Crystal ball gazing at the start of the year is always challenging. However, one thing is certain: 2024 is a general election year. That means a disrupted Budget and Finance Bill cycle and tax policy being used as a political tool to win votes.

General election

A general election must be held by 28 January 2025. There had been rumours that Prime Minister Rishi Sunak would cling on until the last possible moment before calling an election. However, on 19 December 2023, he told a gathering of journalists in Downing Street that 2024 will be an election year.

The actual timing of the election will determine its impact on the tax policy cycle and tax policy development. Assuming the Spring Budget will take place before the election is called, we can expect tax announcements designed to win votes. These will inevitably be biased towards individuals rather than businesses.

Once an election has been announced, civil servants must remain politically impartial. Until new ministers and MPs are sworn in, major decisions on policy are postponed unless it is in the national interest to proceed, or a delay would waste public money.

The timing of the election can also affect the amount of parliamentary time available for scrutiny of a Finance Bill. Income tax and corporation tax are annual taxes that must be renewed by legislation each year. Budget resolutions provide temporary statutory effect under the Provisional Collection of Taxes Act until the Finance Bill is passed. However, the resolutions cease to have effect if Parliament is dissolved ahead of a general election. 

This means that in an election year, Finance Bills can be enacted at pace. For example, Finance Act 2015 had its first reading on 23 March 2015 and Royal Assent was on 26 March 2015. Parliament was dissolved on 30 March 2015 ahead of the general election on 7 May.

Following an election, any new government may want to hold another Budget to reflect its manifesto commitments. This may lead to another Finance Bill.

Mid-year tax policy announcements could potentially give rise to changes required at relatively short notice to tax software (particularly payroll software), blended (average) rates, and updates to HMRC’s systems and guidance. This could well add pressure to HMRC’s already strained resources. Which brings us neatly on to HMRC’s service standards.

HMRC’s service standards

ICAEW members will be all too familiar with the challenge of getting queries resolved by HMRC. ICAEW has been flagging concerns with HMRC service levels since 2008. Rather than seeing any improvement, the position has been worsening.

The key issue is that HMRC is not resourced to meet the current demand for help and assistance required by taxpayers and agents. The facts are:

• In the five-year period from 2018 to 2023, the number of customer service staff at HMRC reduced by 24% from 25,500 to 19,500.
• The freezing and reduction of personal tax thresholds at a time of high wage inflation and rising interest rates is bringing more taxpayers into the system. In addition, a greater number of taxpayers have more complex tax affairs. The Office for Budget Responsibility (OBR) estimates that between 2022/23 and 2028/29, the threshold freezes mean that nearly four million additional individuals will pay income tax, three million more will move into the higher rate and 400,000 will move into the additional rate. The OBR’s estimates increase at each successive forecast.
• In December 2023, Jim Harra, First Permanent Secretary and Chief Executive, HMRC, told the Public Accounts Committee that the number of calls and correspondence received by HMRC had both increased by three million compared with the previous year. Angela MacDonald, Second Permanent Secretary, HMRC, confirmed that this represented an increase in demand of more than 10%.

In an attempt to manage demand, the restrictions on HMRC’s helplines throughout 2023 continue. Both the self assessment helpline and the agent dedicated line are only answering a limited range of queries in the run up to the 31 January self assessment deadline. Certain categories of call are being directed to digital services.

HMRC believes that it can meet its service standards if it can reduce the volume of customer contact by phone and post by 30%, compared with 2020/21. It can only do this if it is able to shift demand across to its digital services. HMRC acknowledges that most of the shift needs to come from taxpayers rather than agents. 

ICAEW has repeatedly flagged the gaps in digital services for agents. Before the Public Accounts Committee in December, Angela MacDonald said: “It is true to say that we do not have the array of digital services available for agents that we do for the main citizen. In order to improve the level of service to agents, who are increasingly dealing with the complicated end, we need the broader set of citizens to move online.”

However, one of the key reasons that taxpayers want to speak to a person is reassurance. Interacting with HMRC is not like the normal customer service scenario. There are costs associated with making a mistake – both financial (penalties) and reputational.

Will we see improvements in service in 2024? HMRC is relying heavily on changing habits and getting more taxpayers and agents to use its digital tools to enable it to improve its telephony and post-handling performance. However, there is also the question of whether it will face a further headcount reduction. HMRC’s budget is being cut significantly from £5.7bn in 2023/24 to £4.7bn in 2024/25. 

Linked with HMRC’s ability to meet its targets is the disruption when it receives a high volume of repayment claims. Repayment agents frequently send in thousands of claims at one time, which often include claims where no repayment is due. Which is a great segway into the potential regulation of the tax profession.

Regulation

You do not need to be affiliated with a professional body to register as a tax agent. Anyone could decide to change careers and register with HMRC as a tax agent with no prior knowledge of tax. In fact, in many cases, you don’t need to register with HMRC.

If registered, an unaffiliated agent should follow HMRC’s standard for agents. While HMRC’s standard requires unaffiliated agents to act with integrity, apply professional competence and due care, behave professionally and follow HMRC’s standards for tax planning, there is no requirement for them to hold professional indemnity insurance (PII) or follow Professional Conduct in Relation to Taxation (PCRT).

HMRC has been consulting on raising standards in the tax advice market since 2020. To date, the actions have primarily been focused on repayment agents. These include:

• removing the ability to assign income tax repayments;
• introducing the requirement for all paid agents making repayment claims to register with HMRC;
• from 26 February 2024, requiring an agent reference number on P87 forms and marriage allowance claim forms;
• introducing the requirement for evidence to be submitted for all R40 (PPI) repayment claims;
• working with the Advertising Standards Authority resulting in the issue of an enforcement notice;
• prohibiting the assignment of rights to R&D tax credit repayments;
• removing the use of nominations for R&D tax credit repayments for claims made on or after 1 April 2024.

In 2021, HMRC consulted on introducing a requirement for all tax advisers to hold professional indemnity insurance. This was rejected for the following reasons:

• the consumer protection impact of introducing mandatory PII would be weak;
• mandatory PII is unlikely to work as a mechanism for removing the riskiest tax advisers from the market; and
• the potential impact on all advisers (ie, increased premiums).

Conversations have been continuing – not least to try to establish where the problems lie. A consultation is expected in the first quarter of 2024.

ICAEW’s primary concern has been to ensure that changes do not add costs and administrative burdens to compliant agents (whether affiliated or not). If taxpayers are not confident to handle their own tax affairs, but cannot afford advice, there is a risk that ‘going it alone’ could cause the tax gap to increase. Equally, if repayment agents are forced out of the market, unless action is taken to raise awareness of claims, taxpayers may not claim the refunds that they are entitled to.

Whatever happens in 2024, it is likely to be the start of the journey – not the end.

Lindsey Wicks, Senior Technical Manager for Tax Policy, Caroline Miskin, Senior Technical Manager for Digital Taxation, Frank Haskew, Head of Taxation Strategy