A consultation on draft clauses for inclusion in Finance Bill 2023-24 was launched on 18 July. ICAEW’s Tax Faculty made representations on four key areas raised by its members.

Merged R&D tax relief scheme

The main message expressed in ICAEW’s response was that the commencement date of 1 April 2024 is too early for sufficient consultation on the proposed measures. Affected companies need more time to adjust commercial behaviour and contracts. The overall message was to allow the large volume of changes over the past few years to bed in before introducing such a fundamental reform.

In particular, problems were identified with the proposed treatment for subcontractor arrangements. It is proposed that the principal to the arrangement will be entitled to the relief (aligning with the current SME scheme) rather than the subcontractor, as under the research and development and expenditure credit (RDEC) currently available to larger companies. Subcontractors claiming under the RDEC make up a significant proportion of the UK economy. ICAEW is concerned that this move would remove a valuable incentive from these companies. The response includes a suggestion that the merged scheme and RDEC run in tandem for several years to ease transition, as it did when RDEC was introduced.

Tougher measures for promoters of tax avoidance

The Tax Faculty expressed concerns that draft provisions were being consulted on barely a month after the initial consultation closed. One of the most significant problems identified was that individuals could be found guilty of a criminal offence of failing to comply with a stop notice, even if the notice was subsequently overturned by a tribunal. It identified a number of potential safeguards to resolve this issue.

The faculty also suggested that stop notices should be issued at a higher level of authority if they might ultimately lead to a criminal offence. It also recommended that the measure includes a sunset clause, so it can be reviewed periodically for effectiveness.

With regard to the second proposed measure (extension of the ability to disqualify individuals from becoming directors in the future), the faculty suggested introducing a safeguard to allow individuals to demonstrate that they had no knowledge of the promoter activities of the company concerned.

Changes to the data HMRC collects from customers

ICAEW’s Tax Faculty questioned the reason why the additional data is to be collected. In the original consultation on this measure, HMRC indicated that the information would primarily be shared with other government bodies, but the draft provisions are predicated on the basis that the information is required for the purpose of the collection and management of the relevant taxes.

The faculty recommends that HMRC re-examines what benefits would be gained from obtaining this information, especially the employee hours requirement. It suggests that the cost to businesses of collecting and reporting this information has been underestimated. A clear benefit should be demonstrated before applying this additional administrative burden.

Abolishing the pensions lifetime allowance

The Tax Faculty understands the government’s aim of encouraging older workers to stay in employment and retired workers rejoining the employment market. However, in its response, the faculty considers that the proposals would introduce further complexity to the tax system and would not achieve the certainty that individuals need when saving for their retirement. It suggests that a higher lifetime allowance might achieve these aims without creating additional complexity.

The accompanying policy document had also implied that changes might be made to the taxation of benefits received under benefit crystallisation events 5C and 5D (relevant unused uncrystallised funds applied for drawdown or annuity following a death before the age of 75). In response, the faculty also suggests that these and any further changes to the pensions tax regime should not be made without announcement at a fiscal event, and that sufficient time for detailed consultation should be provided.