DRAFT FINANCE BILL 2017 CLAUSE 19 SCHEDULE 5 TRADING AND PROPERTY ALLOWANCES

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1 DRAFT FINANCE BILL 2017 CLAUSE 19 SCHEDULE 5 TRADING AND PROPERTY ALLOWANCES Response by the Association of Taxation Technicians 1 Introduction 1.1 The Association of Taxation Technicians (ATT) is pleased to have the opportunity to comment on the draft provisions on Trading and Property Allowances published by HMRC on 5 December 2016 as draft clause 19 and Schedule 5 (the Schedule) with a view to inclusion in the spring Finance Bill The Background note included at the end of the relevant Explanatory Note which was published with the Schedule summarised the thinking behind the two proposed allowances as follows: 36. At Budget 2016, the government announced two new 1,000 allowances each for property and trading income to take effect from 6 April The aim of the measure was to provide simplicity and certainty regarding income tax obligations on small amounts of income from providing goods, services, property or other assets and to help the UK become leaders in the digital and sharing economy. The government announced at Autumn Statement 2016 that the trading allowance will also apply to certain miscellaneous income from providing assets or services. 37. The new Part 6A inserted by this clause and schedule will provide for full relief on trading and property income of up to each allowance of 1,000. Individuals with income of up to the allowance will no longer have to declare or pay tax on this income. This eliminates the need for individuals to determine allowable expenses or contact H M Revenue and Customs (HMRC) to declare the income. The new Part 6A also introduces partial relief, which will apply when income is above the level of the allowance, if individuals choose to make an election to pay tax using the alternative method, broadly on their receipts less the value of the allowance, instead of deducting actual expenses. This would also mean that individuals would not have to determine their allowable expenses, providing simplification and certainty. Individuals that have expenses above the level of the allowance such as a typical landlord or person who is self-employed can do the same as now and pay tax on their profits calculated after deducting their actual expenses, and not to (sic) elect to use the allowance. 1.3 The primary charitable objective of the ATT is to promote education and the study of tax administration and practice. We place a strong emphasis on the practicalities of the tax system. Our work in this area draws heavily on the experience of our members who assist thousands of Registered in England and Wales Registered Office: 1st Floor, Artillery House, Artillery Row, London SW1P 1RT A company limited by guarantee: Number Registered as a charity: Number VAT Registration: Number

2 businesses and individuals to comply with their taxation obligations. This response is written against that background. 1.4 We comment in section 2 below on the format of the Schedule and in section 3 on various practical points which have been brought to our attention. Our comments in both sections are intended to enable the final version of the Schedule to deliver the objectives noted in section 1.2 above. 1.5 Section and paragraph references in this response are to those used in the Schedule or existing provisions of ITTOIA 2005 unless otherwise stated. 1.6 Our comments in this response are primarily made in relation to the trading income allowance. Where we comment on provisions which are essentially common to both the trading and the property income allowances, we do not repeat them in relation to the property income allowance. In section 3.5 below, we comment briefly on certain aspects which are unique to the property income allowance. 1.7 We have had the benefit of seeing the response prepared by the Low Incomes Tax Reform Group (LITRG) in relation to the proposed allowances. We endorse the comments in that response and wish our response to be read in conjunction with LITRG s. 1.8 This response includes comments on the following main aspects of the proposed allowances, with section references shown in brackets: The merit of formatting the legislation or the related guidance in clear steps to assist accessibility [2.1 and 2.2] Practical difficulties in relation to the required elections [2.3] The potential for the adopted numbering to cause confusion [2.4] The implications of excluding partnership trades from the definition of relevant trades [3.1 and 3.2.5] The definition of relevant income including the significance or otherwise of GAAP principles [3.2 and 3.3.9] The interaction of the Nil profit or loss treatment within full relief with other legislative provisions including Income Tax [3.3.2], Capital Gains Tax [3.3.3] and Inheritance Tax [3.3.4] The benefit of incorporating appropriate prompts in tax returns (or their digital equivalent) to highlight the inter-relationship of a loss claim with an election not to be given full relief and the significance and the definition of relevant income [3.3.6 and 3.3.7] A suggested minor amendment to clarify the mechanics of the election not to be given full relief [3.3.8] The cliff-edge impact of relevant income exceeding the allowance [3.4] P/ATTTSG/Submissions/2017 2

3 The apparent distinction in the definition of relevant income as between partnership trading income and partnership property business income [3.5.1]. 2 Format and language of the Schedule 2.1 We find the arrangement of the Schedule s paragraphs logical. We think that tax advisers will generally find them relatively easy to follow and apply. However, we do not think that the provisions as drafted will be very accessible to individuals who wish to know whether and how they can make use of the allowances. We think that the accessibility might be improved by: Setting out the provisions in steps that lead the non-specialist reader to understand how the provisions apply to their specific situation this would in our opinion make it easier to understand terms like relevant income ; Repositioning and /or possibly condensing the provisions concerning rent-a-room expenses (draft sections 783O and 783Z5) or perhaps including an introductory wording to state the purpose of those provisions so that they do not disrupt the flow of the Schedule. 2.2 Our strong preference is always for legislation to be self-explanatory without the requirement for supporting guidance. If, however, it is not possible to amend the format of the legislation (as suggested in section 2.1 above), we would recommend that HMRC publish detailed guidance which leads the reader through the thought process necessary to determine the relevance and application of the allowances to any particular situation. As always, we would be pleased to review a draft of any such guidance. 2.3 We appreciate that the inclusion of two separate elections (that out of full relief and that into partial relief) is significantly modelled on the rent-room legislation already contained in ITTOIA 2005, Part 7, Chapter 1. We also appreciate that practitioners and unrepresented taxpayers appear to be able to negotiate the rent-a-room provisions without too much difficulty. However, we think that three factors are likely to make the practical application of the proposed provisions less straightforward than those for rent-a-room: Like the rent-a-room provisions, the new allowance proposals contain two elections the election out of full relief and the election into partial relief. However, there are two significant distinctions in the provisions: Unlike the rent-a-room provisions, the new proposals impose a strict time-limit for making the election. Please see in this connection sections 799(3)(b) and 800(5)(b) of the rent-a-room provisions, both of which permit an election to be made on or before [the first anniversary, etc] or such later date as an officer of Revenue and Customs may, in a particular case, allow. It is unclear why a similar discretion should not be available in relation to the new allowances. We think that the availability of such a discretion would be important for example where an individual had commenced a trade, received receipts of no more than the P/ATTTSG/Submissions/2017 3

4 allowance in their first tax year but incurred expenses significantly in excess of the allowance. As they would have had no obligation to notify chargeability, they would not have received any relevant helpful prompts and nudges from HMRC about their tax position Unlike the rent-a-room election for the alternative method of calculating profits which endures (section 800(2)(b)) until withdrawn or until the individual s rent-aroom amount for the tax year is no more than the rent-a-room limit (section 800(6)), the section 783N election has to be made for each year in which the individual requires it to apply. One consequence of this (in conjunction with the absence of any departmental discretion see section above) is that a missed section 783N election means that the individual is then required to claim expenses on a formal basis whereas they may have been relying on the availability of the allowance and not maintained any record of expenses. It is unclear why an election under section 783N should not endure in the same way as the rent-aroom equivalent The rent-a-room amount is much more generous ( 7,500). With a significantly lower allowance of 1,000, we think that some individuals who are entitled to the relief may move backwards and forwards between full and partial relief in consecutive tax years. Without very clear guidance, we think that this is likely to lead to confusion and possible error An individual s total rent-a-room amount is clearly defined in section 788. Section 788(2) makes it completely clear that no deduction is allowed for any expenses. By contrast, section 783G contains no such explicit provision in relation to the proposed allowance. Moreover, the language used when the allowances were being explained in the spring 2016 Budget was somewhat imprecise. An incomplete reading of the Red Book could leave the impression that the 1,000 applied to what would otherwise have been an individual s taxable income as distinct from their gross receipts. See for example paragraph which stated (with emphasis provided): The rapid growth of the digital and sharing economy means it is becoming easier for more and more people to become micro-entrepreneurs. However, for those making only small amounts of income from trading or property, the current tax rules can seem daunting or complex. To help make the tax position more certain and simple for these individuals, from April 2017 the Budget introduces two new 1,000 allowances for property and trading income. Individuals with property income or trading income below the level of allowance will no longer need to declare or pay tax on that income. Those with relevant incomes above 1,000 can benefit by simply deducting the allowance instead of calculating their exact expenses. We think that very clear guidance on how receipts are measured will be needed to ensure that individuals have a proper understanding of how the allowances will work. P/ATTTSG/Submissions/2017 4

5 2.4 On a point of detail, we think that the numbering adopted in the Schedule for the new sections of ITTOIA may cause confusion. Would it for example be possible to avoid having both a section 783Z(1) and a section 783Z1? Possibly, the latter could be renumbered as section 783ZA? 2.5 Our comments in sections 3 and 4 below focus on detailed aspects of the Schedule. 3 Practical application of the Schedule 3.1 Existence of a partnership Section 783B(1)(a) defines a relevant trade to exclude a trade that is carried on in partnership We think that there are situations where the trading allowance is intended to be available where the partnership exclusion will create uncertainty. HMRC s Business Income Manual recognises (in BIM82005) that the existence of a partnership can depend upon a number of factors. We think that prospective users of the trading allowance may have difficulty in knowing whether they are indeed carrying on a trade in partnership As an example of where there might be uncertainty, consider the following scenario: Zoe and Alf live together (it makes no difference for this purpose whether or not they are married); Both are in full-time employment and both are keen cyclists; Zoe has a particular interest in vintage bikes; Alf is interested in back issues of cycling magazines; They decide to create an online shop with the trade name Bikenuts from which to sell both spares for vintage bikes and historic bike magazines; In practice, Zoe is solely responsible for everything to do with the vintage spares and Alf is solely responsible for everything to do with magazine sales; The proceeds from any online transaction is retained wholly by either Zoe or Alf (each in their sole-name bank account) depending on which type of item has been sold. Common expenses (such as the website maintenance) are shared but there is no sharing of profits We think that the correct analysis of the above scenario would lead to the conclusion that there were in fact two trades each run by a single individual and no partnership. However, we would not necessarily expect Zoe and Alf to reach that same conclusion. Extending the example, would Zoe and Alf realise that there had been any change in the formal status of Bikenuts if they additionally started to sell wooden strider bikes for young children and fully P/ATTTSG/Submissions/2017 5

6 shared the profits from those particular sales? (There would then appear to be one trade carried on by each of Zoe and Alf and one in partnership. The receipts of the latter would not constitute part of either s relevant income for the purposes of the allowance see section below.) We note that there is not a comparable denial of entitlement to the property allowance on the basis that a property business was conducted in partnership (see section below). That appears to mean that if Alf and Zoe were jointly conducting an Airbnb activity, they would each be entitled to the relevant available amount of the property allowance. If this is the case, it means that a couple who jointly receive identical total receipts from a trading business and a property business might have no entitlement at all to the trading allowance but an entitlement to two property allowances. This does not seem consistent with the policy objectives of providing simplicity and certainty and allowances of comparable value for both trading and property Given the modest level of the trading allowance and the limited resources available to HMRC, we would not imagine that significant resources will be invested by HMRC in policing entitlement to the trading allowance. We accordingly question whether the trading allowance really needs to include an absolute prohibition on trades conducted in partnership. We can see that there would be a real concern if many people in a single partnership could all be entitled to a trading allowance but we think it would be reasonable to exclude from relief only those trades that were conducted by a partnership of more than two individuals. That would then: give the trading allowance parity with the property allowance; avoid the need for consideration of whether or not a partnership of two people existed; and avoid having to consider whether a single trade had been disaggregated in order to create dual entitlement to the trading allowance. 3.2 Definition of Relevant Income Section 783D(1) defines an individual s relevant income for a tax year as the sum of the following (a) the receipts for the tax year of the individual s relevant trades for the tax year, and (b) the individual s miscellaneous income for the tax year. Section 783D(2) then indicates that the receipts referred to in section 783D (1)(a) are the receipts which would, apart from this Chapter, be brought into account in calculating the profits of the trade for the tax year A quick reading of section 783D(1) in isolation might lead the reader to assume that the receipts for a tax year were the amounts received in that year (in other words, the receipts measured for cash-basis purposes). However, it is clear from section 783D(2) that there is no automatic displacement of the Generally Accepted Accounting Practice (GAAP) principles. In the absence of an election for the cash-basis under section 25A, ITTOIA 2005, P/ATTTSG/Submissions/2017 6

7 the GAAP rules would apply. Given that individuals who are entitled to full relief (see section 3.3 below) in respect of the their trading income are not required to advise HMRC of their trading activity, they are most unlikely to have made a cash basis election. That has (at least) two significant implications: Individuals who conclude that they are eligible for either full or partial relief may not be applying the correct basis in calculating the amount of their receipts for the tax year. If they adopt a cash-basis calculation rather than applying the GAAP rules, they may be either under-calculating or over-calculating their relevant income and in consequence incorrectly determining their entitlement to and/or the benefit of relief. If and when an individual needs to declare the income of a trade to HMRC (because they are no longer entitled to full relief), there may be brought forward items of income or expenditure (as a result of the earlier application of GAAP) which need to be brought into account under the transitional rules if a cash-basis election is then made once the income is reportable It is a matter of policy as to whether, for the purpose of the allowances, receipts should be recognised in accordance with GAAP or on a cash-basis and therefore not something on which we would normally comment in relation to draft legislation. However, we do think that proper consideration needs to be given to the implications of the point so that there can be clarity on the point. The matter is given particular significance by the proposed introduction of the business-related Making Tax Digital (MTD) provisions from April 2018 which may encourage the adoption of the cash-basis We recommend in sections and 2.2 above the adoption of a step-type format for the legislation (or guidance). We think that this would be particularly helpful in reinforcing the point that the new allowances require identification of, and apply to, the whole of an individual s relevant income (or relevant property income as the case may be). Without such clear explanation, we think that unrepresented individuals may well think that the allowance can be applied selectively We note that the definition of relevant income means that the proposed relief has the potential to work in a discriminatory manner. Take the following example: Chris, Pat and Sam have very similar levels of taxable income from their main occupations; They all work in the same type of trade or profession; Chris works through a limited company, Pat is in a partnership and Sam is selfemployed; In addition to their main occupation, each receives 1,200 in a tax year from an unrelated activity which involves minimal expenditure - this might be either a small P/ATTTSG/Submissions/2017 7

8 trade or a source which generates miscellaneous income (income chargeable under section 687). Our understanding of the proposed trading allowance means that: Chris s relevant income is just that from the unrelated activity as their income from the limited company is not from a trade. So with a section 783N election their taxable income from that source is ( 1,200-1,000 =) 200. Pat s relevant income is also just that from the unrelated activity because their partnership income is not from a relevant trade (see section 783B(1)(a)) and does not therefore form part of their relevant income. So with a section 783N election, Pat s taxable income from the unrelated activity is also ( 1,200-1,000 =) 200. Sam s relevant income, however, is the aggregate of the gross receipts of both the self-employed business and the unrelated activity (see section 783D(1)). Unless (improbably) their expenses in the self-employed business are less than 1,000, partial relief would not be beneficial. Sam s taxable income from the unrelated activity is therefore the full 1,200 less the minimal expenses. If Chris, Pat and Sam were discussing their unrelated activities with their mutual friend Tamika (a tax specialist), we think that they would be very surprised if Tamika provided the above analysis. (Although the above illustration concerns the impact of a section 783N election, Sam would also be disadvantaged if the receipts from the unrelated activity did not exceed the allowance as Chris and Pat would then have the benefit of full relief but Sam s relevant income would still include his main self-employment income.) We think that the inclusion of miscellaneous income (chargeable under section 687) in the definition of relevant income may cause some confusion if its meaning is not properly explained in guidance. Receipts from sources such as a wayleave or an author s royalties are subject to specific rules. A wayleave may for example be a source of property income or trading income or miscellaneous income depending on context. 3.3 Implications of Full Relief Where an individual s relevant income does not exceed 1,000 and they have not made an election under section 783M, they are entitled to what the draft legislation describes as full relief. Section 783G(2) indicates that the effect of full relief is that the profits or losses of each such trade for the tax year are treated as nil. In this section 3.3, we identify some of the implications of this treatment and some points on which we think clarification is required It is currently unclear whether the treatment of the profits or losses of a relevant trade as Nil applies comprehensively. From the various situations where the interaction of full relief and another Income Tax provision could be critical, we draw attention to the following by way of illustration: P/ATTTSG/Submissions/2017 8

9 There is no special provision in the Schedule concerning the interaction of the allowance with the commencement and cessation rules, the rules relating to pretrading expenditure or post-cessation receipts or the obligation to notify liability. We think that relevant guidance will need adapting to recognise the impact of the allowance There is no mention in either the Schedule or the relevant Explanatory Note (published with the draft legislation) of capital allowances 1. It is unclear on the face of the draft legislation whether an individual whose profits or losses were treated as Nil through the operation of section 783G might nevertheless be able to claim capital allowances and thus create an allowable loss. We think that early clarification on this point is needed. Other interactions between capital allowances and the proposed allowance which may require consideration include elections not to claim capital allowances and the treatment of balancing adjustments Chapter 8, ITEPA 2003 High income child benefit charge our understanding is that where the relevant income does not exceed the amount of the trading allowance there is no taxable income to bring into the calculation of the charge. Confirmation on the point would be helpful. Other situations where a similar point may arise include the restriction of personal allowances where income exceeds 100,000, age-related tax allowances and top-slicing provisions Section 66, ITA Restriction on loss relief unless trade is commercial in considering the pattern of trading results over a number of years, would the Nil profit : Nil loss treatment be taken to suggest that the trade had not been conducted on a commercial basis in years when full relief applied? Section 67(3)(b), ITA 2007 Exclusion from the six-year loss restriction rule where a farming or market gardening trade started (or was treated as started) within the previous five years if the receipts of a smallholding were fully relieved under section 783G in the years before the tax years for which losses were claimed, how (in the absence of any prior reporting of income from that trade) would HMRC establish whether the loss years fell within the first six years of trading? In addition to the implications in relation to Income Tax provisions (section above), the Nil profits or losses treatment could also have significance in relation to the various Capital Gains Tax (CGT) reliefs relating to assets used in a trade. Common to the various provisions is the question as to how an individual whose relevant income had not exceeded the amount of the trading allowance for any tax year would be expected to demonstrate entitlement to a CGT relief which depended upon the relevant asset having been used in a trade. Eligibility for Entrepreneurs Relief, rollover relief or holdover relief could be relevant notwithstanding a level of annual receipts within the trading allowance. For example, a plot of land used for the purposes of a very small business could be sold or gifted after it had 1 We have, however, noted a reference to capital allowances in HMRC s Policy Paper of 5 December An extract from this is quoted in section 4.1 of this response. P/ATTTSG/Submissions/2017 9

10 acquired development value. In the case of Entrepreneurs Relief, the relevant disposal might even take place up to three years after the cessation of a trading business of which HMRC had no knowledge during its existence. We think that it is important for there to be clarity in the context of the various CGT reliefs of the practical implications of full relief under the trading allowance proposals A similar point in relation to the available evidence of the existence of a trading activity could also arise in the context of a claim for Inheritance Tax Business (IHT) Property Relief. Again, we think that clarity is needed in order to avoid unexpected outcomes We note that the HMRC Policy Paper published on 5 December alongside the draft legislation stated: This change will reduce the complexity for some individuals who will no longer have to decide if the activity amounts to a trade or not. That statement appears to completely overlook the CGT and IHT implications of the existence or otherwise of a trade (referred to in sections and above) Section 783G(2) makes it clear that where full relief applies in a tax year, there can be no question of any form of loss relief in relation to the loss in that year. That would appear to apply equally whether or not the individual had reported their trading results to HMRC. That means that if an individual (who normally had annual income and expenditure at a level which made the trading allowance either unavailable or unattractive) exceptionally had trading receipts for a tax year of no more than 1,000, they would have to make a section 783M election for full relief not to be given if they wished to claim relief for any loss of the year (calculated after the deduction of normal expenses). To avoid possible confusion, we think that consideration will be needed to the content of tax returns (or MTD equivalents) to ensure that a claim for a loss either incorporates or draws attention to the possible relevance of a section 783M election. In the absence of such a nudge, the loss claim would be ineffective as the loss would be treated as Nil under section 783G(2) Our reading of section 783M is that an election not to be given full relief necessarily applies to the whole of the relevant income. If an individual reports a loss from one or more trades and includes a section 783M election, will the wording of the tax return (or MTD equivalent) ensure that the reader understands that they would also need to declare the income and expenses of any other trade that they conducted in the year? If an unrepresented individual is expected to understand what comprises their relevant income and that the allowance applies on an all or nothing to that relevant income, we think that the legislation (or departmental guidance) needs to spell that out very clearly in order to avoid confusion and error On a related point, we think that the wording of section 783M(1) might give rise to misunderstanding in situations where the individual had more than one trade or had one or more trades and miscellaneous income. An election not to be given full relief might be read as suggesting a facility to be selective in the application of the relief. We suggest that a minor amendment along the lines of the following might provide helpful clarity: P/ATTTSG/Submissions/

11 783(1) An individual may elect not to be given full relief on the whole (but not just a part) of their relevant income for a tax year (see sections 783G and 783H) We have indicated in section 3.2 above why we think that an individual s relevant income is determined by reference to GAAP and not the cash basis. Consistent with that understanding, we assume that once the individual becomes obliged to declare their income from the trade, they would be entitled to claim capital allowances in respect of relevant capital expenditure incurred in tax years when their relevant income was covered by full relief. In other words, the Nil treatment relates to the taxable profit or loss before capital allowances. Confirmation on this point would be helpful. 3.4 Implications of Partial Relief Our reading of section 783N is that an election for partial relief necessarily applies to the whole of an individual s relevant income. For an individual who makes a section 783N election, will the wording of the tax return (or MTD equivalent) provide an appropriate prompt to ensure that they understand that they would also need to declare the receipts of any other activity which comprised part of their relevant income in order that the relief could be allocated in accordance with section 783L? The use of a receipts limit for full relief creates a sharp and unexpected cliff-edge for any individual who does not appreciate the significance of the 783N election. Consider the following situation: Year One Year Two Trade receipts <Trade expenses> <150> <150> Miscellaneous receipts <Miscellaneous expenses> <80> <81> For Year One, the individual s relevant income is 1,000 so they are entitled to full relief. They therefore do not need to report any taxable income from either source. In Year Two, their relevant income is only 1 more than in Year One and their actual net profit is unchanged from that in Year One. However, if they do not appreciate the significance of the marginal 1 of relevant income, they might easily not declare the income. If that (unintended) non-disclosure was subsequently identified by HMRC (and after the time when a section 783N election could be made), the undeclared taxable income on which they had to pay tax would be 770 (a minimum tax liability of 154 in addition to any interest and penalties). P/ATTTSG/Submissions/

12 We are very doubtful whether most potential users of the trading allowance would appreciate that a single additional pound of gross income could increase their tax liability so dramatically. In such a situation, would HMRC accept a late section 783N election or should specific statutory provision be made to avoid anomalous outcomes? We refer in section above to the specific discretion to admit late elections in the existing renta-room provisions. We think that this example demonstrates the problems associated with an annually recurring allowance which removes the need for income to be reported to HMRC. It means that the individual receives no tailored advice from HMRC in relation to the allowance. Can we suggest that there ought to be a facility within the Digital Tax Account to enable individuals to indicate that they are making use of the trading allowance? That would then enable HMRC to provide timely and targeted advice about elections, deadlines, etc to such users. 3.5 Points specific to the Property Allowance We have already drawn attention (in section above) to the apparent distinction between the entitlement conditions to the trading allowance and the property allowance as a result of the specific denial of the former relief where the trading business is conducted in partnership. We have questioned whether that distinction is intended. We note, in passing, that the HMRC Policy Paper published on 5 December 2016 alongside the draft legislation indicated: The new allowances will not apply to partnership income from carrying on a trade, profession or property business in partnership If the property allowance is not to apply to receipts from a property business that is conducted in partnership, we think that there will be a need for clear guidance distinguishing between a partnership property business and an individual s property business where the property is simply held jointly. We note that HMRC s departmental Property Income Manual includes detailed commentary on the distinction at PIM We note that section 783X(2) adopts a distinctly different wording from the comparable trading allowance provisions in explaining the consequence of full relief under the property allowance. Section 783X(2) provides: The following are not brought into account By contrast: (a) the relievable receipts of the property business for the tax year, and (b) any expenses associated with those receipts. section 783G(2) (in relation to trade profits ) requires that the profits or losses of each such trade for the tax year are treated as nil and P/ATTTSG/Submissions/

13 section 783H(2) (in relation to miscellaneous income ) requires that the amount of the miscellaneous income arising in the tax year less any expenses associated with that income is treated as nil. There may well be good reason for such diverse wordings despite their common objective but it is not immediately apparent to us. We accordingly wonder if there is an opportunity for some simplification through the use of a common wording. 4 Overall comment 4.1 We note in relation to the proposed allowances: that the Explanatory Note published on 5 December 2016 indicated (in paragraph 37): Individuals with income of up to the allowance will no longer have to declare or pay tax on this income. This eliminates the need for individuals to determine allowable expenses or contact H M Revenue and Customs (HMRC) to declare the income and that the HMRC Policy Paper that was published on the same day indicated: It is expected that when the affected population begin the process of preparing their SA return they will read the guidance relating to the allowance(s) and experience a saving through either not having to file a SA return or not having to calculate their expenses and capital allowances for their returns. The ongoing cost is estimated to be negligible as they will not experience any further burden beyond that which they experience currently. The SA guidance with which they would normally engage when filling out their returns will now prompt them that either no return is needed or they can claim the allowance(s) instead of their expenses, depending on their circumstances. 4.2 For some individuals, we think that the proposed allowances may well work as positively as the above extracts anticipate. However, for many others (perhaps the majority of potential users) we are concerned that the statutory language and format of the legislation, the required elections and the potential cliff edge between full relief and partial relief may result in the new allowances being misunderstood or misapplied. If the statutory provisions and related guidance fail to provide the non-specialist reader with an understanding of how the provisions operate in their own circumstances, they will be deterred from using the allowances and simply ignore them. If that happened, an opportunity to improve compliance in relation to modest levels of income from ancillary sources would have been missed. We think that publication by HMRC of a flow-chart and/or check sheet could significantly assist taxpayers to negotiate the proposed allowances. 4.3 As indicated earlier in this response, we would be pleased to assist in the review of draft departmental guidance in order to enable the proposals to achieve their objectives. P/ATTTSG/Submissions/

14 5 Contact details 5.1 Should you wish to discuss any aspect of these comments, please contact our relevant Technical Officer, Will Silsby, on or at: Yours sincerely Yvette Nunn Co-Chair of the ATT s Technical Steering Group 6 Note 6.1 The Association is a charity and the leading professional body for those providing UK tax compliance services. Our primary charitable objective is to promote education and the study of tax administration and practice. One of our key aims is to provide an appropriate qualification for individuals who undertake tax compliance work. Drawing on our members' practical experience and knowledge, we contribute to consultations on the development of the UK tax system and seek to ensure that, for the general public, it is workable and as fair as possible. Our members are qualified by examination and practical experience. They commit to the highest standards of professional conduct and ensure that their tax knowledge is constantly kept up to date. Members may be found in private practice, commerce and industry, government and academia. The Association has over 8,000 members and Fellows together with over 5,700 students. Members and Fellows use the practising title of 'Taxation Technician' or Taxation Technician (Fellow) and the designatory letters 'ATT' and 'ATT (Fellow)' respectively. P/ATTTSG/Submissions/