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Tax Expert Paul Aplin Answers Your Questions

Paul Aplin OBE is a renowned tax expert and advisor. He joined our in-house expert Paul Lodder FCCA recently for an insightful virtual session on all things Autumn Budget. We wanted to continue the conversation so we sourced questions from our Orange Select community. 

You asked and Paul answered. Read on to find out more about his insights on The Autumn Budget, tax legislation and more.

What are your thoughts on making clients more aware of new legislations which will directly affect them and their business?

A: This is very much a personal view, but I think it is important to help clients understand. If we just make them aware of changes, that feels like a rather impersonal service and one that they could get from many accountants or even by doing their own research.

I believe that the real value is making the advice personal – that is why clients keep coming back year after year. In this age of technology, it is the thing that will differentiate firms: some clients might want a very basic, no-frills service but in my experience, most want the reassurance of knowing that their accountant understands them and is always thinking about how changes in legislation will affect them.

I firmly believe that technology can help us do that better by giving us more time to think and to keep up to date.

Do you see clients expecting more for less as a result of software automation?

A: That is always a risk. It is certainly an issue when technology enables someone to get an answer that they would previously have sought from a professional. A common question is “should I incorporate?”. Anyone with access to the internet can now go online, type the question into Google and get access to a free calculator that will do the sums for them. They might even find an article setting out the pros and cons.

What they won’t get is a personalised answer from a human professional and the ability to ask follow-up questions and receive answers in language they understand. My view is that what the client is charged for is the advice, not the calculation and the key thing is to ensure that we don’t undervalue ourselves when giving that advice.

I have seen accountants and tax advisers use technology to do things faster – and then charge clients on a time basis, effectively absorbing the cost of the technology as an overhead while giving the client the full benefit of the time saving. That may sound trivial, but multiply it up over the client base over several years and it isn’t trivial at all.

Are we likely to see the MTD-ITSA delayed any further?

A: Personally, I doubt it. MTD was announced in the Autumn Statement in 2015, six years ago. MTD for ITSA is now scheduled for April 2024, almost nine years after that announcement. Unless a fundamental problem surfaces with the technology, perhaps as the pilot programme expands, I expect to see the programme proceed on schedule now. 

What would you say the most important thing to learn from the budget is?

A: Perhaps that even a Budget with few tax headlines can still contain some important tax measures that we need to be aware of. Many commentators said there were no big tax announcements, but as I think we showed in the recent Dext Autumn Budget webinar, some things emerged that will have a very significant effect on what we do: basis period reform, the MTD for ITSA regulations, the changes to discovery assessments for example.

Basis period reform will affect every unincorporated business that doesn’t have a 31 March or 5 April year end and there will be a great deal of work to do in – and in the run up to – the transitional year in 2023/24. There will be a lot of thinking to do about MTD and managing workload now that we know that the quarters will be based on the tax year, not the businesses accounting year. And we will need to make clients aware of the potential problems if they have over claimed Child Benefit, gift aid relief or pension relief.        

Is the increase in the dividend tax the beginning of a slow creep of increasing tax on businesses and individuals taking advantage of tax efficiency measures?

A: In many ways I am surprised this has not gone further. Philip Hammond, when he was Chancellor, said that something needed to be done to “level the playing field” between the way employees, the self-employed and those operating through limited companies are taxed. I fully expected him to do something, but he didn’t and neither has Rishi Sunak. There is still a disparity – though of course some have strong views about why that disparity exists – and at some point, I think we will see more changes designed to address this.

Why has the government decided to extend the temporary £1,000,000 level of the Annual Investment Allowance until 31 March 2023?

A: The government clearly wants to encourage investment in assets and equipment to drive productivity and efficiency. The AIA is one way to do that. I live in a rural area and the cost of some farm machinery is substantial: I have known the AIA to be a very persuasive factor in equipment investment decisions. 

What are the key points for bookkeepers?

A: The MTD announcements are massively important for bookkeepers. With all current self-employed people (except partnerships) and landlords with annual turnover or rent now joining MTD for ITSA from 6 April 2024, there will be huge pressure on firms of accountants.

That is not just because of the one-off training and support that clients will need to make the transition but because there will now be quarterly peaks of work in the four weeks leading up to 5 August, 5 November, 5 February and 5 May as well as the usual 31 January peak load. Bookkeepers will be critical in helping businesses maintain their records in order to meet the quarterly deadlines.

I see bookkeepers and accountants working more closely together than ever and I think that is a very good thing.

With MTD for ITSA around the corner and all of the DIY accounting software available, where do you see the future for accountants?

A: I’m an optimist. We have seen technology change what we do in the past but we are still here. When I started training there were people in the firm who could run a finger down a column of figures and write the total with astonishing accuracy. We use calculators now and don’t think twice about it. Software automated tasks like cutting and pasting schedules for tax returns and it automated tax computations. I think software and apps like Dext will continue to take on those routine, repetitive tasks – but that won’t make people redundant, it will give them the chance to do more interesting work, to study for qualifications, to give more value to clients. We should actively guide clients to technology that can help them. Technology cannot – yet – exercise judgement, consider ethics, or empathise with another human being and as long as we remember that, clients will continue to rely on us.

What is your opinion on the fiscal drag in Personal Allowance that doesn’t seem to have been widely picked up?

A: Fiscal drag is a very effective way of raising revenue. And of course, it wasn’t just the personal allowance that was frozen; the higher rate limit, CGT allowance, pensions lifetime allowance, IHT allowance and several others are all currently frozen. People do tend to lose sight of measures that take effect over a number of years.    

Do you think the basis period reform is a good thing?

A: I have very mixed feelings about this. I can certainly see that having a 31 March or 5 April year end makes things simple and it takes away the problem of overlap relief. Many businesses already have 31 March or 5 April year ends, but the policy paper released on Budget Day tells us that there are an estimated 528,000 sole traders and partners with non-tax year accounting dates.

I suspect that many of those will discuss with their advisers whether to change their accounting date in the run up to the change. Some, doubtless, would be just as happy with accounts drawn up to 31 March or 5 April as they are with their current accounting date. Others however use a non-tax year accounting date for a reason – some farmers for example and many in the hospitality sector, where trading is seasonal. 

Those who need to retain a non-tax year accounting date will have to apportion the profits of the two years spanning the relevant tax year. There is a particular problem for businesses with year ends of 28 February, 31 January (and in practice 31 December and 30 November) because they will need to estimate the profit for the second of the two years in order to file their tax returns on time. They will then need to amend their returns when the second year’s result is known.

This seems to me to be a step backwards, from having certainty about a tax position to relying on an estimate. HMRC estimates that up to 278,000 sole traders and partners could be affected by this. I am not the only person to have expressed concerns about this and in its response to the consultation, the government has said that it has heard the concerns and will consult on practical measures to deal with them.