The Loop: With special guest Bill Dodwell

Susan Ball [00:00:01] Hello and welcome to the Loop. My name's Susan Ball. I'm a tax partner and RSM, specializing in employment related tax matters and the current president of the Chartered Institute of Taxation. This episode is our next instalment in a miniseries dedicated to all things tax. In this series, we ask some leading lights in the profession, their views on some of the current issues causing quite a stir across the country right now, including what they would do if they were put in charge of the UK tax system. Our guest today is Bill Dodwell. Lots of us will know, Bill, as the director at the Office of Tax Simplification, which he was appointed to in 2019, but is also the editor in chief of the Chartered Institute of Taxation. Tax Advisor, magazine, and website. And a member of the General Anti-avoidance Abuse Rule Panel. Prior to being head of tax policy at Deloitte and a former president of the Chartered Institute of Taxation. So, thank you very much for joining us, Bill. Welcome to The Loop.

Bill Dodwell [00:00:59] Great. Thanks very much for inviting me and glad to talk to another president.

Susan Ball [00:01:03] Thank you. I wonder if you would tell us a bit about your background. I understand you initially thought you might be a solicitor and so how did you end up getting into tax and perhaps and, also a little bit about the role of tax director at the OTS.

Bill Dodwell [00:01:14] Some reason, when I was about 15, I thought that it would be a good idea to be a solicitor. And I can't explain it because, you know, my parents weren't involved with anything like that at all. My father was a civil engineer, my mother a teacher. But anyway, that led to me going to study law at university. And again, for reasons I just can't explain, I just thought tax sounded interesting. And so, I went and studied it doing a masters, and I did indeed find it absolutely fascinating. And that led me to joining a firm called Arthur Andersen, because I was advised at the time that tax in solicitors’ firms was really quite modest in scope. And there was a lot more in, the bigger accountancy based professional services firms. And I think that's very much the case today. Obviously, law firms very much have tax specialists, and there are some areas which are specific to law, if you like.. But the vast bulk of taxation advice and indeed tax compliance is done in the professional services firms, large and small. So that's how I sort of got started. I've really enjoyed the journey. For me, tax remains a sort of absolutely fascinating thing. You know, I've never wanted to be a head of a tax department run. Management is definitely not for me. But focussing on what we can do better in the tax world is something of great interest. And taxes, you know, always changes it. Nothing is static here. And that's a great thing really, because it means that you're always going to stay learning. You're always going to have new and interesting things to do. Now, the Office of Tax Simplification, which, as you know, is, going to close, it was a decision of the Liz Truss. Kwasi Kwarteng very short period and, but it's been upheld by the current team by Jeremy Hunt. So, our last report is going to be on hybrid and distance working and that's coming out by Christmas. And that really is the closure of the, the office. Um, being a tax director there has been fascinating for me because it's another job that moves into looking at all the taxes together. You described the season as an employment specialist and if you'd asked me where I was at Deloitte out of probably said I was a corporate specialist and that's what's happened. Our careers of all become more focused around specific areas of tax law. But when you go to somewhere like the OTS, you're actually having to look at everything and that's a really great thing to have the opportunity to do, I would say.

Susan Ball [00:04:02] And I think that's, you know, that's right. I mean, you know, we did we did tax exams a long time ago and you do the wide variety in that. And then you then you find a lot of us find anyway, not everybody that we do end up specialising.

Bill Dodwell [00:04:14] You can even say today that being a generalist is a specialist in its own right, if you, like.

Susan Ball [00:04:20] It's and I have to know a huge amount of stuff because both since you and I started, the legislation's got, you know, significantly bigger.

Bill Dodwell [00:04:23] Yes, yes it has expanded a little. I know.

Susan Ball [00:04:29] Just just a little. I mean, it sort of leads me on actually to talking about the GAAR panel work because again, I think that's very wide in its remits. And certainly, you know, since it started and more recently, we've seen perhaps more opinions coming out that perhaps you could talk a little bit about that, because I think that's quite interesting.

Bill Dodwell [00:04:50 ] Yes, sure. Um, the general anti-abuse rule was introduced into UK law with effect from July 2013 and it was seen as a sort of bit of a nuclear weapon, if you like, in the to overrides existing tax law. So the theory was that if HMRC were going to apply the GAAR to kill off what looked like a some form of avoidance scheme that they needed to get an opinion from a group of independent people who would ask what the question was, what the taxpayer did, a reasonable course of action in the context of the legislation that we've actually got. And so that's why we have an advisory panel. Cases are referred to as the reason that numbers are sort of gone up recently is really a result of COVID, during the COVID times, a lot of HMRC effort was devoted to other areas and so some of the GAAR cases were held up a little bit in the pipeline and quite a few of them emerged from all of that now. It looks like not many cases there's only 20 odd, but HMRC stakeholder report says that actually that applies to well over 3000 tax payers. And that's because quite a lot of what is referred to us is one specific taxpayer implementing something which is a marketed scheme. So, most of the stuff that's been referred to the panel on marketed schemes from all of that. Most of the almost all the opinions have supported the use of the GAAR. In the specific case, there's been one which has not., maybe that's a good thing really, because it suggests that, you know, there's a reasonable check and balance in HMRC are pretty careful about what they refer. And I think until I joined the panel, I didn't realise how much work it was for HMRC actually to make that referral., so that sort of worth just, just understanding HMRC is not going to wield the GAAR likely because of all the safeguards and the procedural issues involved with it, which you know, these are all taxpayer protections and but they're probably not quite as overt, if you like, as people perhaps had realised. I have to say when I look through these things, I mean quite a few of them you just look at and think, how did anyone think that was going to work? Um, and, you know, that's why the panel in most cases has ruled that, you know, what happened in a particular case was not a reasonable course of action in the context of the legislation. So that's where it is. We're now moving to cases involving enablers. So in other words, people who've promoted or been involved in the management of tax arrangements. Um, and I think, that's a sort of next step. Again, the panel is there as a safeguard for all the professionals involved.

Susan Ball [00:07:57:] Which is really I mean, interesting. And it will be interesting, obviously, for us to see what then happens next with that, as you say, and whether. Whilst there's a backlog and that's why we've had a few cases recently, what we have seen from HMRC is a lot more activity in that sort of area anyway. So, whether there's going to be more going forward perhaps or changing tack a little bit, it's kind of covered a bit of your career now.

Bill Dodwell [00:08:19:] Yeah.

Susan Ball [00:08:19] In the discussion, I mean, you know, is there anyone who's particularly influenced you in getting there or anything? You know, you can tell us about how you ended up doing all of these things and the journey you've taken. Was it planned?

Bill Dodwell [00:08:32] I'm not sure anyone's career is completely planned. You know, when I joined Arthur Andersen, I thought I was going to be there for a few years, earn some money, and then go off to the bar, be a barrister. You'll have noticed I didn't do that. I very much enjoyed working with a team that was great in the sort of range and variety of work, you know, really appealed to me and I very much enjoyed that. People who've been key influences, well, there's there's probably at least two people. John Whiting would definitely be one of them. John is one of the sort of leading lights, I think, over my career in the tax profession. He's also been one of the best communicators in tax. You know, possibly does less media work these days. But he was constantly on the radio, television in the press telling us about tax. And I think that's a really important thing for all of us who work in it is to think how can we convey this complicated subject we're involved in? How can we convey that in a sense that regular people who aren't trained tax experts can understand what it's about and understand the choices and made and all that sort of thing. And John has always been absolutely brilliant at that. And so, you know, for me, he's been a key influence and he's also been a great help in giving me advice and so on. John Cullinane is another person who John first set me off at the Chartered Institute of Tax. Um, he, you know, suggested to me I should join the International Tax Committee, which I did, and moved to chair that I was invited to join the council, was elected to the council. Um, and I chaired the technical committee, which again, you know, gave me a sort of real interest in that breadth of subject because at Deloitte, where I was at the time, you know, naturally the focus will be on larger companies and, you know, probably wealthier individuals to the extent individuals had dealt with that and ex-patriots too. Um, but the CIT, of course, and the ATT are hugely involved in that whole breadth. And, you know, so for me it was fascinating. It was great preparation, if you like, for joining the OTS. A few years later and then, you know, inevitably the several people at Andersen and Deloitte who have been really influential, David Cruickshank, the past chair of Deloitte and passed head of tax fabulous person to work for. Very thoughtful David was, you know, the person who set the policy many, many years ago that Deloitte would not get involved with designing personal tax schemes. And that was well before the market, and he rightly saw that that was just an unacceptable area and he took that decision early, even though it, you know, probably cost some revenue at the time. and then I've been fortunate in a number of partners at Andersen who have, you know, trained me and helped me sort of learn.

Susan Ball [00:11:41 it's great when you've got people who are prepared to share their knowledge, albeit, you know, how you communicate, you know, simplistically tax matters to somebody who perhaps doesn't understand it as well as you do, I think. And and actually, I think that's a really good learning point for anybody who, you know, whatever profession they're in, whatever you do, if you can explain it to somebody else in a way that they can understand it, it's, you know, fantastic. It gets you a long way. So.

Bill Dodwell [00:12:10] Yeah, it's one of the reasons that you and I will think, you know, why is tax complicated? Part of it is because of the language. And, you know, the more we can do to simplify that will help regular people understand things better.

Susan Ball Which leads me nicely onto what do you think the trends are affecting business and perhaps individuals over the next few years in the tax world?

Bill Dodwell [00:13:33] Well, I'm really hoping that, you know, for us in the UK we will see enhanced digitisation of the tax system. You know, we have a sort of intermediary led tax system and by that I mean that, you know, large amounts of tax are collected by businesses, either through pay as you earn or through VAT and handed over to the Exchequer, to HMRC and so on and so forth. But the scope for more to be done there, particularly as technology is now completely pervasive through the economy, some of the work at the OTS has been around that. What sort of information can intermediaries provide to help taxpayers and at the same time help HMRC as well get it right? Because that's what actually most of us really want. You know, we could get bank interest provided in a manner that was usable, directly fed into your tax account so that you could see how much you erm because the bank had reported it and you could identify an error and that sort of thing if there had been one. But lots of the heavy lifting would be done for you through all of that. And there are other instances too. you know, dividends, obviously dividends from owner managed companies are different, but dividends portfolio dividends from quality companies or funds, you know, those could be returns to HMRC as well. Just help that sort of general reporting. Um, and that's, I think, the single biggest area I'd hope to see. We all know there are problems in the UK tax system. the split between employment and self-employment is complication by self-employment really mean freelancers, people providing primarily labour based services. the reason it's complicated is, is because we've got a ludicrous definition based on lots, lots of different tax cases. And if you want a simple rule of simplification, if you've got an area where there's too many tax cases, it's a problem. You need to do something about it. But the underlying issue is economic. I mean, the tax burden, if you like, is quite different for an employee versus a freelancer or a self-employed person. And where it's so much lower to be a freelancer, you can see that there are incentives on all sorts of people in the market, whether individuals or engages whatever, to go down a particular route. So we need to do something about that. I would suggest, particularly as we move to more flexible markets and, we can't have a situation where, our tax base is hollowed out because, rightly we're taking advantage of technology generally, but we've got to do it in a manner that people just end up paying similar levels of tax. And your choices are made by commercial or family or business factors rather than based on tax.

Susan Ball [00:16:33] Do you think actually media coverage of tax issues is helpful to the general public or not? Because we've seen so much more of that over the last few years? It seems to be regularly in the paper and obviously more recently we've had a lot of it.

Bill Dodwell [00:16:46] Yes, of course. I think some of it's very helpful, but not all of it is the honest answer, that isn't to be critical of the journalists involved, because I think we need to acknowledge the burden that they carry. There are very few tax specialist journalists around. for me, those of us, tax advisers actually have a positive responsibility to help journalists understand the issues. And I still do some, you know, background briefing for people who would like to discuss, you know, some of the approach to various things. Helping people understand the numbers involved is also really important. you can only make good policy if you've got good data. So how many individuals, how much money, how often have they got to report all these sorts of in a critical thing? We those of us in the tax advisory world can actually help with. if you're explaining tax to, you know, a client, then you're dealing with someone who isn't a tax person, and you are trying to make those tax concepts accessible. And that's what you're trying to do with journalists, too. So, I would encourage people to spend more time with journalists.

Susan Ball [00:17:58] I was going to say when I was thinking about things, you know, about writing and some of the things that if you just, you know, need to look at one particular area and you want to try out, you know, we've got much more social media than we ever had. Certainly when I started my career, we didn't have that there, same Bill. So, you know, there are there are ways now of of, you know, writing things in a way which condenses it and in particular is issue focus that might help to as a stepping stone to learn perhaps how to do more and more of that. And as you say, perhaps, you know, talk to some journalists, because there are certainly ways that journalists present things that's perhaps different to us as tax professionals would normally do.

Bill Dodwell [00:18:37] Yes. No, I absolutely agree with you there. I think as well, you know, use of graphics can often help people understand things. but where you've got a sort of useful picture, then it really just highlights what exactly is going on and helps people get to the, the whole question, the issue. Um, you know, we've, we've just finished seeing the Autumn Statement. Um, capital gains, annual exempt amounts is going to be cut in the future. Well, just have a look at little graph in the Office of Tax Simplification Capital Gains Report and you'll see that, you know, the number of transactions at particular levels just goes flat, flat, and then it spikes and a massive number just below the the current annual exempt amounts. And that tells you that people are planning to use that annual exempt amount, which is obviously fine, but is not just there to save administration. It's it's actually got a sort of further benefit. And the chancellor's obviously decided to remove that benefit for a range of people going forward. But it gives you you know, it gives you a sense as to what people have been doing and perhaps as to why the Chancellor's made the choices he's chosen to make.

Susan Ball [00:19:52] Which again, I don't disagree with you. And obviously there's this there's two sort of stages of that. And I guess we'll see more tax returns coming in from people as well. But it links nicely into it. You know what the OTS has been up to? Yes, it's been around. So, I mean, you see many achievements. I think the first report it managed to achieve getting 40 reliefs abolished. more recently in July there was actually a report on the principle of simplification and how that would factor in tax policy generally questions for officials and ministers to consider perhaps in a developing policy. obviously we were expecting the one on hybrid working, but we've just had one on residential property. So I don't know what sort of maybe the highs and highs and lows of your opinion of the OTS and what do you think's been particularly successful? And, you know, this isn't clear stuff that's made a difference in there.

Bill Dodwell [00:20:36] Well, I do think one of the things that the office has done ever since it started has been to sort of shine a light on the UK tax system. You mentioned that very first report about tax reliefs and what I would say it did, it was it was the first time that anybody to attempt to count and categorise the number of reliefs in the system. And it was over a thousand at the time. It was a I think it was 1042, which is why George Osborne abolished 43 just to tip it below. And now it's nearly 1200 reliefs in the system, partly because, you know, we've had a lot of new taxes. So new taxes always have reliefs to go with it. But until the OTS did that piece of work, nobody really focussed on it. And now it's been picked up by the National Audit Office and the Public Accounts Committee and HMRC and the Treasury doing a lot more work and you know, asking themselves, are these for particularly for non-structural reliefs, are we getting value for money? And that's exactly what you know is right thing to happen. But it was kick started by the OTS. You also mentioned that flagship you know, should we merge the base of national insurance and income tax? Um, basically that report showed that if you did, it would take about five years and there'd be about 7 million winners and about 7 million losers. And I think when you understand the scale of that and the length of time to achieve it, that's why it hasn't happened. And but it again, there's a massive data put in front of people in understanding how the tax and national insurance system works, which is a really good thing. I do think one of the big achievements has been consultation. The OTS has been good at getting around the UK, talking to anybody and everybody to understand how tax really works. It's had some excellent surveys with individuals filling them in. You know, that property one you referred to had, you know, over three and a half thousand individual responses there, which has been really helpful in understanding people's own stories, , their lived experience of the tax system as non tax specialists. And that, you know, I fear will be lost when the OTS closes because I'm not sure I can see how HMRC or the Treasury can do that sort of thing in the same way that an independent body such as the OTS could actually do. So it's, you know, bringing data into people, spending time getting detailed feedback as well as all the yeah. The sensible recommendations and it's both been looking at the taxes we got capital gains tax for example, but also thinking about the future. So, you know, I'm proud of the work that we've done on, , how more intermediaries could report into the system, how the single customer account, that merger of the personal tax account, the business tax account, how that could work for people going forwards in a much expanded way and become a sort of real hub for interaction between individual taxpayers and HMRC. But wouldn't it be great if instead of having to do a full blown tax return, all they had to do is report one item. And you know, if we invest more in our system, we should be able to get to that so that you just deal with, you know, the occasional one off item rather than, the quite significant complexity of doing an overall tax return.

Susan Ball [00:24:19] if we imagine. Well, while you were in charge of the tax system, would you change?

Bill Dodwell [00:29:56] I think what I would do is I'd invest in systems and I'd look to change our tax year. You know, it's over equates to telltale stories about why we've got a 5th of April, but it's just quaint. It's not a functioning and effective. the best option for us as a country would be to adopt 31st December. And the reason I say that is because that is the most common year tax year end around the world. And that's the way in which all this international exchange of information works. And if we as a country want to make best use of that, and that is only going to go up in volume over time, then, , we need to have a tax year that sort of fits with that international consensus and helps us move forward in that sort of practical way. But, you know, investing in digitisation is absolutely critical. So that means investing more in HMRC. It means making choices about digital identity because you can only operate a system if we've got digital ID sorted out and there's a range of different answers to that. But we've actually got to start asking those questions in government because none of this is going to happen soon. And so laying those foundations for the next 20 years by doing some work now with a view to action in the next five years for me, is what I'd like to see do.

Susan Ball [00:25:52] I think that's a great point, actually. And, you know, perhaps one we should leave out there in the ether and maybe, you know, consider that that's the end of our chat today, because I think it's a really good point to leave on. And it's been extremely interesting talking to you, Bill. So thank you very much for joining us today. If you would like to connect with us and talk to us about tax, obviously you can find us on WW dot RSM, UK dot com and our contact details are on the show notes. To stay in touch with a loop just to subscribe to the loop, we're always keen to hear your views, so please rate us and leave us feedback. We look forward to joining us in the next episode. Thank you.