Board minutes - 7 April 2011

Present

Rt Hon Michael Jack – Chairman
John Whiting – Tax Director
Dave Hartnett – HM Revenue and Customs
Edward Troup – HM Treasury
Teresa Graham

Secretary

Jeremy Sherwood

Apologies

Adam Broke was unable to attend, but instead submitted some written points on the agenda items that were taken into account by the meeting.

1. Minutes of the last meeting

The minutes of the 23 February 2011 meeting were formally agreed. All matters arising would be covered by later agenda items.

2. Reaction to reports and evaluation

The reliefs review final report was published on 3rd March, and the interim report of the small business tax review was published on 10th March, both to the agreed deadlines. Michael Jack was delighted that the OTS reports received an early and prominent mention in the Chancellor’s Budget speech, and it was pleasing that a good number of the OTS recommendations had been publicly agreed to by the Chancellor. The media response had been generally favourable, with considerable buy-in and interest, especially from the specialist tax press, in the continuing work of the OTS. One reason for the success of the reports was the combination of private sector and civil service specialist skills, which had combined well to produce good quality reports to tight deadlines.

Dave Hartnett said that from HMRC’s point of view the OTS had made a great start and had proved its usefulness. Edward Troup echoed this and was impressed with what had been achieved with fairly limited resources. John Whiting had appeared before the House of Commons Treasury Select Committee as part of its enquiry into the Budget. The Committee had been basically approving of the OTS’s work, and if anything had given the impression that its scope should be expanded. There had been a particular interest by some MPs in the process for choosing future projects – John Whiting had explained how this would involve the OTS suggesting a menu of possible projects to Ministers, who would then agree with the OTS which should be prioritised.

3. Continuation of small business review

The Budget had announced that one strand of the small business review to be taken forward would be a project looking at improving HMRC’s administration of the tax system for small businesses. The OTS was discussing details with HMRC’s Business Customer Unit, and looking with them at a possible research project to identify where the real burdens and complexities lay. Teresa Graham asked the OTS to make sure that the Administrative Burdens Advisory Board was involved in the small business review. On IR35, HMRC would lead on taking forward the administrative changes announced in the Budget, with some members of the OTS Consultative Committee joining the IR35 forum being set up by HMRC. Beyond that, the OTS would draw up scoping documents for other elements of the small business review that could be taken forward, based on the areas of complexity identified in the interim report.

4. Future reviews and staffing

Michael Jack and John Whiting had met with the Chancellor and Exchequer Secretary shortly after the Budget to discuss the reviews conducted so far, and to agree the process for deciding areas for future simplification reviews. These would to some extent determine the resources of the office going forward. Both Michael Jack and John Whiting felt that the OTS should not become significantly bigger, but should continue to be fairly tightly focused and able to carry out a small number of projects to a good level of depth and quality. The Board discussed some specific ideas for future projects in more detail and agreed that the OTS should carry out more work in scoping these out before the next Board meeting, identifying what the simplification outcomes of each project were likely to be. The aim would then be to write formally to the Exchequer Secretary setting out a menu of possible projects for him to choose from.

One suggestion was that alongside this work, the OTS should carry out a project in parallel aiming to look across the tax system and identify areas where there was particular complexity. This would first require further refining of the OTS’s thoughts on what tax simplification was, and how best complexity could be measured. The point was made that complexity meant different things to different people – for example the rules on leasing, repos and loan relationships were particularly complex but this in part reflected complex financial products, and those affected had experts to advise them on the tax law.

On the other hand, there was a strong feeling that pensioner taxation was particularly complex, with a pensioner’s tax return often being more complex to complete than a return for a high-earning employee, due to multiple sources of income and special allowances and reliefs. Share scheme rules were also complex to understand and administer and tended to be operated by payroll and human resources staff rather than tax experts. The reliefs review had identified some taxes – such as the aggregates levy – which appeared to be particularly complex because of the sheer number of reliefs available.

5. Any other business

OTS budget – As accounting officer for the OTS, Edward Troup asked the secretariat to provide for the next Board meeting in May a report on the OTS’s expenditure against the planned budget for 2010/11, and to set out the proposed budget for 2011/12 so that it could be formally agreed by the Board. In advance of the May meeting, Dave Hartnett and Edward Troup would discuss with the OTS what the respective contributions to the budget would be from HMRC and HM Treasury.
Staffing – The Board discussed the OTS model of staffing its team from unpaid secondees, and considered that whilst this had worked so far, it might be difficult to attract secondees from smaller businesses or firms on this basis.
Consultative Committee members – the Board agreed to appoint to the small business review consultative committee the two OTS team members who had recently left the review – Kate Cottrell and Partha Ray.
Recruitment of permanent Chairman and Tax Director - HM Treasury would be carrying out a recruitment exercise for these posts shortly. The Board suggested putting an advertisement on the OTS website.Future OTS Board meeting dates – these had been set for 12 May, 29 June, 22 September, 9 November and 8 December, all at 11:30am.