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COMPLIANCE COST REVIEW
VAT: Transfer Of a Going Concern – record retention
1. Introduction
In line with Government commitments to reduce business compliance burdens
HM Revenue & Customs (HMRC) estimates the likely change in compliance
costs when a measure is introduced or changed. The results are published in
Impact Assessments. This review of the final Impact Assessment (attached) of
the above-mentioned measure, which was implemented in September 2007,
considers two main issues:
How accurate (with hindsight) and reasonable (given the circumstances at
the time) were the estimates of compliance cost changes; and
How reasonable was the presentation of the analysis.
The main purpose of this review is to identify learning points to help improve the
quality of future Impact Assessments. This review does not revisit the original
policy decision.
This review was informed by evidence obtained by independent consultants, who
undertook a small number of in-depth interviews and complemented this with
their own expertise. Within HMRC the review was undertaken by those who
were independent from the original Impact Assessment.
2. Summary of anticipated compliance cost changes
This measure abolished a requirement for taxpayers selling their business to new
owners to transfer their VAT records to the new owners. This requirement
applied in all cases unless an application was made to HMRC for the seller to
retain their records. The reform enabled the seller to keep their VAT records
(with one or two exceptions) but required them to provide the purchaser with
whatever information the purchaser needed to meet their VAT obligations. In
addition the reform provided HMRC with a power to obtain information from the
seller and provide this to the purchaser.
The Impact Assessment estimated that there were 50,000 TOGC’s per year and
that the following compliance costs would be saved as a result of the changes:
£760,000 would be saved as a result of sellers not needing to determine
which records need to be transferred to purchasers;
Total costs of £200,000 would be saved by enabling sellers to avoid the
burden of applying to HMRC to retain their records; and
Costs of £125,000 would be saved by purchasers not needing to trawl
through sellers’ records in order to find what they need, instead relying
upon sellers to pass them only what is relevant.
3. Accuracy and reasonableness of compliance cost estimates
This section considers, with hindsight, how accurate and reasonable the analysis
of expected changes to compliance costs was.
Question Comments
Were each of the different specific From the qualitative research undertaken
types of cost and benefit identified in to inform this CCR it seems likely that
the Impact Assessment actually some of the benefits identified in the IA
incurred? have not materialised to the extent
anticipated. The only anticipated cost
saving which appears to have been
generally experienced relates to
applications no longer being made to
HMRC for sellers to retain their records.
However, it would appear that a number
of sellers were already retaining their
records without applying for permission to
do so.
It seems likely that the time savings
anticipated were not experienced by
sellers spending less time reviewing their
VAT records or by purchasers reviewing
the material provided to them.
Had all businesses complied with the
obligations in the correct manner prior to
the changes, it is likely these predicted
savings would have been realised.
Were costs/savings incurred at the Although not expressly covered in the IA,
expected time and for the expected given the nature of the costs/savings in
duration? question, their timing and duration was
broadly as expected.
Were costs/savings incurred by the Yes, all parties affected by the reform
expected people? were identified.
Were any other costs/savings, not No, with the possible exception of one-off
identified in the Impact Assessment, familiarisation costs, which in any case
incurred? seem to have been negligible.
What is the assessment now of the The assessment now is that the main
value of costs and savings? saving relates to some businesses no
longer needing to apply to HMRC to
retain their records. This was estimated in
the IA to be a total saving of around
£200,000 across the 50,000 TOGCs that
take place each year, equivalent to 15
minutes of time. Businesses have
suggested that this saving could be
higher, somewhere between 15 minutes
and 45 minutes.
If different from the original Impact The savings in the IA relating to the
Assessment, what has caused the obligations for the collation of records by
discrepancies? the seller and the review of records by the
buyer appear not to have materialised to
the extent anticipated. A significant
number of businesses appear to spend
as much time on these activities under
the new regime as under the old,
primarily because they did not always
fully comply with their obligations.
The estimates of costs and benefits in the
Impact Assessment were based on the
assumption that, prior to the change, all
businesses complied with their
obligations to transfer their records to the
new owner or applied to HMRC for
permission to retain them.
Could such variances have been Given the information and evidence
foreseen at the time? available, it would have been difficult to
foresee these variances, which stemmed
from assumptions which were not entirely
unreasonable at the time.
In relation to evidence gathering and The proposals for the change resulted
consultation, did HMRC approach from a long term review of TOGC that
and engage with the right people? took place over several years, during
which time business was consulted on
two separate occasions.
The consultations gave interested parties
the opportunity to contribute to the
debate, shape the changes being made,
and to highlight to HMRC how they would
be affected.
None of the businesses interviewed as
part of this CCR process had been
involved in the original review of TOGC,
so it is unsurprising that they suggested
that the department had not engaged with
a broad enough selection of people.
Given the breadth of the review process
however, it is fair to conclude that HMRC
approached and consulted with the
correct people.
What improvements could have The long term review and consultation,
been made to the consultation followed by the informal six-week
process? consultation on the legislation were
appropriate to the scale and scope of this
change.
Was the Impact Assessment started Sufficient time seems to have been
early in the decision making available.
process, with sufficient time
provided to collect and analyse
evidence?
How accurate and reasonable were As discussed, the assessment of the
the compliance cost estimates? costs and benefits of the changes was
not particularly accurate in terms of the
types identified. However, the Impact
Assessment did suggest that overall this
reform would lead to a relatively small
reduction in compliance costs, and this
still appears to be the case.
Despite these issues with accuracy, it is
felt that the estimates were reasonable
given the information available at the
time.
4. Presentation of compliance cost estimates
This section considers how well the analysis was presented.
Question Comments
Were compliance costs estimated Yes, all options were assessed.
for all options mentioned in the
Impact Assessment?
Were compliance costs estimated Yes, impacts were identified for all of the
separately for key groups (such as key groups affected
small businesses, large businesses,
self-employed)?
Were assumptions identified and The Impact Assessment clarified that the
were they reasonable? main cost savings were based upon
assumptions, and the detail of those
assumptions was explained. With
hindsight it would be easy to say that the
assumptions were wrong. But in the
absence of clear evidence of business
record inspection activity the assumptions
were not entirely unreasonable.
Whilst business has criticised some of the
assumptions these criticisms seem to
relate more to the baseline data (for
example, that 15 minutes is spent
inspecting records) rather than to the
assumptions applied to the baseline data
(for example, that this burden would fall
by two thirds).
The Impact Assessment implicitly
assumed that most sellers were
complying with obligations to pass
records to purchasers or to seek
permission not to do so. Again, this
assumption was not unreasonable at the
time of writing.
Were uncertainties and risks Uncertainties and risks applying to the
applying to the compliance cost expected changes in compliance costs
analysis identified and conveyed were not mentioned.
appropriately, for example, with the
use of caveats? In situations where significant non-
compliance with the obligation is a
possibility, which is likely to impact on the
size of population actually affected by the
change, the resulting compliance cost
estimates should be caveated
accordingly.
In such cases, it may be preferable to
focus on the per-business costs and
benefits rather than the aggregate
estimates.
The Impact Assessment did discuss the
effect on individual businesses in terms of
time savings but not explicitly in terms of
compliance costs.
Was the derivation of costings and The derivation of costings was very clear
the sources of evidence clear? but the fact that the business population
figures and baseline burden data were
sourced from the Standard Cost Model
was not mentioned. Some reference to
the SCM and a brief explanation of it
should have been made, along with a
discussion of the accuracy of the data.
Could an HMRC customer Yes, the effect of the change was
understand how they might be explained clearly. The time savings per
affected and why? business were also set out, except for
those relating to sellers no longer
applying to HMRC to retain their records.
Were any changes to administrative The claimed savings related to a
burdens explained clearly? Standard Cost Model admin burden
estimation and were explained clearly.
The Impact Assessment did not explain
that this was the origin of the claimed
savings, nor was any explanation
provided of the Standard Cost Model
baseline and its features.
Was the language plain and simple Businesses felt that the Impact
and was the Impact Assessment Assessment was clear and well written.
well structured?
How reasonable was the The presentation was broadly
presentation of the analysis? reasonable, although clarification of the
Standard Cost Model admin burden
baseline and its context would have been
helpful.
5. Main learning points
Where the Standard Cost Model baseline is used, an Impact Assessment
should always explain its main features and put the claimed savings into
context. This may include focussing on the proportionate change in per
business baseline burdens.
Where estimates of compliance costs and savings are uncertain, attempts
should be made to convey the level of this uncertainty in the Impact
Assessment.
In cases where there is a risk of high levels of non-compliance with an
obligation prior to the change, leading to uncertainty about the population
actually affected, more focus should be given to the per-business analysis
rather than the aggregate estimates.
6. Further information
Comments are invited on any aspect of this review or the wider Compliance Cost
Review programme.
For issues relating to the specific reform:
Ian Allen
HMRC
100 Parliament Street
London
SW1A 2BQ
Telephone: 020-7147-0009
Email: ian.allen@hmrc.gsi.gov.uk
For issues relating to the Compliance Cost Review programme generally:
Richard Bowyer
HMRC
100 Parliament Street
London
SW1A 2BQ
Telephone: 020-7147-0062
Email: richard.bowyer@hmrc.gsi.gov.uk
If you have a query about your own affairs in this tax area, please contact the
HMRC helpline number on 0845 010 9000.
Annex: The published Impact Assessment
VAT: Transfer Of a Going Concern - record retention
