But I have to say, having, you know, having seen the numbers, I don’t have any confidence, I think, that that will continue for the life of this Parliament.

SR: Okay, so perhaps not once and done; maybe we will be revisiting some of these things in the future. Lindsey, was there anything for you that stood out as not being in the Budget that ICAEW would have liked to have seen?

LW: Yeah, there were a few things that we asked for where the Budget was silent on and one was around improving certainty of employment status for tax and, as I’ve said, you know, the difference in tax rates now between being employed and self-employed, that is one thing that is going to become more important. As we know we’d like to see the VAT system made more efficient. Ed talked about that on the last podcast. Again, apart from VAT on private schools, we heard nothing about VAT in the Budget.

And we also talked about attracting investors by simplifying the venture capital reliefs. So, we did hear that those reliefs are going to be extended to 2035, but the reliefs themselves are actually quite complicated, and I’ve seen it quite often likened to being a straitjacket for the companies that raise that money. So, you know, there could be an opportunity there to simplify those rules. And there were a few things that were kind of contrary to ICAEW’s asks. So, we asked that the government ensured that capital taxes support long-term business investment and, in particular, we highlighted that IHT can affect family business succession, so the plans to limit the amount of agricultural property relief and business property relief are effectively contrary to that ask. You know, the farmers have been very vocal about how it’s going to affect them, but actually it could affect many sectors.

Frank’s also mentioned the taxation of non-UK domiciled individuals and how that regime was going to change, and that was originally announced back at the spring Budget, but the consultation timetable for that got curtailed by the general election, and we were originally expecting draft legislation back in the summer for consultation. And given the complexity of those rules, we did ask that that timetable was delayed to allow for proper consultation, but as it stands, we got draft legislation on Budget day, for the regime to change from this April. But actually, between that draft legislation published on Budget day, and the publication of the Finance Bill just over a week or so later, there have already been changes to that legislation, and there’s likely to be quite significant changes as that Finance Bill gets debated through Parliament. So, you know, it doesn’t help with certainty and people’s planning of their tax affairs, so it’s disappointing that that timetable hasn’t, you know, there hasn’t been proper consultation on that draft legislation.

SR: Okay, so let’s park the Budget for now and move on to some of the topics that kept us occupied in 2024, starting with regulation of the tax profession. Frank, it felt to me that this came out of nowhere in March 2024 when the then government published a consultation document. But it wasn’t completely new, was it?

FH: Yes, it has been around, you know, for quite a long time now, but I think it’s been sort of bubbling away, sort of on the back burner, probably, but I think it is slowly but surely coming on to the front burner, I think. I mean, the previous government published that consultation in 2024 as you said, March 2024, and there were three potential options for regulation. There was the mandatory professional body membership option, which I think was pretty much the preferred option, although that brings its own problems with it. We had, like, a joint industry/HMRC enforcement, the so-called hybrid model, where, effectively, HMRC would monitor and enforce standards among what they call the unaffiliated sector, which is about 35% of the tax agent market, certainly by numbers, but probably nowhere near that by value. And then the final one was either a new or existing statutory regulator. And the other thing which was mentioned in that, which has now really come on to the front burner, is the mandatory registration of agents who provide tax services.

SR: Okay, so the Institute did respond to the consultation, and I can imagine that took some doing, pulling all the different views together. But can you just give us a very quick summary of where ICAEW was on it?

FH: ICAEW did favour option one, which is the mandatory professional body membership, but we made it clear that any change had to be in the public interest, and that should be the guiding principle. We also made clear that effectively, under no circumstances would ICAEW consider diluting or watering down our existing professional body membership obligations, which in practice, would mean that very few of the unaffiliated sector would be able to join ICAEW, even with a transitional period, because of the way that you would need to effectively cease to practice while you were studying for the ICAEW. So, I think the jury is still out on the most appropriate way of dealing with this.

SR: We did get an update of sorts in the Budget, didn’t we? So could you just say a few words about that?

FH: It was a summary of responses, it was billed as, so from April 2026 tax practitioners who wish to interact with HMRC on behalf of clients are going to need to register with HMRC. And there’s a whole list of potential checks that HMRC could look to do as part of that registration process. There’s going to be a technical consultation on this published ahead of the Budget in 2025, I think we’ll probably expect it relatively early on in 2025. And then we’ve got some more targeted measures, so the government’s going to be publishing some consultations, probably in January, particularly one on enhancing HMRC’s powers and sanctions against tax advisers who facilitate non-compliance. There’s also going to be another, like, promoters of tax avoidance schemes mark two, so there’s going to be a further consultation on trying to tackle promoters. And there’s also going to be that any tax practitioner who wants to submit an income tax repayment claim on behalf of a client will be required to obtain an advance electronic signature from their client to prove they have been authorised to make the claim. And there’s going to be further discussion and consultation on the best way of raising standards more generally, and I think that the jury is still out on exactly how that will pan out.

LW: Yeah, I think we’re probably looking for at least three to six months before we hear more on that.

SR: I think that may be something to look forward to for a future podcast from the sound of it then. So, next, we know that HMRC service levels are a problem for taxpayers and agents, and we know this from a number of sources, including the feedback we get from our members and from reports by bodies such as the National Audit Office. Lindsey, can you give us a few words on why this is a big problem for agents and taxpayers?

LW: Yeah, I think that what we hear from our members is that they’d like to be in a situation where they don’t have to pick up the phone to HMRC or go on a webchat, they’d like to be able to do more digitally, but unfortunately, the services aren’t there, or there are issues that they need to resolve over the phone. But this has again been a year of two halves in terms of direction of travel, so back on episode seven of the podcast, we talked about that National Audit Office report and things like the helpline restrictions that had been planned to come in. They were announced on 19th March, but then, following a big kickback from the profession and taxpayers, that decision was reversed very quickly the following day, on 20th March. We knew that something was going to have to change following that announcement. So, at the end of the day, HMRC is being asked to do more, we’ve got a growing taxpayer population, with less – you know, the funding and the staffing numbers have declined. So on 13th May, £51m of new funding was announced to allow 85% of calls to HMRC be answered. That’s the target, so that funding came in to try to meet that target. And at the time, we said that given training and recruitment time, we probably wouldn’t start to see the benefits of that funding until about this time of year, so we said it’d probably be autumn before we saw things improve.

SR: So things may start to get better, but we’re certainly watching the situation. But Frank, was there anything else in the Budget or from any other government announcements of late that would give us reason to hope?

FH: Well, I think we are already seeing a few green shoots, aren’t we, from members and feedback in terms of improvements in HMRC service standards. But I think the fact is that that money is only available for effectively this year and next. So, you know, will it be sustained is clearly the major question. I think, though, we do have a government which is probably going to be more hands-on with HMRC in a way we haven’t seen for probably a long time. And one really interesting development, which I think sort of went under the radar a bit, was the fact that the Exchequer Secretary James Murray has been appointed as the chair of HMRC’s board, I think he is somebody who clearly is taking a very active interest in exerting, I think, greater oversight of the activities of HMRC. It will be also quite interesting to see who actually replaces Sir Jim Harra, First Permanent Secretary to HMRC, who will be retiring in the first quarter of 2025.

SR: So, in the meantime, we are still keeping a close eye on this, and I know that you Lindsey, in particular, are working on a project relating to HMRC service levels. Could you tell us a little about that?

LW: Yeah. So ICAEW has joined forces with the Chartered Institute of Taxation to do some data gathering. So over a six-week period through September and October, 30 firms collected data on their interactions, either via telephone or webchat with HMRC, to give us some real insight as to how long it takes to connect a call, what the outcome of that call was, did they actually get connected and things like that, and our early data has indicated that that £51 million of additional funding announced back in May does seem to have bolstered connection rates. From that sample of data that we collected, it does appear that HMRC is meeting its target of 85% of calls being connected. On the flip side of that, what the data is also indicating is that resolution rates are poor. That means that there’s more contact as a result, so you don’t get a resolution first time, you’ve got to contact HMRC again. A lot of the things announced back in the Budget are focused on compliance and not the customer service or digital services, although we are expecting a digital roadmap for HMRC in 2025. Now the outcome of this data gathering is that we will have a report that will be issued later this month, and that will contain some recommendations for how HMRC can improve its services.

SR: So we will be covering that report in our tax news service, in TAXline and TAXwire, so please do look there for updates. Okay, so we’ve dealt with the headline items for tax in 2024, but what about 2025? Lindsey, what do you expect our members to be spending time on in the year ahead?

LW: Well, one thing that we did get clarified in the Budget is that making tax digital for income tax self assessment [MTD ITSA] will go ahead from 2026 so this will affect self-employed and landlords, initially for those with a turnover over £50,000 from April 2026 and then for those with turnover over £30,000 from April 2027, so I think that’s going to be keeping both taxpayers affected, and our members advising them, very busy in 2025 as they get ready for that change.

SR: We did do a podcast early in the year on making tax digital, but I suspect we’ll be doing another one early in 2025 and no doubt again later as well. Frank, does anything stand out for you for next year?

FH: Oh, gosh, well, I’ve got my crystal ball here, Stephen. I mean, there’s going to be a confetti, I think, of consultations coming down the track in 2025, but I think the standout thing for me, giving it a bit of thought, is that we’ve got our work cut out. We’ve got this agent registration coming in in April 2026, which, as we’ve heard, is at the same time as the introduction of MTD. I think the agent registration may sound a relatively straightforward development, but I don’t think it’s going to be, and we’re only just, you know, we’ve only got just over a year, so there’s a lot of work to do there, I think, on the whole agent registration process. And when you add that to MTD, I think it all adds up to a huge workload coming down the track for agents and potentially their clients.

LW: Yeah, yeah. I mean, the agent registration process at the moment is something we do hear from members about, because it is a largely manual process, and there’s no visibility about where your registration is in that process. And, actually, there’s a huge amount of different journeys, so I think there’s 29 different taxes with potentially 19 different journeys depending on what tax you’re registering for. And the aim is to have a single digital system to do that, but, like you say Frank, £36m doesn’t necessarily feel like a lot when you’re developing a single system at pace.

SR: So in conclusion, then, 2024 has been a very busy year in tax, and I think we can expect much the same, if not more, from 2025. That’s it for this episode. Many thanks to Frank and Lindsey for your contributions.

LW: Thank you, Stephen.

FH: Thank you.

SR: And thank you for listening. All of the topics we’ve discussed today are covered in more depth in the articles linked in the show notes. If you found this useful, then don’t forget to subscribe so you never miss an episode. You can rate and share the podcast, too. We’ll be back next month with the next Tax Track. In the meantime, why not check out our sister podcasts from ICAEW. Accountancy Insights provides business finance and accountancy analysis, while each episode of Behind the Numbers offers a deep dive into a selected topic. There’s also the students podcast aimed at young professionals. If you’re not already a member of ICAEW’s Tax Faculty, remember that institute members can join the faculty for no additional cost. Faculty members receive our monthly TAXline bulletin and, in addition, anyone can subscribe to receive our weekly TAXwire bulletin containing the latest tax news from ICAEW. Thank you for listening.