How can HMRC encourage more cooperative relationships with the wealthy and their agents?
This is the question which HMRC asked itself, 12 wealthy individuals and 25 agents of wealthy individuals, in a recently published report. ‘Wealthy’ being anyone with an income over £200,000 per annum or assets of over £2m.
HMRC’s thinking here seems to be:
Tax returns do not give HMRC a sufficient understanding of the often complex tax affairs and behaviours of wealthy individuals. (This may seem counter-intuitive in light of increasing transparency initiatives – but given the volume of overlapping reporting and the sometimes indiscriminate nature of what is reported, it is not surprising that HMRC might be having trouble putting everything into context.); and
HMRC has ‘evidence from other fiscal authorities that suggests that a more cooperative relationship between HMRC, agents and wealthy customers could increase transparency, provide certainty earlier and drive-up voluntary compliance’. Presumably because more information (and at an earlier stage) means less inadvertent non-compliance.
However, this more cooperative relationship is going to be difficult to achieve given the report’s key finding that many participants see their relationship with HMRC as ‘adversarial’, with HMRC perceived as an ‘enforcer’ looking to extract ‘every last penny of tax’ and leading to a ‘downward spiral of mistrust’. Case studies in the report illustrate negative experiences which perpetuate this mistrust, such as long response times, ‘blunt’ use of penalties and what some may see as ‘scare tactics’ and seemingly irrelevant and intrusive fishing expeditions.
In this context, the report explores several complex and interconnected concepts:
How do the wealthy view tax? Would a more cooperative approach encourage taxpayers to see tax as a social and moral issue, as well as a legal obligation? Tax as a social issue is an intriguing question which wealthy individuals and families are asking themselves in an era of increasing inequality, exacerbated by the pandemic. It is also a timely one given that corporate tax is increasingly viewed as a key corporate governance matter and part of the wider ‘environmental, social and governance’ landscape.
What would a more cooperative relationship look like? HMRC’s focus is clearly on increased transparency and more (effective) communication.
Some participants had mixed feelings. What is in it for the taxpayer and is this necessary for taxpayers who are already fully compliant? Taxpayers will want more certainty in exchange for more information and the confidence that the information will be used in the spirit in which it is provided and not (in line with the current negative perceptions highlighted in the report) with a view to extracting ‘every last penny of tax’ or more than the taxpayer’s ‘fair share’.
Does HMRC have the resources to implement this? And even if it does, could it be misconstrued by the media and the wider public?
One thing is clear: only genuine changes in culture and mindset, and more consistent ‘customer’ experiences are likely to produce the genuinely cooperative and transparent relationships HMRC is seeking.
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Cooperative compliance with the wealthy
How can HMRC encourage more cooperative relationships with the wealthy and their agents?
This is the question which HMRC asked itself, 12 wealthy individuals and 25 agents of wealthy individuals, in a recently published report. ‘Wealthy’ being anyone with an income over £200,000 per annum or assets of over £2m.
HMRC’s thinking here seems to be:
Tax returns do not give HMRC a sufficient understanding of the often complex tax affairs and behaviours of wealthy individuals. (This may seem counter-intuitive in light of increasing transparency initiatives – but given the volume of overlapping reporting and the sometimes indiscriminate nature of what is reported, it is not surprising that HMRC might be having trouble putting everything into context.); and
HMRC has ‘evidence from other fiscal authorities that suggests that a more cooperative relationship between HMRC, agents and wealthy customers could increase transparency, provide certainty earlier and drive-up voluntary compliance’. Presumably because more information (and at an earlier stage) means less inadvertent non-compliance.
However, this more cooperative relationship is going to be difficult to achieve given the report’s key finding that many participants see their relationship with HMRC as ‘adversarial’, with HMRC perceived as an ‘enforcer’ looking to extract ‘every last penny of tax’ and leading to a ‘downward spiral of mistrust’. Case studies in the report illustrate negative experiences which perpetuate this mistrust, such as long response times, ‘blunt’ use of penalties and what some may see as ‘scare tactics’ and seemingly irrelevant and intrusive fishing expeditions.
In this context, the report explores several complex and interconnected concepts:
How do the wealthy view tax? Would a more cooperative approach encourage taxpayers to see tax as a social and moral issue, as well as a legal obligation? Tax as a social issue is an intriguing question which wealthy individuals and families are asking themselves in an era of increasing inequality, exacerbated by the pandemic. It is also a timely one given that corporate tax is increasingly viewed as a key corporate governance matter and part of the wider ‘environmental, social and governance’ landscape.
What would a more cooperative relationship look like? HMRC’s focus is clearly on increased transparency and more (effective) communication.
Some participants had mixed feelings. What is in it for the taxpayer and is this necessary for taxpayers who are already fully compliant? Taxpayers will want more certainty in exchange for more information and the confidence that the information will be used in the spirit in which it is provided and not (in line with the current negative perceptions highlighted in the report) with a view to extracting ‘every last penny of tax’ or more than the taxpayer’s ‘fair share’.
Does HMRC have the resources to implement this? And even if it does, could it be misconstrued by the media and the wider public?
One thing is clear: only genuine changes in culture and mindset, and more consistent ‘customer’ experiences are likely to produce the genuinely cooperative and transparent relationships HMRC is seeking.
