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20 March 2019

Business Understanding Critical to Success of New Tax System

Improving and developing business understanding of the new landscape of Welsh taxation is vital according to a new FSB report 

Improving and developing business understanding of the new landscape of Welsh taxation is vital to its success as tax devolution continues to evolve according to a new report released today by FSB Wales (Federation of Small Businesses).

The report authored by Bangor University academics Dr. Helen Rogers and Sara Closs-Davies and supported by Bangor University’s ESRC Impact Acceleration Account looks at the landscape of new Welsh taxation and focuses on the experience to-date of Land Transaction Tax.

The work surveyed businesses and professional advisors on their understanding of the changes and the perception of the impact of those changes on business. The report also reflected engagement with and awareness of the new Welsh Revenue Authority. 
The report comes ahead of the April 1st implementation date for the devolution of powers over income tax in Wales and marks part of the process of tax devolution leading to the first Welsh taxes to be levied since the days of Llewellyn the Great in the 13th Century. 

The findings of the report indicate a relatively low awareness of Welsh taxation with 64% of businesses surveyed indicating that they were unaware of new Welsh taxes. Businesses also feared an increase in the cost (56% and time of compliance (54%). 

However, the report also details that engagement by the Welsh Revenue Authority with professional advisors, particularly solicitors in the case of Land Transaction Tax, had been effective with a good level of awareness among professionals of the new landscape. 

Surveys of businesses repeatedly point to the vital relationship between business owners and those within the professions such as accountants and solicitors.
Dr. Helen Rogers of Bangor University, the report’s lead author stated: “This has been a valuable opportunity to take a snapshot of the early stages of development of the new landscape of Welsh taxation and the way in which businesses are adapting to those changes. 

“Our research points to concerns in some areas. These include the possibility of differential land transaction tax rates between England and Wales impacting tax payer behaviour for properties based on the border, and solicitors pointed to the need for improved guidance on this issue. 

“However, more positively, professional advisors reported a good level of awareness of the changes to the tax system and that there had been effective engagement with the Welsh Revenue Authority to prepare them for the changes. It is positive that in the early stages, this effective relationship has been developed”

Ben Francis, FSB’s Wales Policy Unit Chair stated: “This is an important and valuable study which not only gives an indication on the effectiveness of the implementation of Land Transaction Tax but perhaps more importantly, signals the importance of developing business understanding of and confidence in the new tax system in Wales as new tax responsibilities are devolved such as income tax.

“Welsh Government and the Welsh Revenue Authority need to heed the concerns of businesses about the potential cost of compliance and the time involved in compliance. Small businesses are time-poor and business owners repeatedly cite concerns around the burden of compliance and so this needs to be simple, effectively communicated and well supported by guidance.

“Professional advisors such as accountants and legal practitioners are vital to supporting businesses and more often the first port of call for all business advice. It’s imperative for the Welsh Revenue Authority to properly engage with and update professionals, this cannot be understated neither can the need for those professionals to be proactive in reaching out to and advising small businesses. 

“I am pleased to see the positive reflection among our members on the work undertaken by the Welsh Revenue Authority to-date in its approach to communication and we are keen to see this work continue and develop, with a particular focus on communication with SMEs. 

 “The change to the tax landscape represents a significant step in devolution. The relationship between tax authorities and tax payers is fundamental to its success. Small business concerns around changes such as Making Tax Digital demonstrate that this relationship hasn’t always been effective in the past and so I hope that this report serves as a platform for a discussion about better and more effective tax administration.”