‘The Contributions Agency will be transferred to the Inland Revenueobert Maas. with effect from April 1999. This is a government which does not simply talk about cutting the cost of bureaucracy and red tape but takes decisive action necessary to achieve it.’ So said the chancellor in his Budget speech.
Most readers would welcome the CA being merged into the Revenue. Slashing red tape and simplifying administration is great news for employers. Or is it? What exactly is being proposed?
The answer is to be found in the report by Martin Taylor, chief executive of Barclays Bank, entitled ‘The Modernisation of Britain’s Tax and Benefit System’.
The transfer reflects his recommendation. His report tells us: ‘Understandably some employers and representative bodies argue for closer alignment of the detailed charging rules for tax and NICs … Bringing benefits in kind generally into a Class 1A NICs charge would be such an alignment, assuming it also followed income tax rules …
‘This could be started by bringing NICs’ operational and policy functions together with their tax equivalents in the Revenue. Such a move would send a strong signal that the government was serious about reducing business costs’.
There is a great deal there that should worry readers. Which representative bodies have argued for the closer alignment of tax on NIC?
The English ICA’s tax faculty certainly has not.
It has argued for a closer alignment between PAYE and NIC, which is a very different thing. I think that the position of the Chartered Institute of Taxation and of the Institute of Directors is similar. Using the same earnings figure to deduct both PAYE and NIC would be widely welcomed.
Give a tax its true name
But is industry begging for NIC to be imposed on benefits that do not attract PAYE? If it is, I do not find that ‘understandable’. It would not be a simplification.
For most small businesses – and I suspect many large ones also – it would be a nightmare. Few are easily able to identify the payment of benefits.
Many businesses already have great difficulty in completing accurate P11Ds.
To have to use a variant of the P11D figure to calculate and pay a new NIC charge where none exists at present does not give me the appearance of simplification.
Equally, to impose a Class 1A-type charge that is not part of the contributory principle, so does not increase employee’s benefits, and is calculated at the end of the year, does not seem to me to have much to do with NI. It is a tax, pure and simple.
If the government wants to impose an extra tax on benefits it is entitled to do so, but it should have the honesty to call it a tax, not pretend it is something to do with NI.
And why does Mr Taylor think imposing an extra tax charge on employers would demonstrate ‘the government was serious about reducing business costs’? That seems to come straight out of ‘Alice in Wonderland’. In the real world, imposing a new payroll tax does the exact opposite of reducing business costs.
Stand up and be counted
Which employers urged this extra tax charge on Mr Taylor? Barclays, I assume, but who else? And which bodies called for it?
If the FDs of such companies or the secretaries of such bodies read this newspaper, please write in and explain your support for the principle of higher taxes on employment. Those of us who find this economic nonsense are entitled to expect you to stand up and be counted.
Or is a new tax on benefits in kind not what industry is looking for? Has Mr Taylor misunderstood the representations? If so, it is very unfortunate, as he seems to be urging the government towards such taxation.
What does seem clear is that Mr Taylor envisages the CA continuing its separate existence, continuing to come along and audit where the Revenue has trod before, continuing to apply different criteria or ordinary residence, and continuing to give different ruling on employment status.
What he is seeking is not a merger. It is merely that the two organisations should have the same head.
Why the chancellor thinks this will cut the cost of bureaucracy or reduce red tape is a mystery to me. But then I am probably too logical to be a politician – or, it appears, to be a banker either.
Robert Maas is a partner with Blackstone Franks.
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