Finance Bill Sub-Committee
Thursday 12th November 2026
Skip to latest contribution
This debate has concluded
(began 3 hours, 32 minutes ago)
Watch LiveSkip to latest contribution
This debate has concluded
09:45
09:45
Lord Newby
-
-
Lord Newby
Well, the government's moving in the right direction. I think it's worth referring back to Sir John Thompson when he spoke to the Treasury Committee. I think it was prior to Brexit saying that they HMRC would need a very large investment in order to be able to deal with the customs pressures that were coming as a result of the increased border from leaving the EU. And I think one of the things that he was referring to was low value parcels coming into the country. And and he suggested that that would have to go on a back burner unless large amounts of money were put in at that point.
So I think it's fair to say that this issue has been on a back burner for a while, but it's now got to the point where it's critical. I'm sure everybody's seen the high streets and how things are affected. And, you know, the kind of store that used to sell clothes, pegs, spoons, you know, the small household goods, your ironmonger kind of store has been annihilated by Chinese sellers selling online very ridiculously low prices. So the government has moved and has essentially in 2021, made online marketplaces collect VAT from overseas sellers. I was involved in the consultation in 2020, and I pointed out that only collecting it from overseas sellers would result in overseas sellers setting up UK companies to then get around that, which is exactly what happened.
May have heard the story of 11,000 businesses registered at a flat in Wales. They were just getting paper companies and then pretending they were UK based, which then meant that the platform didn't collect the VAT. So now in the current budget, they're talking about expanding that to collecting the VAT from all sellers. But they've left a loophole, in my view, in that they've exempted second hand goods and they have exempted anybody below a turnover of £90,000 on each platform. So any seller that is selling less than £90,000 on, say, eBay or Amazon won't have their VAT collected.
Now, we already see lots of sellers that are deliberately keeping their turnover below 90,000. And I saw an example the other day of one seller that had 11 companies, all slightly different, all selling the same products, all from the same address. So they had basically just disaggregated it . And that was on the VAT threshold. So it's welcome what's happened now. But but so in theory, online retailers will be collecting VAT from all of the sellers, apart from those below 90,000 on their platform and those selling second hand goods, which is also abused. I've seen new products being sold as second hand, particularly in the music industry.
CDs where deleted CDs are sold as second hand when they're brand new. But then the other element is that, as I mentioned earlier, the EU has a system where it either is collected up front by the platform or it's collected by the post office. So each package that comes into the EU is identified with a number showing that the VAT has been pre-paid. If there's no indication that that's been pre-paid, the carrier will collect the VAT from the recipient and charge a handling fee on top. And what that does is it makes it difficult for the seller to be competitive.
So it forces them to use the prepaid system. We don't have that. We've scrapped it completely. So if you're not selling an online marketplace into the UK and you just post it direct, it just sails through. There are no inspections, there's no collection of VAT and it goes straight to the consumer. And no, that's paid. So and it doesn't force the seller to then comply. The system we have is a voluntary system where the overseas seller, well, it's not voluntary. The seller is obligated to register for VAT in the UK, but in reality, you can't force a seller in China to register for VAT in the UK.
They'll just ignore you. So whilst the duty is due legally, it's not collected and that is an issue that's not being addressed at the moment, which for me is the biggest issue. So I hope that's helpful.
So I think it's fair to say that this issue has been on a back burner for a while, but it's now got to the point where it's critical. I'm sure everybody's seen the high streets and how things are affected. And, you know, the kind of store that used to sell clothes, pegs, spoons, you know, the small household goods, your ironmonger kind of store has been annihilated by Chinese sellers selling online very ridiculously low prices. So the government has moved and has essentially in 2021, made online marketplaces collect VAT from overseas sellers. I was involved in the consultation in 2020, and I pointed out that only collecting it from overseas sellers would result in overseas sellers setting up UK companies to then get around that, which is exactly what happened.
May have heard the story of 11,000 businesses registered at a flat in Wales. They were just getting paper companies and then pretending they were UK based, which then meant that the platform didn't collect the VAT. So now in the current budget, they're talking about expanding that to collecting the VAT from all sellers. But they've left a loophole, in my view, in that they've exempted second hand goods and they have exempted anybody below a turnover of £90,000 on each platform. So any seller that is selling less than £90,000 on, say, eBay or Amazon won't have their VAT collected.
Now, we already see lots of sellers that are deliberately keeping their turnover below 90,000. And I saw an example the other day of one seller that had 11 companies, all slightly different, all selling the same products, all from the same address. So they had basically just disaggregated it . And that was on the VAT threshold. So it's welcome what's happened now. But but so in theory, online retailers will be collecting VAT from all of the sellers, apart from those below 90,000 on their platform and those selling second hand goods, which is also abused. I've seen new products being sold as second hand, particularly in the music industry.
CDs where deleted CDs are sold as second hand when they're brand new. But then the other element is that, as I mentioned earlier, the EU has a system where it either is collected up front by the platform or it's collected by the post office. So each package that comes into the EU is identified with a number showing that the VAT has been pre-paid. If there's no indication that that's been pre-paid, the carrier will collect the VAT from the recipient and charge a handling fee on top. And what that does is it makes it difficult for the seller to be competitive.
So it forces them to use the prepaid system. We don't have that. We've scrapped it completely. So if you're not selling an online marketplace into the UK and you just post it direct, it just sails through. There are no inspections, there's no collection of VAT and it goes straight to the consumer. And no, that's paid. So and it doesn't force the seller to then comply. The system we have is a voluntary system where the overseas seller, well, it's not voluntary. The seller is obligated to register for VAT in the UK, but in reality, you can't force a seller in China to register for VAT in the UK.
They'll just ignore you. So whilst the duty is due legally, it's not collected and that is an issue that's not being addressed at the moment, which for me is the biggest issue. So I hope that's helpful.
09:49
09:49
Speaker 1
-
Speaker 1
Perhaps. I wanted to look at it from a slightly different perspective. And I appreciate Richard's expertise in VAT. Where we are paying close attention is to the changes proposed to the complete removal of the low value imports relief, which currently , any goods coming into the UK with an intrinsic value of under £135. They're not subject to payment of any duty. There is no duty payable. And what that means is that a lot of both business to consumer goods and business to business goods are being imported using a simplified data set where very little information needs to be provided at the border.
Now, a low value import relief or de minimis, or however you wish to call it, that is a genuine trade facilitation because at a time when this was implemented through trade facilitation agreement with WTO, the volume of parcels was actually quite, quite small. Nobody was ordering online to a degree that they are now. But things have changed very recently over the last few years. Obviously, the departure from the European Union meant that there is more import requirements on the UK to EU movements and vice versa. But actually looking back at Covid and everybody staying at home and and actually all of us, you know, sitting on our phones going instead of being able to go to the shop has meant that the consumers behaviors have changed drastically.
So where we are now is we have the US, we have the EU trying to react to changes in behaviors quite few years after they've actually happened, and looking almost backwards when the relief is going to be removed, which is currently stated by the government as by October 2028, that may seem like a really long time to go, but actually when you consider what needs to happen, and of course, we are at the draft primary legislation at the moment, the detail of how that regime is going to operate is still not yet fully defined. And therefore, this is the big area where a further engagement from the government is going to be needed, because it's going to affect not only business to business movements, but actually business to consumer movements.
And they're the ones that probably are not really yet paying attention to some of the significant changes that are facing their way. Now. The EU has already started to tackle this problem. They, you know, they called it a tsunami of parcels because the volumes that are coming through plane loads full of individual parcels are all on the in the EU, on the €150. That meant that you couldn't realistically check them in terms of not only to collect the duty and VAT due, but also in terms of the safety of the products being placed on the market.
And so that's why some of these reforms are now being introduced, not only for the duty and VAT collection, which is due and should be payable, but actually to ensure that the products that are being imported are indeed safe for consumers.
Now, a low value import relief or de minimis, or however you wish to call it, that is a genuine trade facilitation because at a time when this was implemented through trade facilitation agreement with WTO, the volume of parcels was actually quite, quite small. Nobody was ordering online to a degree that they are now. But things have changed very recently over the last few years. Obviously, the departure from the European Union meant that there is more import requirements on the UK to EU movements and vice versa. But actually looking back at Covid and everybody staying at home and and actually all of us, you know, sitting on our phones going instead of being able to go to the shop has meant that the consumers behaviors have changed drastically.
So where we are now is we have the US, we have the EU trying to react to changes in behaviors quite few years after they've actually happened, and looking almost backwards when the relief is going to be removed, which is currently stated by the government as by October 2028, that may seem like a really long time to go, but actually when you consider what needs to happen, and of course, we are at the draft primary legislation at the moment, the detail of how that regime is going to operate is still not yet fully defined. And therefore, this is the big area where a further engagement from the government is going to be needed, because it's going to affect not only business to business movements, but actually business to consumer movements.
And they're the ones that probably are not really yet paying attention to some of the significant changes that are facing their way. Now. The EU has already started to tackle this problem. They, you know, they called it a tsunami of parcels because the volumes that are coming through plane loads full of individual parcels are all on the in the EU, on the €150. That meant that you couldn't realistically check them in terms of not only to collect the duty and VAT due, but also in terms of the safety of the products being placed on the market.
And so that's why some of these reforms are now being introduced, not only for the duty and VAT collection, which is due and should be payable, but actually to ensure that the products that are being imported are indeed safe for consumers.
09:52
09:52
Lord Leigh of Hurley
-
-
Lord Leigh of Hurley
Thank you. Chair, can I take this opportunity to. Thank you, Mr. Allen, for what you've done, publicly spirited and independently, personally financed by you in raising these issues. I have raised a number of them in the in the chamber of the House of Lords a number of times, and Treasury ministers recognise that. But I've only been able to do that because of the assistance you've provided me in terms of your research background and knowledge. So.
Your contribution has not been properly recognised, but I want to pay tribute to you this morning before we start.
Your contribution has not been properly recognised, but I want to pay tribute to you this morning before we start.
09:53
Lord Leigh of Hurley
-
-
Lord Leigh of Hurley
On the specifics that we've just heard. Why do you think that the government's going to take until October 2028. I mean, the arguments being made? Well, there's a lot of there's a lot of mechanics to be put in place before then, but the EU seems to have got their act together well before October 2028. Why are we why are we taking so long?
09:53
Lord Newby
-
-
Lord Newby
It's interesting. I think a good example of how far behind we are is worth pointing out. I posted something to America the other day, and I went on to Royal Mail's website and I filled out the the boxes to get the postage. And then at the end of the after the postage it asked me for a fee for customs, which I paid £0.50. So Royal Mail is collecting customs for America and collecting customs for Europe. Now, it doesn't make sense to me that we're not doing the same the other way, and it seems crazy that Royal Mail is effectively acting as a customs broker for other countries, yet not actually doing it for us.
So I think the problem is, is that we were already on the back foot in terms of investment before Brexit occurred. And as Sir John Thompson said, there needed to be a lot of money put in to bring in systems that worked. I, I don't know what the thinking was, but I suspect that there just wasn't the funding to bring in a system in 2021 immediately to collect VAT and duty, and the removal of de minimis. I sorry I didn't mention that. Yes, it is duty as well, but the same problem that I described to VAT applies to duty is that the proposal is only to collect duty and VAT through online marketplaces.
Well, not everything is sold through an online marketplace. Shopify, which is a system that's used by lots of sellers, is where goods are sold directly by overseas sellers off their own website. That's not covered. And there is no mechanism in the UK for collecting that tax as the goods come in, in the way I described where the postman collects it from you. The EU had that in place and they never got rid of it. So we are missing that part of the customs structure and that needs to be replaced. And that's not going to be an easy fix because obviously we're starting from scratch.
In effect. I think it's also worth mentioning that there's a degree of friendly fire with regards to the EU in the UK and dealing with Chinese goods, because they've brought in all of these measures to limit imports into the EU by mail order, which we should do as well. But that affects us, you know. So when UK mail order businesses are selling into Europe, they're being treated like a Chinese seller. And I know from people that I deal with, I represent all sorts of people that are affected by this. They come to me. They can't sell to Europe now because they're being hit with a handling fee and a and a customs charge.
There needs to be a kind of a corridor with the EU where we're both fending off all these cheap imports, but we're not harming each other's imports. So maybe that's something I know there are talks coming up shortly that needs to be looked at. Otherwise we're affected by that. But to give you some idea of the loss, 42 million a year, a month we're losing at the moment based on the government's own figures. And that's just duty. One thing that's worth noting is that the figure of 500 million savings, I think I can't remember the period of the year, but that is duty only, not the VAT I talked about.
That's not factored into those figures. And we only collect the fat on online marketplace sales. Not any other method coming in unless they voluntarily register for VAT, which in my view is simply never going to happen. So I think that there's a number of reasons why we're behind. But I think there's, you know, we could introduce it in stages, do something. Now, I know that retailers were calling for a charge on each item, but the problem is, is who collects it that that mechanism has been removed. The post office no longer collects it. Apart from on gifts and items with a value above £135.
So I think the problem is, is that we were already on the back foot in terms of investment before Brexit occurred. And as Sir John Thompson said, there needed to be a lot of money put in to bring in systems that worked. I, I don't know what the thinking was, but I suspect that there just wasn't the funding to bring in a system in 2021 immediately to collect VAT and duty, and the removal of de minimis. I sorry I didn't mention that. Yes, it is duty as well, but the same problem that I described to VAT applies to duty is that the proposal is only to collect duty and VAT through online marketplaces.
Well, not everything is sold through an online marketplace. Shopify, which is a system that's used by lots of sellers, is where goods are sold directly by overseas sellers off their own website. That's not covered. And there is no mechanism in the UK for collecting that tax as the goods come in, in the way I described where the postman collects it from you. The EU had that in place and they never got rid of it. So we are missing that part of the customs structure and that needs to be replaced. And that's not going to be an easy fix because obviously we're starting from scratch.
In effect. I think it's also worth mentioning that there's a degree of friendly fire with regards to the EU in the UK and dealing with Chinese goods, because they've brought in all of these measures to limit imports into the EU by mail order, which we should do as well. But that affects us, you know. So when UK mail order businesses are selling into Europe, they're being treated like a Chinese seller. And I know from people that I deal with, I represent all sorts of people that are affected by this. They come to me. They can't sell to Europe now because they're being hit with a handling fee and a and a customs charge.
There needs to be a kind of a corridor with the EU where we're both fending off all these cheap imports, but we're not harming each other's imports. So maybe that's something I know there are talks coming up shortly that needs to be looked at. Otherwise we're affected by that. But to give you some idea of the loss, 42 million a year, a month we're losing at the moment based on the government's own figures. And that's just duty. One thing that's worth noting is that the figure of 500 million savings, I think I can't remember the period of the year, but that is duty only, not the VAT I talked about.
That's not factored into those figures. And we only collect the fat on online marketplace sales. Not any other method coming in unless they voluntarily register for VAT, which in my view is simply never going to happen. So I think that there's a number of reasons why we're behind. But I think there's, you know, we could introduce it in stages, do something. Now, I know that retailers were calling for a charge on each item, but the problem is, is who collects it that that mechanism has been removed. The post office no longer collects it. Apart from on gifts and items with a value above £135.
09:57
09:57
09:57
Lord Newby
-
-
Lord Newby
I came up with an idea which I called a VAT passport or a tax passport, where the seller can sign up to a portal, pay the VAT and duty up front, which is essentially what happens in the EU. But I think we could do it better than them. The way they do it is each. When you sign up to their system, you're given an identifier as a business and that identifier goes on the package. Now I've tested this and sent items into Europe that weren't from the company with the identifier, just to see whether it would get through.
And it did. What we could do is we could identify each transaction. So if somebody's prepaid VAT and duty on a particular package, that particular item would be given a number, like a QR code that would be put on the package. It could be printed out by the sender. And then when it came through customs, when they scanned it, they could see the contents, the value and the amount of tax paid. Anything with that on it would essentially go through a green lane. Anything that had nothing on would go through a red lane. And to give you an idea of the impact of this, when the EU introduced their measures recently, the charges in Finland, imports fell from China by 70%.
Now, just to put that in perspective, that brings it back to 2023 level. You know, so although people were thinking that's a disaster, people can't get their goods. That's already that's only down to 2023 level of imports. But the Chinese have started putting warehouses into the EU that employs people. That raises taxes within the EU. And essentially, it goes back to the model before all of this happened, where wholesalers bought the goods and then sold them within the territory. So effectively, what we're trying to do is push away the direct sales and make people sell within the UK.
And that way we actually get some benefit from it , because a sale on Temu gives zero benefit at all to the UK. Thank you.
And it did. What we could do is we could identify each transaction. So if somebody's prepaid VAT and duty on a particular package, that particular item would be given a number, like a QR code that would be put on the package. It could be printed out by the sender. And then when it came through customs, when they scanned it, they could see the contents, the value and the amount of tax paid. Anything with that on it would essentially go through a green lane. Anything that had nothing on would go through a red lane. And to give you an idea of the impact of this, when the EU introduced their measures recently, the charges in Finland, imports fell from China by 70%.
Now, just to put that in perspective, that brings it back to 2023 level. You know, so although people were thinking that's a disaster, people can't get their goods. That's already that's only down to 2023 level of imports. But the Chinese have started putting warehouses into the EU that employs people. That raises taxes within the EU. And essentially, it goes back to the model before all of this happened, where wholesalers bought the goods and then sold them within the territory. So effectively, what we're trying to do is push away the direct sales and make people sell within the UK.
And that way we actually get some benefit from it , because a sale on Temu gives zero benefit at all to the UK. Thank you.
09:59
09:59
09:59
09:59
Speaker 1
-
Speaker 1
That's all right. That's okay. Just to cover some of Richard's points in terms of sellers that are not UK established but not selling through a marketplace, the legislation very clearly covers that they are going to require a fiscal representative to be able to trade into the UK. So measures are being put in place to make sure that any duty and VAT that is due is indeed going to be paid and collected. The reason why there is no duty currently charged on goods coming in under £135 is because the relief currently still exists, so there would be no duty payable.
If it is over £135, then Royal Mail or any other special operator or any any customs intermediary will collect that duty because that declaration goes straight into the Customs Declaration Service system, sorry, customs declaration system, CDs and therefore those goods are presented to customs and duty is payable whether duty is due or . There may be an opportunity for preferential treatment if purchasing from countries where we have a free trade agreement. So for customs measures apply above £135. The reason why we are behind what the EU is doing is, is a is almost twofold. When the UK has left the EU, we were already at a time where we were replacing our old legacy system chief with a new system, custom systems that needed to to be representative of the Union Customs Code, which was going live in 2016.
UK was one of the couple of EU members that was actually quite ahead in terms of implementing that system, but that system was built at a time where we weren't foreseeing the significant amount of volume of the declarations that we were going to have to deal with right now. Now, particular mechanisms have been put in place to allow us smoother movement of goods across the borders, including bits, which is bulk import, reduced data set. That's a reduced data set that fast parcel operators authorise fast parcel operators can use to declare goods, meaning the number of declarations is reduced.
If we were to simply remove the low value relief and just say everything, regardless of the value, is coming in with a duty amount, that would mean that the CDS system would probably not cope with the volume of declarations that needed to be placed into it, and therefore the impact would be not just on the B2B or B2C low value shipments, but actually on the entirety of freight movements and the entire border infrastructure, hence why the government needs to set up a separate system that works alongside CDs alongside the border infrastructure to make sure that this operates.
That takes time in terms of making sure that we build something that is suitable for the volume of the declarations that's going to need to be going through it, and to actually make sure that the declarations we then have are indeed compliant, because it's one thing to stand up a system and let it run riot , and then try and fix it as we go along. That's kind of what's happening on the EU customs reform side, where they've had the great idea of the data hub. But even the EU current measures right now of the €3, that's a temporary measure.
They've set it straight away. This is only going to be temporary until we have a separate system for the declarations for the low value inputs. Now the UK government could have done the same. They could have just put in a flat charge on it. And maybe that would have been given immediate result. The challenge we have right now is that because in the EU, we're obviously seeing a significant drop in terms of direct parcels, and we're seeing an increase in a in a containerized movement. That's great because from a customs officer point of view, you want a container filled with the same product so that they can open it, they can check it rather than thousands and thousands of parcels where we where we potentially do have a risk with the UK's timeline is the circumvention of the parcels that potentially would have been sent first to China.
Sorry, first from China to the US, the US closed. They're de minimis. Then they got redirected to the EU. Now we potentially are going to see a significant increase in the UK , because that advertising budget needs to go somewhere that those goods need to go, need to be sold somewhere. And in the UK right now, that is still very much an easier route than it is in the EU.
If it is over £135, then Royal Mail or any other special operator or any any customs intermediary will collect that duty because that declaration goes straight into the Customs Declaration Service system, sorry, customs declaration system, CDs and therefore those goods are presented to customs and duty is payable whether duty is due or . There may be an opportunity for preferential treatment if purchasing from countries where we have a free trade agreement. So for customs measures apply above £135. The reason why we are behind what the EU is doing is, is a is almost twofold. When the UK has left the EU, we were already at a time where we were replacing our old legacy system chief with a new system, custom systems that needed to to be representative of the Union Customs Code, which was going live in 2016.
UK was one of the couple of EU members that was actually quite ahead in terms of implementing that system, but that system was built at a time where we weren't foreseeing the significant amount of volume of the declarations that we were going to have to deal with right now. Now, particular mechanisms have been put in place to allow us smoother movement of goods across the borders, including bits, which is bulk import, reduced data set. That's a reduced data set that fast parcel operators authorise fast parcel operators can use to declare goods, meaning the number of declarations is reduced.
If we were to simply remove the low value relief and just say everything, regardless of the value, is coming in with a duty amount, that would mean that the CDS system would probably not cope with the volume of declarations that needed to be placed into it, and therefore the impact would be not just on the B2B or B2C low value shipments, but actually on the entirety of freight movements and the entire border infrastructure, hence why the government needs to set up a separate system that works alongside CDs alongside the border infrastructure to make sure that this operates.
That takes time in terms of making sure that we build something that is suitable for the volume of the declarations that's going to need to be going through it, and to actually make sure that the declarations we then have are indeed compliant, because it's one thing to stand up a system and let it run riot , and then try and fix it as we go along. That's kind of what's happening on the EU customs reform side, where they've had the great idea of the data hub. But even the EU current measures right now of the €3, that's a temporary measure.
They've set it straight away. This is only going to be temporary until we have a separate system for the declarations for the low value inputs. Now the UK government could have done the same. They could have just put in a flat charge on it. And maybe that would have been given immediate result. The challenge we have right now is that because in the EU, we're obviously seeing a significant drop in terms of direct parcels, and we're seeing an increase in a in a containerized movement. That's great because from a customs officer point of view, you want a container filled with the same product so that they can open it, they can check it rather than thousands and thousands of parcels where we where we potentially do have a risk with the UK's timeline is the circumvention of the parcels that potentially would have been sent first to China.
Sorry, first from China to the US, the US closed. They're de minimis. Then they got redirected to the EU. Now we potentially are going to see a significant increase in the UK , because that advertising budget needs to go somewhere that those goods need to go, need to be sold somewhere. And in the UK right now, that is still very much an easier route than it is in the EU.
10:04
10:04
Lord Newby
-
-
Lord Newby
I'm not sure, but I think it should be because I know many businesses that sell mail order that cannot now sell effectively really sell into Europe because of the fact that they're getting these charges on their shipments. If I could possibly add to those points, iOS was first thought started to be developed. Sorry, the EU has a system called the one stop shop where you prepay the VAT and duty. They started on that in 2015. The measures to add fixed charges onto things are something more recent. But they brought system in then and you know, for its faults it was effective.
And the reason I know it's effective is because every business I know selling into the EU ended up having to pay these charges. So I think my main worry with all of this is some of the people involved in the consultation on this are the fast parcel carriers. Now fast parcel carriers use the bird system, the bulk import systems, the checks on that are absolutely minimal. It is abused. I know it's abused where goods are brought in, undervalued in containers marked as individual packages. And I believe that in these discussions, we shouldn't have policies shaped by businesses that benefit from large volumes of parcels going through the system, because it's not in their interest to introduce a system that's going to reduce the number of parcels coming into the UK.
So I would say I think it's important that in the shaping of this policy, there needs to be UK businesses and retailers who are affected by this, rather than companies that carry these packages. And from what I've seen, most of this discussions generally tend to involve couriers and Royal Mail, which I feel is a bit one sided when it comes to designing this.
And the reason I know it's effective is because every business I know selling into the EU ended up having to pay these charges. So I think my main worry with all of this is some of the people involved in the consultation on this are the fast parcel carriers. Now fast parcel carriers use the bird system, the bulk import systems, the checks on that are absolutely minimal. It is abused. I know it's abused where goods are brought in, undervalued in containers marked as individual packages. And I believe that in these discussions, we shouldn't have policies shaped by businesses that benefit from large volumes of parcels going through the system, because it's not in their interest to introduce a system that's going to reduce the number of parcels coming into the UK.
So I would say I think it's important that in the shaping of this policy, there needs to be UK businesses and retailers who are affected by this, rather than companies that carry these packages. And from what I've seen, most of this discussions generally tend to involve couriers and Royal Mail, which I feel is a bit one sided when it comes to designing this.
10:06
10:06
Speaker 1
-
Speaker 1
So with any government consultation, you will have very strong voices, whether heavily impacted. And I think there is no shying away that fast parcel operators are heavily impacted by this. Retailers have a gigantic stake in this as well. This is all about kind of laying, leveling the playing field. We from we have heard from our members on both sides of the of the fence. Some of them are saying in the same way as, as Richard had just said, the measures that the EU has brought in has impacted disproportionately some small and medium businesses where their individual sellers of low value goods, where suddenly the entire market is closed off to them.
And it's not just because of the kind of the €5 charge, because the handling fee is now operational from the 1st of November. But it's also about all of the additional non-tariff barriers that are coming through related to the customs declaration. It's about product packaging regulations. It's about labeling requirements. All of this means that there are less and less inclined as small sellers to be dealing with the EU, and we're going to see a similar shift in here. I think the consultation, when it was launched, it was launched as part of a tax update, and I think there is more that the government could be doing in making sure that those that are going to be most heavily impacted are actually aware of this consultation.
You know, we have a lot of members, but those members are actually interested in international trade and they're paying attention. And yet there are so many businesses operating specifically in that sort of SME space where they're so busy running their businesses on a day to day basis, they haven't got time to think about some of these changes. And a lot of the time, no matter how hard we try and encourage engagement and we try to be very vocal about it, about the impacts to everybody, there will only ever really react when it actually hits them on the day that it happens or, you know, within their first consignment.
So I think, yes, there should be more engagement and there should be more engagement on this right now, when the secondary legislation is not yet drafted, businesses are going to need a significant amount of time to prepare for this. And this is both from those that have to support the operation of the border. They obviously need the time to to adjust their systems, but it's also time for for those that are going to be on the receiving end of it, either as a UK importer of goods, that suddenly changes may be coming to how you purchase your spares, for instance, because we we keep talking about e-commerce and almost direct to consumer or retail, but actually it affects business to business movements as well.
Lots of businesses use the the de minimis relief to be able to get samples in, to be able to get some spares in, to be able to get small bits and bobs between themselves and their suppliers. Yes, there is official or appropriate customs channels to deal with these, but majority of time the compliance element with that is so disproportionate in terms of the benefit that it gives, that it's much easier to use the low value relief and be able and be able to get those goods very quickly. Now, I will say, though, in my opinion and in my experience, any sort of facilitation will always be open to abuse because it is designed for a particular reason.
There's usually a genuine case to bring it forward for the moment that there is a loophole, there will be those that will be looking to exploit that loophole.
And it's not just because of the kind of the €5 charge, because the handling fee is now operational from the 1st of November. But it's also about all of the additional non-tariff barriers that are coming through related to the customs declaration. It's about product packaging regulations. It's about labeling requirements. All of this means that there are less and less inclined as small sellers to be dealing with the EU, and we're going to see a similar shift in here. I think the consultation, when it was launched, it was launched as part of a tax update, and I think there is more that the government could be doing in making sure that those that are going to be most heavily impacted are actually aware of this consultation.
You know, we have a lot of members, but those members are actually interested in international trade and they're paying attention. And yet there are so many businesses operating specifically in that sort of SME space where they're so busy running their businesses on a day to day basis, they haven't got time to think about some of these changes. And a lot of the time, no matter how hard we try and encourage engagement and we try to be very vocal about it, about the impacts to everybody, there will only ever really react when it actually hits them on the day that it happens or, you know, within their first consignment.
So I think, yes, there should be more engagement and there should be more engagement on this right now, when the secondary legislation is not yet drafted, businesses are going to need a significant amount of time to prepare for this. And this is both from those that have to support the operation of the border. They obviously need the time to to adjust their systems, but it's also time for for those that are going to be on the receiving end of it, either as a UK importer of goods, that suddenly changes may be coming to how you purchase your spares, for instance, because we we keep talking about e-commerce and almost direct to consumer or retail, but actually it affects business to business movements as well.
Lots of businesses use the the de minimis relief to be able to get samples in, to be able to get some spares in, to be able to get small bits and bobs between themselves and their suppliers. Yes, there is official or appropriate customs channels to deal with these, but majority of time the compliance element with that is so disproportionate in terms of the benefit that it gives, that it's much easier to use the low value relief and be able and be able to get those goods very quickly. Now, I will say, though, in my opinion and in my experience, any sort of facilitation will always be open to abuse because it is designed for a particular reason.
There's usually a genuine case to bring it forward for the moment that there is a loophole, there will be those that will be looking to exploit that loophole.
10:09
10:09
10:10
Speaker 1
-
Speaker 1
No, I think what we're going to have and this is the way that I'm reading it and the indication from from the government's response is that there's going to be the main system for customs declarations for goods that are not subject to the LV and that can collect the import VAT as well. That's your CDS, which we currently have. Now, what the government will be working on is a separate system for those that are subject to the LV regime, meaning the foreign sellers, the marketplaces that are going to be using that to provide the data to the government and to pay for the customs duty and to collect and pay the VAT.
10:10
10:10
Speaker 1
-
Speaker 1
Fiscal representation will only be applicable to the low value imports regime. That is not a concept that is currently being introduced for your freight movements. Within freight, you have two types of representation. You have your direct customs representative and you have an indirect customs representative. The indirect customs representative is jointly and severally liable with you for the customs debt. On the direct representation, the agent acts in the name of the principal only unless they're acting against the instruction. The fiscal representative is a brand new concept, and it's being brought in specifically to deal with this foreign seller.
And I think it's probably a testing ground a little bit as well in the LV space to see whether that could actually operate in the UK, and it might then spread out to other areas outside of the LV regime. But the reason why this is being brought in is to make sure that those specifically those foreign sellers, non-UK established entities, have a physical presence in the UK, that there is a door that HMRC can go and knock on and actually chase that debt. I don't think many of the customs intermediaries would be willing to step into that place.
Some of them might, depending on the risk appetite, because even the indirect customs representation is something that only very few customs intermediaries provide, because ultimately, why would they share the liability? I think the large retailers or sorry, the large sellers, they will probably find a fiscal representative quite easily because again, they will just pay the cost of it. There might be some some agents springing up that are willing to take that risk, you know, have that higher risk appetite. Where the challenge is going to come is those non-established sellers, those small businesses out there in the EU, in the US, anywhere else in the world that are suddenly potentially going to struggle to sell directly to consumers in the UK because they won't be able to get a fiscal representative.
And I think it's probably a testing ground a little bit as well in the LV space to see whether that could actually operate in the UK, and it might then spread out to other areas outside of the LV regime. But the reason why this is being brought in is to make sure that those specifically those foreign sellers, non-UK established entities, have a physical presence in the UK, that there is a door that HMRC can go and knock on and actually chase that debt. I don't think many of the customs intermediaries would be willing to step into that place.
Some of them might, depending on the risk appetite, because even the indirect customs representation is something that only very few customs intermediaries provide, because ultimately, why would they share the liability? I think the large retailers or sorry, the large sellers, they will probably find a fiscal representative quite easily because again, they will just pay the cost of it. There might be some some agents springing up that are willing to take that risk, you know, have that higher risk appetite. Where the challenge is going to come is those non-established sellers, those small businesses out there in the EU, in the US, anywhere else in the world that are suddenly potentially going to struggle to sell directly to consumers in the UK because they won't be able to get a fiscal representative.
10:12
10:12
10:13
10:13
10:13
10:13
10:13
10:13
Lord Newby
-
-
Lord Newby
Something on that point. So I don't believe that's workable because as you pointed out, normally a fiscal representative would be for a larger company because it's quite an expensive thing to actually do. I'm also not convinced that it's even legal, because if you're only offering a route into the UK, if you have a fiscal representative, I think it's arguable that that's some kind of customs broker and that breaches WTO rules , because they could immediately point to the EU and say, well, if I'm selling to the EU, I have the option of prepaying the VAT and duty and you have a record shop and say, say you had a bicycle shop in Idaho and they have three customers in the UK, are they expected to get fiscal representative?
I think that's completely, you know, not going to happen.
I think that's completely, you know, not going to happen.
10:14
Lord Newby
-
-
Lord Newby
Yeah. They just won't sell to the UK which is a trade barrier effectively. So you know, I don't think there's any way around the fact that the UK needs to develop a system that is along the same lines as the EU, but better. So effectively you've got two systems. You have bulk freight clearance and you have low value packages, postal carrier, courier, direct to consumer sales, in the same way that the EU has done it. And you've got to give people the option to pay the VAT and duty up front. And interestingly, I don't know if anyone saw, but Amazon came out and suddenly said, we're for this, which, you know, I was surprised.
And so it's got to the point where you have companies like Amazon, major high street retailers. I think Primark were up in arms about this. The volumes that are coming in are seriously damaging their businesses, and they want to see this issue fixed. And my concern is that if we don't address this issue of the prepayment of VAT and duty for a non online marketplace seller, that we're just leaving a massive loophole which actually already exists, that they're going to exploit. The EU isn't perfect, but it's it's better than what we have without a shadow of a doubt at the moment.
And so it's got to the point where you have companies like Amazon, major high street retailers. I think Primark were up in arms about this. The volumes that are coming in are seriously damaging their businesses, and they want to see this issue fixed. And my concern is that if we don't address this issue of the prepayment of VAT and duty for a non online marketplace seller, that we're just leaving a massive loophole which actually already exists, that they're going to exploit. The EU isn't perfect, but it's it's better than what we have without a shadow of a doubt at the moment.
10:15
Speaker 1
-
Speaker 1
I would say that the collection element versus the responsibility can be two separate things. So you could have a customs representative dealing with your customs entry that may be needed for this. And you have a separate fiscal representative that takes on the liability and the responsibility. If something goes wrong, those two those can be two separate things. Whether any customs intermediaries will take on the fiscal representative. Some of them will. Some of them absolutely will, because they will see this as a as a potentially additional revenue stream. And the prepayment of duty and VAT is also part of the government's response to the consultation is that it will be an option on the table, because I think that will that depends on how how those businesses are operate.
That should be feasible for the large marketplaces. They should be quite easily be able to calculate it. However, the calculation of of, of customs duty and import VAT is dependent on having the data about the goods. It's the commodity code classification that drives it. It's the it's the country of origin that drives it. And therefore it's all going to be reliant on the availability of that data being submitted, whether it be that with through the marketplace or directly through customs intermediary, which currently, if you're importing low value goods, you may not be you may not be being asked for that information yourself or the seller or the sender may not be being asked for it either.
That should be feasible for the large marketplaces. They should be quite easily be able to calculate it. However, the calculation of of, of customs duty and import VAT is dependent on having the data about the goods. It's the commodity code classification that drives it. It's the it's the country of origin that drives it. And therefore it's all going to be reliant on the availability of that data being submitted, whether it be that with through the marketplace or directly through customs intermediary, which currently, if you're importing low value goods, you may not be you may not be being asked for that information yourself or the seller or the sender may not be being asked for it either.
10:17
10:17
10:17
10:17
Speaker 2
-
Speaker 2
Can I we've touched on the consultation. Can I ask you what your views are on the government's approach to consultation and its ongoing engagement? And then I think in particular, how much public awareness you think there is of this proposed change that the public have got used to these low prices and easy availability. And when we're looking at, you know, what we're seeing as a cost of living crisis, how do you think the public will respond to the idea of having to pay more that and customs on their small parcels?
10:17
Lord Newby
-
-
Lord Newby
I don't know if anyone remembers the pasty tax. That was a very straightforward fairness issue, where you had chip shops having to charge VAT and Greggs weren't. But the way it was communicated to the public was a bit of a disaster. And I think the way to communicate this is that all of the businesses that sell into the UK that don't pay VAT and duty have a benefit that no other business in the UK has. They don't have to pay VAT and duty when they sell goods directly to a UK customer. So we're removing a benefit, not adding a cost.
I think that's the way to to look at that and then sorry, sorry.
I think that's the way to to look at that and then sorry, sorry.
10:18
10:18
Lord Newby
-
-
Lord Newby
I mean, I do feel slightly frustrated with these consultations in that we're talking about compliance. Now. Some aspects of compliance are not really open to negotiation, are they? You wouldn't go and consult on on criminal law with the public. You would just basically say, this is what we're going to do. Do these things have an impact on you? And is there any way that we can look at that? Sometimes I feel with this issue of VAT and duty, there's an element of leaving loopholes in to satisfy complaints that really aren't justified. You know, if you're a seller selling into Europe, into the UK and you're not charging VAT, you really don't have an argument that you should be allowed to continue doing that.
If every business in the UK is having to charge VAT. So I do feel sometimes that the scope of these consultations takes in views that should be ignored from the outset. Yeah.
If every business in the UK is having to charge VAT. So I do feel sometimes that the scope of these consultations takes in views that should be ignored from the outset. Yeah.
10:19
10:19
10:19
10:19
Lord Newby
-
-
Lord Newby
Well, the figures that have been estimated, the 500 million is duty only. So it's silent on the VAT. I think it's very important to understand that the focus at the moment is on online marketplaces collecting VAT and duty, which is fantastic. But there's a huge amount of stuff sold not on online marketplaces. And that seems to be if I was to look at this consultation and say, what does it say? Well, I'm more interested in what it doesn't say and what it doesn't say is what's going to happen with the non online marketplace trade. There's no mention of it in any of the paperwork that I've seen, which is why I personally believe it's never going to work unless you have a portal for pre-payment of VAT and duty and a customs check to ensure that these packages have had the VAT and duty pre-paid.
The online marketplace stuff is like the gravy. That's that's they'll collect it. You'll get a check every month or whatever. That's easy. So that's how I kind of look at that.
The online marketplace stuff is like the gravy. That's that's they'll collect it. You'll get a check every month or whatever. That's easy. So that's how I kind of look at that.
10:20
10:20
Lord Newby
-
-
Lord Newby
Yeah. To give you a comparison of the of the previous estimates to date, every single estimate on this subject has been wrong. So for example, when they introduced the first measure in 2021, HMRC estimated 350 million. The actual figure in the first year was 1.4 billion. So that gives you some idea as the of how out of skew the figures were.
10:21
10:21
Lord Newby
-
-
Lord Newby
Proportion of imported goods are subject to customs duty? Given that we have all these free trade arrangements with all sorts of people around the world, what proportion of goods are subject to duty? 50% of commodity codes do not attract any duty at all, and rates of duty on some things are very low. So actually there's a whole area. I'm not suggesting that we should go full on Donald Trump, but there are areas of duty that could be raised.
Revenue. I mean, a tiny amount on something is, you know, is better than nothing.
Revenue. I mean, a tiny amount on something is, you know, is better than nothing.
10:21
Speaker 1
-
Speaker 1
I would just add a few points just on the previous questions around the consultation and engagement and follow up on the on the duty element. When the consultation was first launched, HMRC and Treasury did run a webinar to try and gather some engagement, but that was a one off, and I think that's probably wasn't sufficient in terms of making sure that businesses out there are aware of of this consultation, trade bodies such as ourselves and others, we are very vocal about it, and we were encouraging members to respond directly, because I think as much as we have a voice and we are their voice and we have submitted a response, it's more impactful when government hears from a variety of stakeholders, 165 responses is not a lot.
It is not a lot to, to, you know, to, to shape, to shape policy. Where we are right now is a little bit of a limbo because we had a government response in June 2026, which was a few months ago. And then they've gone very quiet because they've gone internal. They've gone. We're now considering how we're going to do it. I don't think that's right. In terms of working in silos internally, in government, where fora exist for meaningful consultation, because the last thing you want to do is you want to come to the table with a solution to then be told, oh, actually, that's not workable.
That's not feasible. That's not going to work. I think we, we keep talking about kind of business to business and the retailers, people that are going to be most impacted by this is going to be consumers that are currently purchasing goods on the internet. And sometimes they are not even aware that the goods that they're purchasing are imported goods, because the website that they're going on is a.co.uk website. It is made to look like they're buying domestic goods, and suddenly when they receive a tracking number, the tracking number shows them that those goods are coming from China.
They never even knew that their importer. So I think they're going to be the ones that are going to need to be well aware of these changes coming in, because they're going to be the most impacted. And that's both in terms of kind of the potentially the increase in costs, but also increase in the procedures that are going to have to follow. Unless the UK looks at introducing a similar concept, like the EU has done with almost a deemed importer, making the marketplace the importer, rather than pushing that down onto the consumer. That wasn't part of the consultation, but that may still be something to consider in terms of the duties on goods in the UK and the UK.
Global tariff average duty rate, I believe , currently is at 2.4%, but that is spread across thousands and thousands of commodities, and some of them will be 0% regardless of where they're coming from. These are generally goods which we actually want to be importing. These are things that we can't do ourselves. Some can be quite high in terms of the standard duty rate. If you think about pieces of clothing, for instance, if you're not buying it from countries where we have a free trade agreement, either bilateral or unilateral, then the duty rate on t shirts, for instance, is 12%.
So that is quite significant difference in terms of some of the some of the goods that are coming in now without the payment of duty, where I think the the the LV regime is very specific in terms of the goods that are included in it , because the government has gone down the route of their particular exclusions, such as how the duty rate is calculated, whether there is an trade measure attached to it, whether there is a license required, all of these things are not going to be done through the simplified system. They're going to go down the route of customs declarations.
And I think for Non-established UK sellers, when they are not a marketplace where they don't fall under the LV regime, then they're probably going to go down the route of the standard customs processes. And that means exporting to the UK either on a D, a P basis, where the importer is responsible for all the clearance, or if they're willing to send on a DDP basis, then the customs intermediary is going to charge them for the duty and VAT. So, so there will be a mechanism for that. It's just more people where the relief is going to be removed are going to be pushed down.
Your standard customs processes.
It is not a lot to, to, you know, to, to shape, to shape policy. Where we are right now is a little bit of a limbo because we had a government response in June 2026, which was a few months ago. And then they've gone very quiet because they've gone internal. They've gone. We're now considering how we're going to do it. I don't think that's right. In terms of working in silos internally, in government, where fora exist for meaningful consultation, because the last thing you want to do is you want to come to the table with a solution to then be told, oh, actually, that's not workable.
That's not feasible. That's not going to work. I think we, we keep talking about kind of business to business and the retailers, people that are going to be most impacted by this is going to be consumers that are currently purchasing goods on the internet. And sometimes they are not even aware that the goods that they're purchasing are imported goods, because the website that they're going on is a.co.uk website. It is made to look like they're buying domestic goods, and suddenly when they receive a tracking number, the tracking number shows them that those goods are coming from China.
They never even knew that their importer. So I think they're going to be the ones that are going to need to be well aware of these changes coming in, because they're going to be the most impacted. And that's both in terms of kind of the potentially the increase in costs, but also increase in the procedures that are going to have to follow. Unless the UK looks at introducing a similar concept, like the EU has done with almost a deemed importer, making the marketplace the importer, rather than pushing that down onto the consumer. That wasn't part of the consultation, but that may still be something to consider in terms of the duties on goods in the UK and the UK.
Global tariff average duty rate, I believe , currently is at 2.4%, but that is spread across thousands and thousands of commodities, and some of them will be 0% regardless of where they're coming from. These are generally goods which we actually want to be importing. These are things that we can't do ourselves. Some can be quite high in terms of the standard duty rate. If you think about pieces of clothing, for instance, if you're not buying it from countries where we have a free trade agreement, either bilateral or unilateral, then the duty rate on t shirts, for instance, is 12%.
So that is quite significant difference in terms of some of the some of the goods that are coming in now without the payment of duty, where I think the the the LV regime is very specific in terms of the goods that are included in it , because the government has gone down the route of their particular exclusions, such as how the duty rate is calculated, whether there is an trade measure attached to it, whether there is a license required, all of these things are not going to be done through the simplified system. They're going to go down the route of customs declarations.
And I think for Non-established UK sellers, when they are not a marketplace where they don't fall under the LV regime, then they're probably going to go down the route of the standard customs processes. And that means exporting to the UK either on a D, a P basis, where the importer is responsible for all the clearance, or if they're willing to send on a DDP basis, then the customs intermediary is going to charge them for the duty and VAT. So, so there will be a mechanism for that. It's just more people where the relief is going to be removed are going to be pushed down.
Your standard customs processes.
10:26
10:26
Speaker 1
-
Speaker 1
I think the EU is 27 different member states, and some of them have different challenges that we do. They're definitely watching what the EU is doing. Even if we looked at the consultation question, the one of the consultation question was whether we should introduce the bucket system for for for calculation of duty. That was the initial proposal in the EU customs reform. They went away from it. We still consulted on it. The majority of trades that actually it's not feasible, it's not going to work. You're just going to try and overcomplicate it. So we are seeing some of the things that the EU is doing.
I think Richard has called it out as well. It's almost like a friendly fire in who can do particular legislation better. We're seeing it across other areas, such as the carbon border adjustment mechanism. The EU likes to really overcomplicate things and then try and walk it back. What we're definitely seeing in the UK is a sort of watching what they're trying to do, hearing the concerns that are being heard and see whether actually we can do things slightly better. There's always a risk that by trying to oversimplify, you lose the gist of the message and what you're trying to achieve.
So it's a fine balance in finding the right solutions for the environment in which you're operating.
I think Richard has called it out as well. It's almost like a friendly fire in who can do particular legislation better. We're seeing it across other areas, such as the carbon border adjustment mechanism. The EU likes to really overcomplicate things and then try and walk it back. What we're definitely seeing in the UK is a sort of watching what they're trying to do, hearing the concerns that are being heard and see whether actually we can do things slightly better. There's always a risk that by trying to oversimplify, you lose the gist of the message and what you're trying to achieve.
So it's a fine balance in finding the right solutions for the environment in which you're operating.
10:27
10:27
10:27
10:27
10:27
Speaker 1
-
Speaker 1
I think it was in this year's budget, in the autumn budget 2026, where there was a figure attached to by 2029, obviously, once this goes live, that there's going to be a financial benefit. Unfortunately, I'm unable to quote it because I have not got the copy of the budget. But it was it was there was a figure attached.
10:28
10:28
10:28
10:28
10:28
10:28
Lord Newby
-
-
Lord Newby
So the LV regime we just want to point out. So I mentioned it's abused at the moment. What facilitates abuse of the LV regime is the ease at which people can get VAT numbers and companies in the UK. And one of the things that I believe needs to be done is that there needs to be visits by HMRC to a lot of these addresses. Apparently the number of visits that doesn't happen anymore. I was told by an expert on the subject, because what happens is they set up companies in the UK who are then essentially the importer.
They import huge amounts of stuff through the LV and then when they're pursued for the duty and VAT, which has been misdeclared or the duty, they aren't actually there. It's just a paper company. So there's there's facilitated by the problems with customs. Customs companies house and in terms of public perception, if in my view is if there isn't a pre-payment scheme, then we're going to be faced with a situation whereby somebody buy something online. The seller doesn't have a fiscal representative and the item they paid for is thrown in the bin. I mean, that's going to immediately create bad feeling amongst consumers.
Whereas if they're if the VAT is being and duty is being pre-paid, it may put the price up slightly, but the consumer can see what they're paying when they order the item and they get the item. I think the danger with what's being proposed at the moment is, is that we'll see lots of consumers not getting what they ordered.
They import huge amounts of stuff through the LV and then when they're pursued for the duty and VAT, which has been misdeclared or the duty, they aren't actually there. It's just a paper company. So there's there's facilitated by the problems with customs. Customs companies house and in terms of public perception, if in my view is if there isn't a pre-payment scheme, then we're going to be faced with a situation whereby somebody buy something online. The seller doesn't have a fiscal representative and the item they paid for is thrown in the bin. I mean, that's going to immediately create bad feeling amongst consumers.
Whereas if they're if the VAT is being and duty is being pre-paid, it may put the price up slightly, but the consumer can see what they're paying when they order the item and they get the item. I think the danger with what's being proposed at the moment is, is that we'll see lots of consumers not getting what they ordered.
10:29
10:30
Lord Newby
-
-
Lord Newby
View, here's why nobody bought from Tamu or Shein three, four years ago, and I've seen the argument put forward that this will affect people to a huge degree. Well, a lot of the products sold on these websites are sold at very low prices. We all got buy before Tamu and Shein, and I'm sure we can get by without Tamu and Shein, and ideally a small amount added on in duty and VAT. If you buy an item for two £3 on Tamu, we're talking about a minimal increase in the price, so I don't buy into this idea that it's going to cause everybody major problems, because it's not the only place you buy something, you know.
10:30
10:30
Lord Newby
-
-
Lord Newby
One thing, incidentally, that we haven't talked about at all is the impact of the current abuses on domestic producers. I talked to somebody in the fashion industry who's absolutely incandescent about the VAT evasion of VAT and the small consignment relief, and in fact, making making her business much less viable than it would otherwise be. So there is a there is a there may be a if we looked at the overall economic consequence, there may be a marginal uptick in inflation in some areas. But in terms of employment here, it would definitely be beneficial. I just you were talking about customs not going and looking at these shell companies.
I just wondered if you've any sense about what proportion of small consignments coming into the UK are looked at by customs at all. I mean, if, if, if I've got a container with thousands of little individual packets in it , and there are hundreds of these containers every month coming through Felixstowe and elsewhere, how many of those consignments are likely to be checked? I can it's a very small proportion. I can get you the figures on that, but it is a very small. I will make a note here to send those figures, and I can give you an example.
I had one of our members say that he was offered a service by a Chinese freight forwarder, whereby his. He could order goods from China. They would come in and he wouldn't pay any vat and duty. He wouldn't receive any paperwork. All he had to do was ensure that the items were packed in individual boxes, each one weighing no more than 12 kilos. So it was obvious that this fraud was going to send them all as individual consignments to lots of different people, when in fact it was one shipment. And that's how this system gets abused.
I just wondered if you've any sense about what proportion of small consignments coming into the UK are looked at by customs at all. I mean, if, if, if I've got a container with thousands of little individual packets in it , and there are hundreds of these containers every month coming through Felixstowe and elsewhere, how many of those consignments are likely to be checked? I can it's a very small proportion. I can get you the figures on that, but it is a very small. I will make a note here to send those figures, and I can give you an example.
I had one of our members say that he was offered a service by a Chinese freight forwarder, whereby his. He could order goods from China. They would come in and he wouldn't pay any vat and duty. He wouldn't receive any paperwork. All he had to do was ensure that the items were packed in individual boxes, each one weighing no more than 12 kilos. So it was obvious that this fraud was going to send them all as individual consignments to lots of different people, when in fact it was one shipment. And that's how this system gets abused.
10:32
10:32
10:32
Speaker 1
-
Speaker 1
The. It would it would go down, down this probably the customs route of returns. I mean, what happens right now with the with the kind of large scale online sellers is you could buy your products from them, receive them in small parcels, multiple parcels, depending on where they're coming from. When you try to return that product, quite often, they will issue a refund, but let you keep the product because it's not viable for them to receive to store it. Because a lot of the time, low quality goods, they don't actually want them. Some of them they do want back.
And a lot of them have established kind of UK and EU warehouses where you can return them. The this, this regime will probably not change that behavior. And just going back on how much parcels are actually being checked, I would say that it's very few, but one of the things that the reform is looking to do is to introduce a handling fee to. And I think part of that handling fee is, of course, to pay for the infrastructure. But the other part is that the handling fee could do is to pay for those checks, to make sure that those goods that are now properly declared, that there is a visibility of them coming in, that there is, yes, the duty and the VAT is collected, but I talked about it earlier, is in terms of the product safety element of making sure that the products being placed on the market are not actually harmful to the receivers.
There have been evidence where goods which are manufactured that don't meet the standards with a significantly higher volumes of plastics, of chemicals within them, on things that we're putting on our bodies and on our, you know, or maybe eating out of plastic containers that shouldn't be placed on the market and be safe for consumption. So that handling fee could actually make sure that there's stuff available to be, to be, to be putting pressure and putting attention and checking those.
And a lot of them have established kind of UK and EU warehouses where you can return them. The this, this regime will probably not change that behavior. And just going back on how much parcels are actually being checked, I would say that it's very few, but one of the things that the reform is looking to do is to introduce a handling fee to. And I think part of that handling fee is, of course, to pay for the infrastructure. But the other part is that the handling fee could do is to pay for those checks, to make sure that those goods that are now properly declared, that there is a visibility of them coming in, that there is, yes, the duty and the VAT is collected, but I talked about it earlier, is in terms of the product safety element of making sure that the products being placed on the market are not actually harmful to the receivers.
There have been evidence where goods which are manufactured that don't meet the standards with a significantly higher volumes of plastics, of chemicals within them, on things that we're putting on our bodies and on our, you know, or maybe eating out of plastic containers that shouldn't be placed on the market and be safe for consumption. So that handling fee could actually make sure that there's stuff available to be, to be, to be putting pressure and putting attention and checking those.
10:34
Lord Carrington of Fulham
-
-
Lord Carrington of Fulham
If I can just come back on the , on the return of goods, because if you've got a fiscal representative set up and you get the goods and you return them to the manufacturer in China, assuming you can identify where to return them to, which I gather is not always easy. Is the fiscal representative then going to be responsible for refunding the import, the VAT and the import duty.
10:35
Speaker 1
-
Speaker 1
So the duties and import VAT are payable to customs. Current regime allows for rejected imports to be returned within 90 days, and you can then receive a refund of those duties payable. That duty is payable back to either the customs declarant if they are the ones making the return application, or can be payable directly to the person that ultimately paid for the goods. Because. Because they would have paid for the duty to the customs representative.
I don't.
I don't.
10:35
10:35
10:35
10:35
10:36
Lord Newby
-
-
Lord Newby
I actually had dealings with the European Commission at one point, and I discussed the issue of fiscal representative with them, and they said they'd reached the conclusion that it was just too expensive for smaller retailers to have a fiscal representative. They looked at it, and I think in terms of behavior overall, because of the way things work at the moment, the incentive has been to sell direct into the UK. But that moved away from the model where where businesses outside the UK were looking for people to sell their products and sell wholesale to them. I think once these things go in place, you'll see more of a return to businesses selling within the UK and consumers wanting to buy from somebody that they actually know who it is.
A lot of the problem was pointed out earlier was you buy from somebody you think is a shop in London, and I did it. I bought a coat for my son and it had an opening times, closing times, English names on, and it came straight from China. You know, that's how they're getting around it.
A lot of the problem was pointed out earlier was you buy from somebody you think is a shop in London, and I did it. I bought a coat for my son and it had an opening times, closing times, English names on, and it came straight from China. You know, that's how they're getting around it.
10:36
10:36
10:37
Lord Newby
-
-
Lord Newby
I suspect they've had pressure from somebody. It doesn't make any sense to me that they do that because it's just inviting abuse. It might be worth worth asking HMRC what estimates they have of the loss of result of allowing that exemption. But certainly my understanding is that America has been collecting sales tax in this way for a long time, and it's been hugely successful. Obviously, sales tax isn't as high as VAT and you haven't got input tax you can claim back. But they didn't allow an exemption. And going through that reminds me talking about the implementation, to give you an idea, when America introduced their system, which is different to the U.S, but the same principle prepay, they had an up and running in days.
There was a there was a backlog immediately. It was a bit of a mess to start with, but now it runs smoothly, so it gives you a comparison. It can be done.
There was a there was a backlog immediately. It was a bit of a mess to start with, but now it runs smoothly, so it gives you a comparison. It can be done.
10:38
10:38
10:38
10:38
Speaker 1
-
Speaker 1
Well, I will do. All I can say is that from my engagement with HMRC through the Joint Customs Consultative Committee, we have been pushing for guidance and for the secondary legislation to come out as soon as possible. We have told the government that businesses need time to prepare and need to understand the responsibilities that are going to be placed upon them. I would expect it to be coming in no later than the next 3 to 6 months to be able to actually.
10:39
10:39
10:39
10:39
Lord Liddle
-
-
Lord Liddle
If there's anything that occurs to you. That you haven't mentioned, do write to us at to the committee clerk and we'll take account of that. Thank you very much. It's a very complex subject, but I certainly feel better informed now than I did an hour ago. And it's I'm very grateful to you for coming to you both for coming along. And I'm temporarily going to end the broadcast now until we go on to our next. Welcome back to the finance Bill Sub-Committee. Where we have before us. Our second witness of the morning, Rebecca Bennewith, who's going to who is a member of the Administrative Burdens Advisory Board.
Sounds very impressive. Which I gather is a. Anyway, you can tell us when we. What. It's. The status of the body is, I think. What I'll. I'll kick off and ask the first question after you've introduced yourself and then we'll. Members can come in as they as they please. All right. Right.
Rebecca.
Sounds very impressive. Which I gather is a. Anyway, you can tell us when we. What. It's. The status of the body is, I think. What I'll. I'll kick off and ask the first question after you've introduced yourself and then we'll. Members can come in as they as they please. All right. Right.
Rebecca.
10:43
Baroness Wheatcroft
-
-
Baroness Wheatcroft
Right. I'm Rebecca Pennyworth, I'm a chartered accountant. I run a practice, a very small practice in Gloucestershire , serving very small businesses. And we look after their payroll as well as their other tax and accounting affairs. I'm a member of the Admin Burdens Advisory Board. That board is made up of a wide variety of people with business experience. We are all volunteers and we act as a critical friend to HMRC. We look very closely at both the implementation of policy and. Also we. We make suggestions about potential simplification. That's become more important since the abolition of the office for Tax Simplification.
And we work closely with HMRC. We report directly to the Minister. We produce an annual report. We do a survey of businesses and what they're finding difficult with the tax system. So that's a little bit about our board.
And we work closely with HMRC. We report directly to the Minister. We produce an annual report. We do a survey of businesses and what they're finding difficult with the tax system. So that's a little bit about our board.
10:44
Lord Liddle
-
-
Lord Liddle
Yes. Well that's very helpful. We noted that last year in your annual report, you expressed dismay about how HMRC were approaching the development of the. Of the benefits in kind measure that we were looking at. Could you could you tell us why you're concerned and whether you think any of the issues that you've raised are near a solution?
10:45
Baroness Wheatcroft
-
-
Baroness Wheatcroft
Yes. So we're very, very supportive of the policy objective behind this proposal. In fact, I remember being at a meeting of our board well over ten years ago, where we were pushing quite hard for this to be introduced. And as a result of that, in 2016, HMRC did introduce voluntary, voluntary payrolling of benefits in kind. What that means is instead of after the end of the tax year, somebody, and particularly for a small business, probably
10:46
10:46
10:46
Speaker 1
-
Speaker 1
This is included in the payroll run every month and the employees are taxed as they go along. The reality is they are they do pay some taxes as they go along because HMRC estimates what the benefits will be and puts that in their notice of coding. So they're paying sort of real time. But this would this would be more accurate. It would give more transparency. And we believed it would be an.
10:46
10:46
10:47
Speaker 1
-
Speaker 1
Those of us on the boards with direct experience of this area felt that would be the. precursor to the mandatory scheme. In fact, personally, in our practice, we encouraged our clients to go on to voluntary. payrolling in 25 and 26 to prepare for this, because we said then you'll be used to the information flows. We'll all be set up. It'll be a really good way to prepare for this.
10:47
10:47
10:47
10:47
10:47
10:47
10:47
Speaker 1
-
Speaker 1
Because the volume of. data and the. detail that HMRC were asking for was way beyond anything that we do in voluntary. payrolling involuntary Payrolling let's say someone has a company car benefit in kind is £2,400. We would include. £200 a month in their pay as if they'd had the money they pay tax on it. All is done. The only slight flaw in voluntary payrolling is there is still some National. insurance to account for after the end of the tax year, which in future would be. accounted in each month as you go along. So it would all be smooth and simple.
I'm not really completely clear why, but the data. requirements and the way in which things were to be laid out was really, in my view, quite extraordinary. I have a suspicion that it is to aid compliance checks rather than to work out the benefit in kind. And certainly a lot of detail was being asked for. And this is detail that if you are unfortunate enough to pay your employees weekly, you might have to be reporting on a weekly basis to HMRC. Both the Admin Burdens Advisory Board and those. representing the software houses, who would have to build the software to allow us to do this, were.
I'm not really completely clear why, but the data. requirements and the way in which things were to be laid out was really, in my view, quite extraordinary. I have a suspicion that it is to aid compliance checks rather than to work out the benefit in kind. And certainly a lot of detail was being asked for. And this is detail that if you are unfortunate enough to pay your employees weekly, you might have to be reporting on a weekly basis to HMRC. Both the Admin Burdens Advisory Board and those. representing the software houses, who would have to build the software to allow us to do this, were.
10:49
10:49
10:49
10:49
10:49
10:49
10:49
Speaker 1
-
Speaker 1
Which are a the most common and probably be the simplest to implement. And then the remaining benefits, apart from beneficial loans and. accommodation will come in in 28. So that's quite reassuring. But it what we were. disappointed by is that the. opportunity had been lost to really engage with people who were going to do this and find out the .
10:50
10:50
10:50
10:50
10:50
10:50
10:50
Speaker 1
-
Speaker 1
Even if they're using an outside agent. So if we take the position with form P11d, which is the annual reporting system. Normally an SME, even if they run payroll in-house, they would usually use a tax. advisor to do forms. p11d because they wouldn't. normally with the sorts of businesses I deal with, they wouldn't have the tax expertise in-house to calculate the annual value of the benefits in kind.
Some are straightforward, some are quite complicated. So that's the as is, if you like, in future under mandatory.
Some are straightforward, some are quite complicated. So that's the as is, if you like, in future under mandatory.
10:51
10:51
10:51
10:52
10:52
10:52
10:52
Speaker 1
-
Speaker 1
And you have engaged an insurance company to provide that for your employees. You would tend to know how much was going through the bank each month to cover the employees. But actually what you'd have to do is then break that down on an employee by employee basis. Those premiums would change if an employee decided they wanted members of their family included on the benefit. So you'd have to be alive to those changes on a monthly basis in order to report correctly.
You then have to, if.
You then have to, if.
10:52
10:52
Speaker 1
-
Speaker 1
Do some checks to make sure you had accurate data. And then depending on whether you were going to payroll this yourself or you were going to ask an agent to do it, you'd pass that information over to the agent. One of the issues with running payroll as an external agent is timeliness. We very often run very, very close to the line in terms of getting data from our. clients to say, this person's been off sick or this person's done over time, and sometimes we're chasing up on the day before they want to make payment to their staff to say, come on, we need this data.
So having more data and more.
So having more data and more.
10:53
10:53
10:53
Speaker 1
-
Speaker 1
And I'm afraid for employers. I'm afraid that just doesn't ring true to me because the amount of work they'll have to do, even if it's a company car provided in-house, somebody changes their car. Then you've got to establish the list price of the vehicle. You've got to look up in the tables what the rate of tax should be. Is that being done in-house? Does the company, does the SME have the expertise to do that? If they want to run the payroll in-house, will they have to refer to the agent to calculate the benefit in kind to understand what figure to include?
So I think some of this will be overcome in the passage of time. But I do think there is even where it's being done by an external agent. I do think there are definitely .
So I think some of this will be overcome in the passage of time. But I do think there is even where it's being done by an external agent. I do think there are definitely .
10:54
Lord Leigh of Hurley
-
-
Lord Leigh of Hurley
Costs, ongoing costs for all employers. I push back a little bit on that because I use a payroll agency, and I mean, people don't change their car that regularly, not more than once a year maximum, more like the average of three years. And the premiums to insurance. companies are just a number, which is provided. I just push back a .
10:54
10:54
10:54
Speaker 1
-
Speaker 1
Let's take one of my clients, a two director company. During the year, they decided they would start a private medical insurance scheme. So we've got a premium needs splitting between the two people, but that's not too difficult at the outset. That premium will change annually, probably halfway through the tax year because that's how things happen. Again, you you need to. remember they're running a business. You'd need to remember wait a minute. I've seen on the bank that that's changed. Now I need to quickly check whether they've both gone up by the same amount or not, and then pass that information.
Our experience of voluntary. payrolling is that it gets forgotten and we get to the end of the year, as we did last year in in March, and suddenly all sorts of things come out the woodwork. I forgot to tell you, we gave so-and-so a van. When was that? Oh, it was in January. Oh, sorry. We forgot. So I think they'll get used to it.
They'll have to get used to it. But if you've got 50, 60, 200. employees on Bupa, you've you've got to or there are other.
Our experience of voluntary. payrolling is that it gets forgotten and we get to the end of the year, as we did last year in in March, and suddenly all sorts of things come out the woodwork. I forgot to tell you, we gave so-and-so a van. When was that? Oh, it was in January. Oh, sorry. We forgot. So I think they'll get used to it.
They'll have to get used to it. But if you've got 50, 60, 200. employees on Bupa, you've you've got to or there are other.
10:56
10:56
10:56
10:56
10:56
10:56
10:56
10:56
Speaker 1
-
Speaker 1
Could you elaborate on that a bit? Yes. So in order to tax benefits through the payroll, all you really need is what is the cash equivalent this month that might be made up of 3 or 4 benefits in kind. You might need somebody who knows about tax to calculate it, but it's just one number. And if all we were being obliged to do was to include one number in the.
10:57
10:57
10:57
10:57
10:57
10:57
Speaker 1
-
Speaker 1
And I will admit, I haven't yet seen and we actually don't have secondary. legislation yet because of the legislation, has got to go through finance bill first. I haven't seen what the data requirements precisely are going to be, but the original. specification required each type of benefit to be broken down. So you'd have to provide information about a car, about fuel, about medical benefits, about this or that, all.
10:58
10:58
Speaker 1
-
Speaker 1
Both in the month and. cumulatively each month or each pay period. And I can I can only speculate that this is to help those who want to check it. I can't see any other reason for it. We haven't probed HMRC on it because that's not something we tend to do. We'll more generally push back and say, come on, tell us why you need this .
10:58
10:58
10:58
10:58
10:58
10:59
10:59
10:59
10:59
10:59
10:59
10:59
10:59
10:59
10:59
10:59
10:59
11:00
11:00
11:00
11:00
Speaker 1
-
Speaker 1
Them, how are they going to react? I think there is at the moment, a bit of a feeling in small businesses of being a bit under siege, with various. administrative requirements being placed on them, and my own. experience in my practice and with my clients is that there is more and more. administrative work being, if you like. offshored out into business, away from government departments. So it's.
inevitable that small businesses will push back. Now, in the case of my clients who are very small.
inevitable that small businesses will push back. Now, in the case of my clients who are very small.
11:00
11:00
Speaker 1
-
Speaker 1
I'm thinking of one of my electricians. His main worry day to day is can I find another qualified electrician? And that occupies a great deal of his time. Another similar sized client. Can I find another chap to go in the workshop to repair cars because we just can't find anybody. And my suggestion is maybe you ought to train an. apprentice . , and I could work with him to do that, that we will try as an advisor to shelter our clients from this. But it is inevitable we will be pushing them to keep on top of. information and to keep in touch with us on a monthly basis.
And a lot of these clients don't actually want to speak to their accountant every month. Maybe, yes, they email the hours into the payroll, my payroll lady, but you know, it's going to be a little bit more. I'm going to be pushing them and probing them to get that information.
And a lot of these clients don't actually want to speak to their accountant every month. Maybe, yes, they email the hours into the payroll, my payroll lady, but you know, it's going to be a little bit more. I'm going to be pushing them and probing them to get that information.
11:01
11:02
11:02
11:02
11:02
11:02
11:02
11:02
11:02
11:02
11:02
11:02
11:02
11:02
11:03
11:03
11:03
11:03
11:03
11:03
11:03
11:03
11:03
11:03
Speaker 1
-
Speaker 1
On strict understanding. It's for the use of the business, not for personal use, I think. I can't see why HMRC would have such an agenda. It doesn't make sense. It doesn't make sense for the Exchequer. because if you don't give him a van, you'll have to pay him a mileage allowance which would be tax free, and tell him to buy his own van. So it wouldn't make sense in terms of tax take. I don't I don't think no I can't, I can't honestly see that as an agenda. HMRC s agenda rightly should be everyone pays the right tax.
ideally at the time they benefit from the income, whether that income is a payment of wages or the provision of an asset for private use or whatever. I think that's the .
ideally at the time they benefit from the income, whether that income is a payment of wages or the provision of an asset for private use or whatever. I think that's the .
11:04
11:04
Lord Carrington of Fulham
-
-
Lord Carrington of Fulham
Agenda and Obab would support that because it's really an extension of the same problem, that there are benefits which they're going to bring into this system later on, because they're more complicated to calculate. And thinking particularly about accommodation and overseas allowances and all the rest of those things which are extremely difficult to calculate on a monthly basis. How are we going to end up with two systems at the same same company is going to have to do monthly payroll expenses of benefits and also do a p11d at the .
11:05
11:05
Speaker 1
-
Speaker 1
Because some things just can't be calculated on a monthly basis. Yes, there is a risk. Well, it's not just a risk. Yes, that will happen. That will happen. But again, my. experience of the provision of, for example, living. accommodation is that it is quite unusual and certainly smaller. businesses don't do it unless it is job related accommodation which would be tax free.
So for.
So for.
11:05
11:05
Speaker 1
-
Speaker 1
A polo chain who's got a groom that needs to live in so that they're there, if the horses are taken ill during the night, would not be taxable. It might be quite a small business. It wouldn't be anything they've got to worry about. Other businesses might well. provide these benefits that are very difficult to calculate. I don't think it's going to be a vast number. But you're right.
I mean even in 2020. 728 we've got cars, vans, fuel and medical in.
I mean even in 2020. 728 we've got cars, vans, fuel and medical in.
11:05
11:05
11:06
11:06
11:06
11:06
11:06
11:06
11:06
11:06
11:06
Speaker 4
-
Speaker 4
Baron be. Thank you. Can I just check. I mean, the purpose of this measure is to digitally. transform tax compliance. And yet we've heard quite a lot of. commentary that the tax system is going to struggle with the new data requirements that you think are excessive. Do you think there is a risk that digital. transformation is getting ahead of the existing.
11:07
11:07
11:07
11:07
11:07
11:07
11:07
11:07
11:07
Speaker 1
-
Speaker 1
Is trying to update, become more digital. RTI is is a relatively modern HMRC system, having been around for about a decade now. I'm not a particular fan. We do. We do have some issues with RTI and they do crop up. I worry that the demand for the level of data that HMRC have put in place, and as I say, we don't know what the final outcome on that is, but the demand for that level of data will. overburden the RTI system. And in addition, I would I would expect that HMRC is working with software developers to actually make sure they know what they've got to build.
But we're less than five months out. We've got some new guidance. But, you know, software developers have rather a lot on if they also provide making tax digital software. They've been they've been really building fast on that. So the deferral we've got a deferral. It was going to happen in 2026. I think the deferral was good. It has allowed HMRC to take on board some of our concerns and the software sector's concerns. The proof of the pudding will turn out sometime next year or maybe after what what? I think the Admin Burden's Advisory board would very strongly recommend is that HMRC.
looks at the costs of this, and the. implementation may be 1 or 2 years after it's been brought in and does a reflection on did we did we go about this in the right way? Has it produced the benefits that everybody hoped it would? And did we. overestimate the cost savings to be. underestimate the additional costs that people would have,
But we're less than five months out. We've got some new guidance. But, you know, software developers have rather a lot on if they also provide making tax digital software. They've been they've been really building fast on that. So the deferral we've got a deferral. It was going to happen in 2026. I think the deferral was good. It has allowed HMRC to take on board some of our concerns and the software sector's concerns. The proof of the pudding will turn out sometime next year or maybe after what what? I think the Admin Burden's Advisory board would very strongly recommend is that HMRC.
looks at the costs of this, and the. implementation may be 1 or 2 years after it's been brought in and does a reflection on did we did we go about this in the right way? Has it produced the benefits that everybody hoped it would? And did we. overestimate the cost savings to be. underestimate the additional costs that people would have,
11:09
Speaker 4
-
Speaker 4
And actually does a good post. implementation review. I can see the benefit of that. But what I'm worried about is commentary. We've heard, for example, from Andy Scott, who said the RTI system at the moment has. reconciliation differences to the tune of millions of pounds, and that those are automatically being referred to debt management. The system is also it's supposed to be 13 years old, and it's described as having a long running. subsistence issue. I mean, if it's not coping with what is going through it at the moment, and it will suddenly have a lot of extra data coming through, my worry would be around those.
11:10
11:10
11:10
11:10
Speaker 1
-
Speaker 1
We all know and shake our heads and get frustrated with the. reconciliation differences in RTI. I think those are being addressed now. It's taken a while to break through that, but I think those are being addressed. But some some of the things that we come across, we just scratch our heads and say, well, how on earth does that happened? And, and it's down to data that we generally, we submit being received as a different number, which is astonishing. I think if HMRC can work really hard to get to the bottom of that, then great. Does the inclusion of benefits in kind through RTI make it more likely?
I guess with more data going through, it must be more.
I guess with more data going through, it must be more.
11:11
11:11
11:11
11:11
11:11
11:11
11:12
11:12
11:12
11:12
11:12
11:12
11:12
11:12
11:12
11:12
11:12
11:12
Speaker 1
-
Speaker 1
Which is updated every year. attributes a very significant part of the tax gap to the small business sector. Somewhere around two thirds of the tax gap is reckoned by HMRC to be in the small business sector. It's very, very. difficult for me as an adviser to small businesses to. reconcile that with my. experience of small businesses. Now, to be fair, if somebody appoints me as their.
11:13
11:13
Speaker 1
-
Speaker 1
We will have a letter of engagement that says you have to do everything right. You have to tell me the truth. Everything will be done honestly and above board. Otherwise I am not going to act for you. So my. experience is. probably angled towards the more. compliant end of the small business market. And I think.
11:13
11:13
11:13
Speaker 1
-
Speaker 1
I don't quite I don't quite know how they manage to be frank and how they manage to get anywhere near the correct tax figure. But even if they have got an adviser, it's. realizing that something that's happened is going to change your tax and therefore telling your adviser about it. That's actually quite a difficult area. So that, I think, sets out the backdrop for this measure. I think on the whole, this measure will help because at the.
11:14
11:14
11:14
11:14
Speaker 1
-
Speaker 1
Pour over it, write to you. You write back, they write again, ask more questions. And so it goes on. If there is an obvious error, it seems to me logical that HMRC would contact the. taxpayer or their agent and say, look, this doesn't look right. Would you look at it and correct it? And actually, we're going to place an obligation on you now to correct it or come back with a valid explanation as to why it's wrong.
So I think if used.
So I think if used.
11:14
11:14
11:14
11:14
11:15
11:15
11:15
11:15
11:15
11:16
11:16
11:16
11:16
Lord Newby
-
-
Lord Newby
Have said that one of the reasons, I mean, taking up your point that most small. businesses don't set out to. mislead HMRC on tax, they just want it sorted and not need to work in one sense, not need to worry about it. One of the obvious reasons for a high number of errors is the complexity of the system. So from your view, two questions really. Do you think that. HMRC could and should be doing more to explain? How the. system operates and how they could best fulfill their obligations? And secondly, and you refer to this in respect of the previous measure, do you think they should be doing more to simplify things?
You mentioned that the Office of Tax Simplification has been disbanded. Do you think .
You mentioned that the Office of Tax Simplification has been disbanded. Do you think .
11:17
11:17
Speaker 1
-
Speaker 1
Example, do you think that that should be restored? I think the root of the. problems with small. businesses making mistakes about the tax is twofold. I think record keeping errors. contribute to it. I think businesses that don't keep on top of their accounting. records and only sort of roughly bung it all together in a carrier bag and take it to their accountant. It is. I think it's going to always going to produce errors, because by the time you've done that, you've forgotten what it was all about. You can't remember half of it. The accountant can't make head or tail of it and it's a right mess.
And, and I would say that in outside of small limited companies, I think making tax digital will that program will improve that. I've no doubt about that. So record keeping and small company record keeping. might be an area that is problematical. But turning to.
And, and I would say that in outside of small limited companies, I think making tax digital will that program will improve that. I've no doubt about that. So record keeping and small company record keeping. might be an area that is problematical. But turning to.
11:18
11:18
11:18
11:18
Speaker 1
-
Speaker 1
I use an example from this morning. I arrived at Kemble station. My train was. 20 minutes late, so I stood in the freezing cold. I thought, shall I get a cup of coffee if I bought a cup of coffee at Kemble station, that would not be tax deductible. If on my arrival at Paddington I'd bought a cup of coffee, that would be tax deductible. And it's the inherent. I remember having a conversation with another advisor and we said there are about seven different ways to view a cup of coffee within the tax system. Now, that's not legislation.
You can't you can't really simplify that. The only way you could do it is to say, right, everyone can have £2 a day for a cup of coffee, but no more. But then you've got an Exchequer trade off. So it's, it's, it's not as simple as changing. legislation to make it easier. And it is something that, you know, is embedded for a long time in our tax system.
And I after 40 years in practice, I'm still a bit defeated as how to take some of this grit out of .
You can't you can't really simplify that. The only way you could do it is to say, right, everyone can have £2 a day for a cup of coffee, but no more. But then you've got an Exchequer trade off. So it's, it's, it's not as simple as changing. legislation to make it easier. And it is something that, you know, is embedded for a long time in our tax system.
And I after 40 years in practice, I'm still a bit defeated as how to take some of this grit out of .
11:19
11:19
11:20
11:20
11:20
11:20
11:20
11:20
11:20
11:20
11:20
11:20
11:20
11:20
11:20
11:20
11:21
11:21
11:21
11:21
Speaker 1
-
Speaker 1
More to help small businesses. So HMRC is a very large. organisation and there are bits of HMRC. particularly parts of the department, that the Admin Burdens Advisory Board works with quite closely, who. really have a good. understanding of where small businesses are and what support they need. I don't think that that. understanding is. necessarily in the compliance guys, and might I argue that there ought to be a little bit more understanding in the chaps who are checking? I do think so. But then they've got a job to do. They're probably measured on how much they generate out of an enquiry.
I don't know whether they are or not, but they've got a job to do. What else can HMRC do? I think continue this. programme of. developing topic. specific and actually.
I don't know whether they are or not, but they've got a job to do. What else can HMRC do? I think continue this. programme of. developing topic. specific and actually.
11:22
Speaker 1
-
Speaker 1
So I'm just starting up my business. What is it I need to know? I'm just taking on my first employee. What is it I need to know. And and to one of the. problems I as a technical person. experience is I look at some guidance and I think that's really good, but it doesn't tell the whole story because in the desire to.
11:22
11:22
Speaker 1
-
Speaker 1
Bits will get left out. And I think it's again, maybe using people like me, I do loads, loads and loads of voluntary work with HMRC, using people like me as a tax. educator to say, actually we could just hint at some of the other things they might need to consider. So I think more of what they're doing is probably the right answer. And as I've illustrated with my coffee.
11:23
11:23
11:23
11:23
11:23
11:23
11:23
11:24
11:24
11:24
11:24
11:24
11:24
11:24
11:24
Speaker 1
-
Speaker 1
How can it? It's very, very difficult. And if you're taking on. As we know, HMRC is another. 5000 staff. I think that judgment call on reckless is something that comes with experience. Well, there are going to be at least. 5500 staff who don't have that experience. So I think HMRC are going to have to look really hard at their training and the scrutiny by another level, and obviously people like me will be making. representations on behalf of my clients. I mean, I hope none of my clients are reckless because I'll have very serious words with them, and I would.
never advocate that. Every business has to have a paid professional adviser. It's not it's not. sustainable to businesses. And there aren't enough tax advisers either. But those tax advisers that there are can play their part in, in this. And I think actually the the the tax and accountancy bodies have got a role to play as well. But it's it's going to be about that communication.
And do I really want to be writing to my .
never advocate that. Every business has to have a paid professional adviser. It's not it's not. sustainable to businesses. And there aren't enough tax advisers either. But those tax advisers that there are can play their part in, in this. And I think actually the the the tax and accountancy bodies have got a role to play as well. But it's it's going to be about that communication.
And do I really want to be writing to my .
11:25
Baroness Wheatcroft
-
-
Baroness Wheatcroft
Clients saying you could go to jail? Not really. And to what extent do you think this is all part of a government move yet again, in the budget? We've heard that it's terribly important. They're going to make the books balance, or at least look a little better by closing the tax gap. Are they going to go gung ho to squeeze every penny out of people in order to .
11:26
11:26
11:26
Speaker 1
-
Speaker 1
That may or may not exist? Do I think that the reckless. measure is part of closing the tax gap? I guess it is. Do I think they HMRC will raise a lot of revenue as a result of it, and I don't think so. I think it will act poor and I don't. So if you'll excuse my awful French accent, but I think, you know, get a few cases that are in the press and. And those people who deliberately. What is the difference between deliberate and reckless? Oh, I can't say. I know at the moment I'd have to have a very long think about that.
I do think HMRC are going to focus. massively on the small business sector because of their tax gap.
I do think HMRC are going to focus. massively on the small business sector because of their tax gap.
11:27
11:27
11:27
11:27
11:27
11:27
11:27
11:27
11:27
11:27
11:27
11:28
Lord Carrington of Fulham
-
-
Lord Carrington of Fulham
It's it's a complex question. Yes. Lord Carrington yes. Really. On on the tax gap , it's been queried, not least by the House of Commons library, that the tax gap is fictitious, that it nobody knows where it comes from. The HMRC don't explain in detail how they arrive at those numbers. It. But it is politically driving changes to the tax legislation in a way which could only be justified if the tax gap could be justified in itself.
Do you think HMRC is open to having .
Do you think HMRC is open to having .
11:28
11:28
11:28
11:28
11:28
11:28
Speaker 1
-
Speaker 1
There is actually quite a bit of. information about how they go about. calculating it. There are two ways what they call bottom up and top down, and they use those a combination of those on different taxes. I think that one of the reasons that the small business tax cap might be. overstated is that some of that is from outcomes of.
11:29
11:29
Speaker 1
-
Speaker 1
And you will carry out a compliance check on a small business, and you will. record how much extra tax you've got at the end of it compared to how much the business declared. And then you will scale that up across the small business community. I don't know what the sample size is, and if the sample size is too small, then you risk an error in either direction. I wouldn't say that 60 odd percent is.
understating it. So my suspicion is if there is error in there, it's in it's it's.
understating it. So my suspicion is if there is error in there, it's in it's it's.
11:29
11:29
Speaker 1
-
Speaker 1
But that I think some of that is quite challenging to me. Where in a compliance check, you. might get to a. position where it's going to cost you another. £1,000 to carry on arguing about something that's 200 quids worth of tax, then you might as well just say, pay the man, put it to bed, let's get it behind us. And that will obviously that will distort. outcomes because it might be that that tax isn't properly due. But you haven't been able to convince a compliance officer, you haven't been able to produce enough evidence to satisfy them.
But you decided that's it, we'll pay. And that would obviously.
But you decided that's it, we'll pay. And that would obviously.
11:30
Speaker 1
-
Speaker 1
Of tax. So there is no doubt and I would expect. HMRC to develop policy. It is their one of their strategic objectives. I would expect JP marks to drive very hard. The tax gap figures to show that HMRC is doing its job. What is, as you've said, is a bit more difficult is if those figures aren't right then they may be looking in the wrong place. I don't think they're looking in entirely the wrong place. I do think probably a fair chunk of tax cap is in the small business. Is it 60%? Doesn't feel like it.
Might it be. 30% still worth looking at. So. One of the problems in getting external scrutiny on it, would the National Audit Office be able to go in is you'd need some.
Might it be. 30% still worth looking at. So. One of the problems in getting external scrutiny on it, would the National Audit Office be able to go in is you'd need some.
11:31
11:31
Speaker 1
-
Speaker 1
But HMRC would also have to reveal some quite sensitive. information about how they carry out compliance work, how they select cases for a compliance check. So it's quite difficult to handle. I think the now would probably be the only body that could get involved in that. Even so, are they going to see individual .
11:31
11:31
11:32
11:32
11:32
11:32
Speaker 1
-
Speaker 1
Education of of the tax system? Well, I've talked a little bit about HMRC s product called tax confident, and I think that's an excellent product. It's aimed at the right level of knowledge. I think more of the same. And certainly I would be more than happy to to help out, to develop some more content on that. Should government be. mandating things like record keeping for small companies? Because I think a fair bit of that small business tax gap is in the company sector.
I think there is a belief.
I think there is a belief.
11:32
11:32
11:33
11:33
11:33
11:33
Speaker 1
-
Speaker 1
Then the professional adviser will help them keep it on the on the level, I'll say, a properly qualified professional adviser, because HMRC does have some data. around people who help small companies with their tax, who maybe don't have sufficient knowledge and. experience to be able to do that, because it's an. unregulated sector. Tax adviser is not a protected term. Accountant is not a protected term.
You can fail at being a butcher and become an accountant tomorrow if you want to pay for a brass plate. So that, I mean, that .
You can fail at being a butcher and become an accountant tomorrow if you want to pay for a brass plate. So that, I mean, that .
11:34
11:34
11:34
11:34
11:35
11:35
11:35
11:35
11:35
11:35
11:35
11:35
11:35
11:35
11:35
Lord Liddle
-
-
Lord Liddle
The on the level wouldn't it. Yeah. Okay. Yeah. Well thank you very much. I mean that was the most interesting and. informative session and were very grateful to you. Now we, we , many of us are speaking in the budget debate. That's about to start in the Lords. So I'm going to bring this to a close.
11:36
11:36