If a tax adviser going to a millennium party, 16 short years ago, had a secret fear around being forced to confess their choice of career, it would have been considered boring. Tax was a highly specialist, perhaps geeky subject.
Political parties feared to increase tax, so encouraging the public in a benign neglect of it. The weekend papers published a few tax-saving tips, but that was as much detail as most people could stomach. It did not feature much in boardroom discussions, or even in corporate risk management documents – the attitude was that ‘Fred’ (the head of tax, or maybe a trusted adviser) ‘keeps us safe’.
The parties to the game of tax were internal specialists and external advisers – accountants, lawyers, tax experts – and ‘the Revenue’ (or sometimes ‘Customs’). All had been brought up on formalistic rules with little pretence of fairness – among the earliest lessons had been planning for which year’s profits of a newly established business would be taxed twice (as would almost always happen under ancient business tax rules), and which year’s profits would ‘drop out’, by way of rough-and-ready recompense, in the closing years of the business. Some of these rules had changed, but the mind-set had not. Laws did change, but not too fast to leave many long-standing technical chestnuts – ‘capital or revenue?’, ‘plant or part of the setting?’ – regularly having to be pulled, again and again, from the fire.
By then the authorities had established that agreed ‘adjustments’ to tax liabilities, as originally computed on behalf of the taxpayer, should lead not just to payment of the extra tax, but to automatic payment of interest as a commercial recompense for the delay. But if any taxpayers were still let off, and if (more surprisingly) the man on the Clapham omnibus had stayed on board long enough to hear out the story, he might well have said ‘Good luck to you’.
It’s all so different now. As W B Yeats might have said, the terrible beauty of ‘responsible tax’ has been born.
Tax advisers let out socially no longer fear the chill of indifference. On the contrary, they might anticipate encountering someone challenging them to defend the ethics of their profession. A few might find the whiff of sulphur about them a social improvement.
For half the intervening period, the impetus for change came from the authorities themselves. The liberalisation of the financial markets and the fast-developing power of information technology (disseminating tax information more widely and largely creating an ability to ‘model’ it) had turbo-charged the arbitrage activity implicit in tax planning, creating enough difficulty for the state’s own planning of tax receipts to drive ‘avoidance’ to the top of the government’s priorities. The fact that revenues could be increased by anti-avoidance measures, with less political resistance than open tax increases, helped keep it there. Disclosure of tax avoidance scheme (DOTAS) rules were introduced to fast-forward the speed of response. Reams of counteracting legislation became regular features of already burgeoning Finance Bills. ‘HMRC’ was formed, seeking to impose, top-down, a new managerialist ethos in place of a rather old-school professional culture, segmenting the taxpayer population into high and low-risk customers, seeking to ban horse-trading ‘deals’ under a new litigation strategy, and promoting a board level focus on tax within major corporates.
But this turned out to be just the warm-up act. The game changer has been the credit crunch. After a generation of thinking that the people at the top of business, politics, and society ‘knew a thing or two’, the crisis exposed just how little anyone in authority really understood. The impact of the crisis on the public finances, and the lapse into pre-Keynesian policy responses in many countries after 2010, led to tax rises and spending cuts that made many people feel, and resent, that they were being punished for the greed and incompetence of those at the top. This has had wide-ranging implications, from which the world of tax has not been exempted.
But if tax is no longer a game, it is still a performance. And the script is driven by new players.
First of these are the tax campaigners. Established charities like Oxfam, ActionAid or Christian Aid take controversial stances on tax issues, such as the planning and avoidance behaviour of multinationals. Groups such as UK Uncut are set up largely for the purpose of campaigning on such issues. Individuals like Richard Murphy (chartered accountant and prolific campaigner and author – including of The joy of tax) or Richard Brooks (a former tax inspector who served in the then Inland Revenue’s ‘International Division’, now a journalist, notably with Private Eye, and author, including of The great tax robbery: How Britain became a tax haven for fat cats and big business) rise to prominence writing exposés of such behaviour and making proposals for counteracting it.
As we have noted, this is part of a wider social and political reaction to the credit crunch and subsequent ‘austerity’. Until the 1960s and 1970s, political and economic discussions in the media were dominated by the idea of there being two ‘sides’, a trade union/socialist one and a business/conservative one. In the 1980s and 1990s, enthusiasts for the market succeeded in establishing the business view almost as accepted fact, with the opposing view considered as emotional, illogical and nostalgic. But there has always been an appetite for another way of looking at things, and the credit crunch exploded the belief that those catapulted to the top of market-driven institutions necessarily knew what they were talking about.
Role reinvention
The other ‘new’ players are not really wholly new, but they are playing much larger and very different roles than before. The media, in particular, seize on accusations made by the campaigners (and increasingly uncover stories of their own), to create shocks and scandals out of the behaviour of wealthy individuals and multinationals in trying to reduce their tax – or sometimes, simply out of the outcome that, rightly or wrongly, little or no tax has been paid. At one end of the spectrum of such stories are schemes that would always have been considered aggressive avoidance. At the other extreme, other stories relate to the claiming of straightforward deductions or allowances which policymakers always intended to be available, and which are quite natural features of the tax of the type being discussed.
Since tax is complex, and has historically been of little interest to the public, by what benchmark is anything to be described as scandalous, or normal? In practice, everything has been a shock.
Politicians
Politicians, too, have changed their role. Before the credit crunch, governments sometimes needed to raise taxes and found it convenient, with more or less justification, to describe this as countering avoidance. But they were wary of overt tax increases, and oppositions would sometimes resist additional powers for the tax authorities on grounds of protection of the legitimate rights of taxpayers as it was recognised that these touched on civil liberties. Measures are introduced, and powers increased, more to be seen to do something than reflecting a calm analysis of the likely effect that they will have.
In the late 1990s, the incoming Labour government had concluded, after a consultation, that it did not need a general anti-avoidance rule (and partly rejected it because of the cost of providing a clearance mechanism, as was generally accepted would have been necessary to avoid unacceptable levels of uncertainty for taxpayers). Fifteen years later, a general anti-abuse rule (GAAR) has been found necessary, and acceptable without a clearance mechanism, despite an explosion in the intervening period of targeted anti-avoidance rules in the tax code, measures such as disclosure of tax avoidance schemes, and the continuing drift of the courts toward a more purposive style of interpretation. In turn, before there has been any significant experience of living with the GAAR or any actual cases being referred to the GAAR Advisory Panel, a 60% penalty has been introduced as a tax-related surcharge for getting it wrong.
In the last year alone, there have been a ‘strict liability’ criminal offence for offshore evasion, even if no wrongful intention is demonstrated; a raft of new civil penalties, including an asset-based penalty, for offshore evasion; a new civil penalty for ‘enabling’ offshore evasion; and an obligation for tax advisers to write to their clients on the authorities’ behalf to warn them about the perils of holding offshore accounts (these four measures appear, respectively at FA 2016 s 166; FA 2016 ss 163–165 and Schs 21 and 22; FA 2016 s 162 and Sch 20; and F(No. 2)A 2015 s 50).
A new corporate criminal offence of failure to prevent the criminal facilitation of both domestic and offshore tax evasion is also currently being consulted on, which aims to overcome the difficulties in attributing criminal liability to corporations for the criminal acts of those who act on their behalf.
This activity is not confined to those politicians already in, or actively aspiring to government. Backbencher groups, most notably the Public Accounts Committee (PAC) compete to criticise HMRC’s alleged inadequacies in fighting the avoidance activities of multinationals, wealthy individuals, and their advisers. The PAC chair in the last parliament, Margaret Hodge, has formed an All Party Parliamentary Group on Responsible Taxation in the current Parliament – not of course, that the PAC itself has lost interest.
The public
And finally, there is the public. Gone is their previous benign neglect of tax. Now they eagerly digest the media-induced scandals, the government announcements, and the backbench committee reports, nursing their resentment at the austerity which they feel they live with, while others are ‘getting away with it’. (Although there is some tension between these feelings and the facts that an increasing proportion – now over a quarter – of the income tax take comes from the 1% of taxpayers with the highest incomes; and that those on anything like average earnings – and above average up to about £50,000 p.a. – have been relatively well protected from ‘austerity’. But then again, all this is partly reflective of increasing underlying inequality, which may perhaps be a more basic reason for the resentment expressed over tax.)
Some in the tax community still see HMRC as the Mephistopheles behind all these Fausts, but the truth is pretty much the opposite; that the new players are critical, sometimes markedly so, of HMRC in its perceived failure to clamp down on avoidance, and the tax authority, as with regulators generally, has to be seen to be tough to assuage media, political and public opinion.
There are some bizarre aspects to the main areas of focus for public concern and debate.
The multinationals
First, there is corporation tax. The UK traditionally raised around 9% of government revenues from this tax – ahead of the OECD average, and not bad for a country with a very open economy, highly exposed to tax (as to other forms of) competition. That proportion is declining now (as the government has been raising other taxes aggressively to reduce the deficit and is deliberately reducing the corporation tax rate from 28% in 2010 to a planned 17% in 2020), but even as it does so, it regularly broadens the base so that receipts are projected to increase rather than reduce over the rest of the decade. Despite some initial uncertainty, the Autumn Statement confirmed that this remains the plan post-Brexit.
But this is not allowed to spoil a good story about global multinationals as pantomime villains (and the undoubted fact that they plan their taxes, sometimes aggressively). Everyone recognises that to deal with this issue requires negotiation and strengthening international consensus between governments, in order to present these sometimes reluctant taxpayers with more of a united front. But almost all debate then proceeds as if corporation tax was a uniquely British creation to be reformed and maybe replaced, according to the latest ideas which have occurred to us. This is sometimes born of economic theory, and at other times it is born of simple wish fulfilment – would it not be nice to take a bigger share of foreign companies’ revenues from selling into the UK market, irrespective of the profits they make, where they really make them, or what other countries are involved? The underlying issue is that people are looking for ‘painless’ sources of tax revenue to bring down the deficit that probably do not really exist..
High earners and the rich
Alongside the multinationals in the public stocks are ‘the rich’ (though people referred to in this way include high earners as well as the traditionally wealthy, a distinction that is rarely acknowledged). There are different categories of sinner among these. Firstly, high earners who have been sold (often mis-sold) marketed ‘schemes’ – many of these inadvertently officially encouraged by successive chancellors’ creation of ‘incentives’ to invest in films or any one of a number of activities considered, at least at the outset, to be especially entrepreneurial or otherwise in the wider national interest. Although this political habit appears incurable, such ‘schemes’ do seem to be finally on their way out under the impact of successive waves of anti-avoidance legislation. Accelerated payment notices (APNs), follower notices and the promoters of tax avoidance schemes (POTAS) legislation were all introduced by FA 2014. APNs are arguably one of the most effective weapons that HMRC now have in their anti-avoidance armoury in denying participants in ‘schemes’ an automatic cashflow benefit of the claimed tax saving, for the long period of time over which the ‘scheme’ is examined by the courts.
Public excoriation perhaps reached its apogee in Prime Minister David Cameron’s condemnation in June 2012 of comedian Jimmy Carr when his involvement in a marketed tax avoidance scheme was revealed in the press. Ironically, the Carr episode came back to bite David Cameron in his turn in early 2016 after the massive leak of so-called ‘Panama papers’ – 11.5 million leaked documents relating to over 200,000 offshore entities from Panamanian law firm Mossack Fonseca, claimed to include evidence of illegal activities. One such entity was an offshore fund in which Cameron’s late father had been involved and in which he and his wife had invested before Cameron became prime minister. Although there was no suggestion of illegality of any sort arising from these investments, the resulting furore led to the publication by the prime minister, the chancellor of the exchequer and the leader of the opposition of their tax returns, in order to diffuse suspicion (the shadow chancellor had already published his). A few months earlier there had been a media frenzy about the tax affairs of the multinational Google: this had generated some discussion around whether some limited category of tax information should be made public. At that time, even that had seemed a reasonably controversial proposal but in the aftermath of the ‘Panama papers’ leak, opinion polls suggested that there might even be majority support for making public all tax returns – individuals’ and companies’ alike.
There has doubtless been offshore evasion by wealthy Britons (as by those of other countries), notwithstanding that the UK is officially believed to have a relatively compliant tax culture. The new tools available to the tax authorities in the forms of increasingly automatic exchanges of information between themselves, and of reporting requirements on financial intermediaries, if combined judiciously with exploiting the analytic possibilities of information technology, are creating unprecedented possibilities for tackling this issue. There is relatively little focus (amid lurid complaints about tax havens) on the importance of this workmanlike task.
There is also the almost uniquely British ‘non-dom’ fiscal status, which until 2008 generally allowed wealthy and well-advised people whose ultimate loyalty (symbolically, their grave plot) lay elsewhere, to be resident year on year in the UK, while typically being able to plan themselves into a de facto exemption from tax on investment income and gains.
Again, the role of non-dom status in public debate has bizarre elements. There is a case for some sort of fiscal relief for people coming to the UK for the first time from the full rigour of worldwide taxation on income and gains: otherwise there is a significant fiscal disincentive for well-to-do people previously unconnected with the UK from coming here in the first place. One can debate how long such an exemption should endure in full. Whatever the answer, it does not seem the best trade-off between competing objectives to have an officially sanctioned (attractive) ‘non-dom’ status in tax law, but then periodically and without prior warning to cut back its scope, have the tax authority aggressively police the increasingly complex borderline of the regime, and to have the individuals who can still legitimately take advantage of it pilloried in the media and in political discourse.
Despite these and other deficiencies in the quality of debate, it is surely much healthier to be having a debate on tax than to keep it as a collection of arcane secrets known only to a tiny section of society, as was pretty much the case in the past. Tax will probably always consume a large proportion – maybe between a third and a half – of national income, so the way it is imposed and collected, its compliance costs and impact on economic behaviour, will have huge effects, over and above the loss to the taxpayers of the actual amount collected, and over and above the benefits and impacts of how it is spent.
The sound and fury of these controversies sit oddly with the authorities’ belief – shared, I suspect, by most of us – that we are a pretty compliant country when it comes to tax. Official estimates of the ‘tax gap’ suggest that over 90% of tax due is paid over with little or no material intervention required from the authorities.
The battles against avoidance, evasion, poor record keeping and the other causes of non-compliance are all, to a degree, important but secondary distractions from this big picture.
This predominant sense of compliance is symbolised and in large part delivered by the pay as you earn (PAYE) system, under which the great majority of taxpayers have (if it all works properly) the right cumulative amount of tax deducted from their salaries over the year. The deductions reflect not just their income from employment but otherwise untaxed, or undertaxed, income from other sources too – as well as reflecting allowances and deductions to which they are entitled. As everyone knows, PAYE in practice is not always as successful as this ambitious theory, but the system is nevertheless a major technical achievement, relieving most taxpayers from the task of an annual tax return.
HMRC estimate that there are significant PAYE errors, and despite HMRC’s efforts to explain them, many taxpayers are baffled by their PAYE codes. As a result of this and of many people’s erroneous belief that between them, HMRC and the employer know all about them and can get things right, it is doubtful that the codes are checked by many taxpayers, as they are supposed to do. Part of the problem with the codes derives from the fact that politicians are incapable of resisting over-complicating the structure of tax rates and allowances, particularly at very modest levels of income. Nevertheless I suspect few would prefer the task of completing an annual tax return to either dealing with this confusion or risking the consequences of simply ignoring it.
The most obvious exception to the picture of near universal compliance is the habitual offer, or request, made by many small-scale tradespeople of their customers to be paid in cash (which a few people seem genuinely to believe secures a legitimate exemption from VAT, although most probably understand well enough that illegal evasion of that and/or other taxes could be involved).
One suspects that state and general public morality have got a little out of kilter here, with civil society’s disapproval of illegal evasion by small-scale tradespeople being less pronounced than that implied by its legal position and the official views and actions of the state, as is arguably the case in areas such as ‘marginal speeding’ and illegal parking. Perhaps there is a belief, a widespread if largely unspoken one, that struggling minor entrepreneurs should be cut some slack on account of not being able to afford to be properly advised on how to legally mitigate their taxes.
People do seem to believe that tax evasion will be seriously punished, typically by being sent to prison; perversely, in many cases this seems to deter, not such small-scale tax evasion itself, but any contact with the authorities to enquire about identifying and correcting it.
It may also be that the (let us acknowledge) still high level of compliance overall itself goes to explain the repeated furores over multinational and high income or net worth avoidance: the contrast between the automatic and apparently implacable nature of the deductions experienced by the majority and the seeming ability of a minority to negotiate and control their taxes is just too great to bear.
In one respect, the tax system is appallingly bad and consistently getting worse.
In his 8 January 2014 article in Taxation, Robert Leach wrote: ‘In his 2011 Budget speech, George Osborne said “our tax code has become so complex that it recently overtook India to become the longest in the world”. He boasted that “this Budget at a stroke removes over 100 pages from our tax code and begins the work of simplification”. This included repealing the provisions for millennium gift aid “which we won’t need for another 989 years”. We have not heard much about reducing the tax code recently. In the meantime, he has added 1,854 pages of Finance Act. How many have been removed?’
The two 2015 Finance Acts added over 330 pages, with of course more to come through this year.
Osborne’s interest as chancellor in simplification and establishment of the Office of Tax Simplification (OTS) have not reversed the long-term trend, the scale of which has been variously estimated at doubling every ten years or multiplying 12-fold every 50.
Besides the article cited above, there are numerous studies on the length of our code. See, for example, the article by Caroline Turnbull-Hall and Richard Thomas (‘Reviewing the length of the UK tax code’, Tax Journal, 1 February 2012) and the March 2016 CPS study (at www.tinyurl.com/jzqv3rb).
Length can be measured in various ways. The OTS concluded (see www.tinyurl.com/hkemzby) (in early 2012) that the actual number of pages in the Yellow and Orange Tax Handbooks 2010/11 (ignoring blank pages at the start and end and introductory pages), was 17,795 pages; but
In any event, sheer length is not of course a perfect measure of the complexity of the system, and indeed there is more than one dimension to the concept of complexity. Indeed, the erstwhile Tax Law Rewrite Project demonstrated that some tax legislation owed its opacity to being too compressed, and to make it intelligible it was necessary to rewrite it at greater length. Nevertheless, few would dispute that these statistics give a fair enough impression of the growth in the complexity of the system.
A year before George Osborne’s statement cited above, the incoming 2010 government had indeed established the Office of Tax Simplification, which has done sterling work in addressing many significant aspects of the complexity of the system, and proposing worthwhile reforms, some of which have been adopted. However, as the figures show, the impact of this work has been dwarfed by the constant creation of new complexity alongside the old. Successive governments have ramped up the commitment to consult on tax law changes: firstly on the general direction of new proposals; secondly at the stage that the options are clearly narrowed down and choices made; and thirdly when there is draft legislation. Much improvement has come as a result, and the volume of consultative activity is enormous. Yet one feels that the commitment to the first stage of the consultation process is ignored, more often than not. The major cause is the role of the Budget (and in substantially similar autumn events which made this a twice, and in an election year maybe thrice, annual pantomime which is the crowning glory of Britain’s ‘elective dictatorship’ constitution, the endlessly repeating appearance of yet another rabbit from the chancellor’s hat). At least now Philip Hammond has announced a plan to return to having just one major fiscal even a year.
One reason given for complexity is avoidance. Other countries, of course, suffer from tax avoidance. Now that the courts adopt a more purposive approach to interpreting legislation, and striking down ‘schemes’, it seems less necessary for the legislature to envisage every possibility and write something down about it. Where, increasingly exceptionally, the courts fail to strike down apparent avoidance schemes, it is typically because the legislation imposes multiple detailed tests (which the scheme has met) without clearly exhibiting any underlying principle of the sort that HMRC try to show in condemning the scheme and trying to have it struck down.
In turn, many avoidance schemes in their heyday were based on anti-avoidance legislation, or at least on the excessive detail of the legislation. When avoidance does challenge the structure of a tax system, the most elegant response is to consider fundamentally the source of the arbitrage opportunity and seek to remove it, as happened in the 1990s with arbitrages based on the UK’s archaic taxation of much interest and similar income on a cash receipts basis.
But since the 2004 DOTAS rules, the ability to respond quickly, scheme by scheme, to avoidance, and increasingly since then the political difficulty for any opposition of being seen (by challenging such legislation) to be half-hearted or ambiguous in condemning it, have conspired to make the process of new legislation virtually immune from effective scrutiny (other than by convincing HMRC and through them ministers of glaring deficiencies in the third stage of the consultation process). So paradoxically, while the policy intent behind structural features of the tax system have to some degree become more reflective of wide-ranging principles – all salaries, bonuses, and benefits taxed to income tax; corporate profits taxed on a basis more consistent with accounting treatment, with more limited and better defined exceptions – the expression of these principles in law has got ever more complex and unwieldy.
The appeals by the authorities for taxpayers and advisers to follow ‘the spirit of the law’ can in part be seen as a plea to treat the actual legislation as an arcane, nostalgic and decorative afterthought to the real work of collecting the sums predicted in the Red and Blue Books while managing the expectations of the taxpayers to believe that they are being taxed as Parliament intended and to satisfy themselves with enjoying an acceptable ‘customer experience’. If this succeeds, the people will arguably be following the government and Parliament as one has the feeling that tax legislation has been treated as something of an afterthought to the real work of devising the digital systems used to collect the sums predicted – designing the software first, then writing the legislation to fit the software. As long ago as 2001, the Tax Credits Bill went through the Commons in one form, then was re-introduced in the Lords in an entirely different form – the differences, one suspects, being to do with the incompatibility of the Commons version with the systems devised to handle the system.
HMRC has been subject to spending cuts, not just since the dawn of austerity, but to efficiency reviews dating from the Gordon Brown era and to its creation from the two previous tax authorities.
Its apparent task in collecting unprecedented volumes of tax with increasingly constrained resources – and a system whose complexity seems likely to be without parallel anywhere in time and space (except, if we are realistic, in its own future) – is a daunting one. Any sensible strategy would cherish and seek to nourish the compliant nature of the taxpaying public. What is the plan?
The core answer is ‘digitalisation’. Sensibly enough, the potential of new technology will be harnessed to the task. The annual tax return will disappear. Information (typically already collected from sources such as employers, pension providers and other financial institutions) will be captured and used consistently and taxpayers only required to input the balance. They will do this through digitalised tax accounts, more in real time, with the potential for unifying their tax payment arrangements across the taxes. Few would dispute the sense of moving in this direction.
The changes are exciting controversy, for several reasons. I will pick on two.
Currently, most businesses need at least some support from agents in meeting their compliance obligations and initially at least, there were some mixed signals about the extent to which the authorities saw this persisting or would accommodate it in the technology – the messages are now much more accommodating but many practical questions remain.
Secondly, the government’s vision seems to require that the digitalised tax accounts flow from and into the digitalised underlying records of the business itself, entailing a major transformation in how many such businesses are managed. Most initiatives in cultural and technological change of this nature proceed in stages with larger, abler and/or more enthusiastic participants coming on board first, to help iron out the glitches, before a proven product is rolled out to and perhaps imposed on the rest. However, the initiative seems to have been captured to some degree by the tax gap police within HMRC who see an opportunity to force smaller and medium-sized businesses to provide information (of a yet unspecified nature) quarterly or anyway more regularly so that they are obliged to keep better records: bad record keeping by such businesses being in HMRC’s estimation a major cause of the tax gap. This is causing concern in some quarters, particularly as the whole initiative entails that with HMRC’s ongoing administrative resources depleted, the vast majority of taxpayers will ‘self-help’, with only generic guidance from HMRC and input from their own advisers (coming of course with a price tag, and with the advisers themselves having in most cases less regular ability to enter dialogue with HMRC), and they will have to do this in the context of the longest and most complex tax code yet devised by humanity, with limited and largely token plans to address this.
This seems misguided. The big picture is surely that we are a very tax-compliant nation and we should seek to build on that, and prepare the ground for digitalisation, firstly by following the more phased approach to rollout described above and secondly by aggressively simplifying the underlying rules so that they can better be understood by the people. Unfortunately, the risk is that the tax law (which we have already seen is in danger of being reduced to a decorative afterthought to the real administratively defined and delivered requirement) will be reduced further to this token status, becoming the tax equivalent of the electronic terms and conditions which you have to click to affirm your pretence to have read when buying things on the Internet.
As regards the tax gap, as we have seen, probably the most intractable element of it is the ‘pay in cash’ culture, where official and public morality have got out of sync. In another public policy area where this has happened – marginal speeding on the roads – the reaction of the authorities is more enlightened. Those caught with evidence of criminal behaviour are invited to divert the fines they would otherwise pay (and escape the loss of ‘points’ on their licence) by going on a ‘speed awareness course’. Why not ‘tax awareness courses’ to explain the cost to the country’s public spending programmes of tax-evading behaviour, and also to explain the relatively civilised process of escalation of penalties and the like? As people seem currently transfixed with fear of contact with HMRC when they think they might be in some form of non-compliance, they react by thinking it safer to ignore the whole issue.
Without this, it is to be hoped that digitalisation, however handled, will bring the success and efficiencies that are sought. There is a risk though, of a perfect storm developing under which smaller and medium-sized businesses and their agents will feel burdened with additional reporting requirements, imposed upon to change their business practices, ignored when they try to contact the authorities to discuss genuine uncertainties, penalised without facility to give reasonable explanations, publicly accused of avoidance and evasion to legitimise this treatment, and resentful at the contrast with the reported treatment of multinationals who (accurately or not), are believed to get special ‘deals’ and who certainly have more ability to have a meaningful discussion with the authorities.
If a tax adviser going to a millennium party, 16 short years ago, had a secret fear around being forced to confess their choice of career, it would have been considered boring. Tax was a highly specialist, perhaps geeky subject.
Political parties feared to increase tax, so encouraging the public in a benign neglect of it. The weekend papers published a few tax-saving tips, but that was as much detail as most people could stomach. It did not feature much in boardroom discussions, or even in corporate risk management documents – the attitude was that ‘Fred’ (the head of tax, or maybe a trusted adviser) ‘keeps us safe’.
The parties to the game of tax were internal specialists and external advisers – accountants, lawyers, tax experts – and ‘the Revenue’ (or sometimes ‘Customs’). All had been brought up on formalistic rules with little pretence of fairness – among the earliest lessons had been planning for which year’s profits of a newly established business would be taxed twice (as would almost always happen under ancient business tax rules), and which year’s profits would ‘drop out’, by way of rough-and-ready recompense, in the closing years of the business. Some of these rules had changed, but the mind-set had not. Laws did change, but not too fast to leave many long-standing technical chestnuts – ‘capital or revenue?’, ‘plant or part of the setting?’ – regularly having to be pulled, again and again, from the fire.
By then the authorities had established that agreed ‘adjustments’ to tax liabilities, as originally computed on behalf of the taxpayer, should lead not just to payment of the extra tax, but to automatic payment of interest as a commercial recompense for the delay. But if any taxpayers were still let off, and if (more surprisingly) the man on the Clapham omnibus had stayed on board long enough to hear out the story, he might well have said ‘Good luck to you’.
It’s all so different now. As W B Yeats might have said, the terrible beauty of ‘responsible tax’ has been born.
Tax advisers let out socially no longer fear the chill of indifference. On the contrary, they might anticipate encountering someone challenging them to defend the ethics of their profession. A few might find the whiff of sulphur about them a social improvement.
For half the intervening period, the impetus for change came from the authorities themselves. The liberalisation of the financial markets and the fast-developing power of information technology (disseminating tax information more widely and largely creating an ability to ‘model’ it) had turbo-charged the arbitrage activity implicit in tax planning, creating enough difficulty for the state’s own planning of tax receipts to drive ‘avoidance’ to the top of the government’s priorities. The fact that revenues could be increased by anti-avoidance measures, with less political resistance than open tax increases, helped keep it there. Disclosure of tax avoidance scheme (DOTAS) rules were introduced to fast-forward the speed of response. Reams of counteracting legislation became regular features of already burgeoning Finance Bills. ‘HMRC’ was formed, seeking to impose, top-down, a new managerialist ethos in place of a rather old-school professional culture, segmenting the taxpayer population into high and low-risk customers, seeking to ban horse-trading ‘deals’ under a new litigation strategy, and promoting a board level focus on tax within major corporates.
But this turned out to be just the warm-up act. The game changer has been the credit crunch. After a generation of thinking that the people at the top of business, politics, and society ‘knew a thing or two’, the crisis exposed just how little anyone in authority really understood. The impact of the crisis on the public finances, and the lapse into pre-Keynesian policy responses in many countries after 2010, led to tax rises and spending cuts that made many people feel, and resent, that they were being punished for the greed and incompetence of those at the top. This has had wide-ranging implications, from which the world of tax has not been exempted.
But if tax is no longer a game, it is still a performance. And the script is driven by new players.
First of these are the tax campaigners. Established charities like Oxfam, ActionAid or Christian Aid take controversial stances on tax issues, such as the planning and avoidance behaviour of multinationals. Groups such as UK Uncut are set up largely for the purpose of campaigning on such issues. Individuals like Richard Murphy (chartered accountant and prolific campaigner and author – including of The joy of tax) or Richard Brooks (a former tax inspector who served in the then Inland Revenue’s ‘International Division’, now a journalist, notably with Private Eye, and author, including of The great tax robbery: How Britain became a tax haven for fat cats and big business) rise to prominence writing exposés of such behaviour and making proposals for counteracting it.
As we have noted, this is part of a wider social and political reaction to the credit crunch and subsequent ‘austerity’. Until the 1960s and 1970s, political and economic discussions in the media were dominated by the idea of there being two ‘sides’, a trade union/socialist one and a business/conservative one. In the 1980s and 1990s, enthusiasts for the market succeeded in establishing the business view almost as accepted fact, with the opposing view considered as emotional, illogical and nostalgic. But there has always been an appetite for another way of looking at things, and the credit crunch exploded the belief that those catapulted to the top of market-driven institutions necessarily knew what they were talking about.
Role reinvention
The other ‘new’ players are not really wholly new, but they are playing much larger and very different roles than before. The media, in particular, seize on accusations made by the campaigners (and increasingly uncover stories of their own), to create shocks and scandals out of the behaviour of wealthy individuals and multinationals in trying to reduce their tax – or sometimes, simply out of the outcome that, rightly or wrongly, little or no tax has been paid. At one end of the spectrum of such stories are schemes that would always have been considered aggressive avoidance. At the other extreme, other stories relate to the claiming of straightforward deductions or allowances which policymakers always intended to be available, and which are quite natural features of the tax of the type being discussed.
Since tax is complex, and has historically been of little interest to the public, by what benchmark is anything to be described as scandalous, or normal? In practice, everything has been a shock.
Politicians
Politicians, too, have changed their role. Before the credit crunch, governments sometimes needed to raise taxes and found it convenient, with more or less justification, to describe this as countering avoidance. But they were wary of overt tax increases, and oppositions would sometimes resist additional powers for the tax authorities on grounds of protection of the legitimate rights of taxpayers as it was recognised that these touched on civil liberties. Measures are introduced, and powers increased, more to be seen to do something than reflecting a calm analysis of the likely effect that they will have.
In the late 1990s, the incoming Labour government had concluded, after a consultation, that it did not need a general anti-avoidance rule (and partly rejected it because of the cost of providing a clearance mechanism, as was generally accepted would have been necessary to avoid unacceptable levels of uncertainty for taxpayers). Fifteen years later, a general anti-abuse rule (GAAR) has been found necessary, and acceptable without a clearance mechanism, despite an explosion in the intervening period of targeted anti-avoidance rules in the tax code, measures such as disclosure of tax avoidance schemes, and the continuing drift of the courts toward a more purposive style of interpretation. In turn, before there has been any significant experience of living with the GAAR or any actual cases being referred to the GAAR Advisory Panel, a 60% penalty has been introduced as a tax-related surcharge for getting it wrong.
In the last year alone, there have been a ‘strict liability’ criminal offence for offshore evasion, even if no wrongful intention is demonstrated; a raft of new civil penalties, including an asset-based penalty, for offshore evasion; a new civil penalty for ‘enabling’ offshore evasion; and an obligation for tax advisers to write to their clients on the authorities’ behalf to warn them about the perils of holding offshore accounts (these four measures appear, respectively at FA 2016 s 166; FA 2016 ss 163–165 and Schs 21 and 22; FA 2016 s 162 and Sch 20; and F(No. 2)A 2015 s 50).
A new corporate criminal offence of failure to prevent the criminal facilitation of both domestic and offshore tax evasion is also currently being consulted on, which aims to overcome the difficulties in attributing criminal liability to corporations for the criminal acts of those who act on their behalf.
This activity is not confined to those politicians already in, or actively aspiring to government. Backbencher groups, most notably the Public Accounts Committee (PAC) compete to criticise HMRC’s alleged inadequacies in fighting the avoidance activities of multinationals, wealthy individuals, and their advisers. The PAC chair in the last parliament, Margaret Hodge, has formed an All Party Parliamentary Group on Responsible Taxation in the current Parliament – not of course, that the PAC itself has lost interest.
The public
And finally, there is the public. Gone is their previous benign neglect of tax. Now they eagerly digest the media-induced scandals, the government announcements, and the backbench committee reports, nursing their resentment at the austerity which they feel they live with, while others are ‘getting away with it’. (Although there is some tension between these feelings and the facts that an increasing proportion – now over a quarter – of the income tax take comes from the 1% of taxpayers with the highest incomes; and that those on anything like average earnings – and above average up to about £50,000 p.a. – have been relatively well protected from ‘austerity’. But then again, all this is partly reflective of increasing underlying inequality, which may perhaps be a more basic reason for the resentment expressed over tax.)
Some in the tax community still see HMRC as the Mephistopheles behind all these Fausts, but the truth is pretty much the opposite; that the new players are critical, sometimes markedly so, of HMRC in its perceived failure to clamp down on avoidance, and the tax authority, as with regulators generally, has to be seen to be tough to assuage media, political and public opinion.
There are some bizarre aspects to the main areas of focus for public concern and debate.
The multinationals
First, there is corporation tax. The UK traditionally raised around 9% of government revenues from this tax – ahead of the OECD average, and not bad for a country with a very open economy, highly exposed to tax (as to other forms of) competition. That proportion is declining now (as the government has been raising other taxes aggressively to reduce the deficit and is deliberately reducing the corporation tax rate from 28% in 2010 to a planned 17% in 2020), but even as it does so, it regularly broadens the base so that receipts are projected to increase rather than reduce over the rest of the decade. Despite some initial uncertainty, the Autumn Statement confirmed that this remains the plan post-Brexit.
But this is not allowed to spoil a good story about global multinationals as pantomime villains (and the undoubted fact that they plan their taxes, sometimes aggressively). Everyone recognises that to deal with this issue requires negotiation and strengthening international consensus between governments, in order to present these sometimes reluctant taxpayers with more of a united front. But almost all debate then proceeds as if corporation tax was a uniquely British creation to be reformed and maybe replaced, according to the latest ideas which have occurred to us. This is sometimes born of economic theory, and at other times it is born of simple wish fulfilment – would it not be nice to take a bigger share of foreign companies’ revenues from selling into the UK market, irrespective of the profits they make, where they really make them, or what other countries are involved? The underlying issue is that people are looking for ‘painless’ sources of tax revenue to bring down the deficit that probably do not really exist..
High earners and the rich
Alongside the multinationals in the public stocks are ‘the rich’ (though people referred to in this way include high earners as well as the traditionally wealthy, a distinction that is rarely acknowledged). There are different categories of sinner among these. Firstly, high earners who have been sold (often mis-sold) marketed ‘schemes’ – many of these inadvertently officially encouraged by successive chancellors’ creation of ‘incentives’ to invest in films or any one of a number of activities considered, at least at the outset, to be especially entrepreneurial or otherwise in the wider national interest. Although this political habit appears incurable, such ‘schemes’ do seem to be finally on their way out under the impact of successive waves of anti-avoidance legislation. Accelerated payment notices (APNs), follower notices and the promoters of tax avoidance schemes (POTAS) legislation were all introduced by FA 2014. APNs are arguably one of the most effective weapons that HMRC now have in their anti-avoidance armoury in denying participants in ‘schemes’ an automatic cashflow benefit of the claimed tax saving, for the long period of time over which the ‘scheme’ is examined by the courts.
Public excoriation perhaps reached its apogee in Prime Minister David Cameron’s condemnation in June 2012 of comedian Jimmy Carr when his involvement in a marketed tax avoidance scheme was revealed in the press. Ironically, the Carr episode came back to bite David Cameron in his turn in early 2016 after the massive leak of so-called ‘Panama papers’ – 11.5 million leaked documents relating to over 200,000 offshore entities from Panamanian law firm Mossack Fonseca, claimed to include evidence of illegal activities. One such entity was an offshore fund in which Cameron’s late father had been involved and in which he and his wife had invested before Cameron became prime minister. Although there was no suggestion of illegality of any sort arising from these investments, the resulting furore led to the publication by the prime minister, the chancellor of the exchequer and the leader of the opposition of their tax returns, in order to diffuse suspicion (the shadow chancellor had already published his). A few months earlier there had been a media frenzy about the tax affairs of the multinational Google: this had generated some discussion around whether some limited category of tax information should be made public. At that time, even that had seemed a reasonably controversial proposal but in the aftermath of the ‘Panama papers’ leak, opinion polls suggested that there might even be majority support for making public all tax returns – individuals’ and companies’ alike.
There has doubtless been offshore evasion by wealthy Britons (as by those of other countries), notwithstanding that the UK is officially believed to have a relatively compliant tax culture. The new tools available to the tax authorities in the forms of increasingly automatic exchanges of information between themselves, and of reporting requirements on financial intermediaries, if combined judiciously with exploiting the analytic possibilities of information technology, are creating unprecedented possibilities for tackling this issue. There is relatively little focus (amid lurid complaints about tax havens) on the importance of this workmanlike task.
There is also the almost uniquely British ‘non-dom’ fiscal status, which until 2008 generally allowed wealthy and well-advised people whose ultimate loyalty (symbolically, their grave plot) lay elsewhere, to be resident year on year in the UK, while typically being able to plan themselves into a de facto exemption from tax on investment income and gains.
Again, the role of non-dom status in public debate has bizarre elements. There is a case for some sort of fiscal relief for people coming to the UK for the first time from the full rigour of worldwide taxation on income and gains: otherwise there is a significant fiscal disincentive for well-to-do people previously unconnected with the UK from coming here in the first place. One can debate how long such an exemption should endure in full. Whatever the answer, it does not seem the best trade-off between competing objectives to have an officially sanctioned (attractive) ‘non-dom’ status in tax law, but then periodically and without prior warning to cut back its scope, have the tax authority aggressively police the increasingly complex borderline of the regime, and to have the individuals who can still legitimately take advantage of it pilloried in the media and in political discourse.
Despite these and other deficiencies in the quality of debate, it is surely much healthier to be having a debate on tax than to keep it as a collection of arcane secrets known only to a tiny section of society, as was pretty much the case in the past. Tax will probably always consume a large proportion – maybe between a third and a half – of national income, so the way it is imposed and collected, its compliance costs and impact on economic behaviour, will have huge effects, over and above the loss to the taxpayers of the actual amount collected, and over and above the benefits and impacts of how it is spent.
The sound and fury of these controversies sit oddly with the authorities’ belief – shared, I suspect, by most of us – that we are a pretty compliant country when it comes to tax. Official estimates of the ‘tax gap’ suggest that over 90% of tax due is paid over with little or no material intervention required from the authorities.
The battles against avoidance, evasion, poor record keeping and the other causes of non-compliance are all, to a degree, important but secondary distractions from this big picture.
This predominant sense of compliance is symbolised and in large part delivered by the pay as you earn (PAYE) system, under which the great majority of taxpayers have (if it all works properly) the right cumulative amount of tax deducted from their salaries over the year. The deductions reflect not just their income from employment but otherwise untaxed, or undertaxed, income from other sources too – as well as reflecting allowances and deductions to which they are entitled. As everyone knows, PAYE in practice is not always as successful as this ambitious theory, but the system is nevertheless a major technical achievement, relieving most taxpayers from the task of an annual tax return.
HMRC estimate that there are significant PAYE errors, and despite HMRC’s efforts to explain them, many taxpayers are baffled by their PAYE codes. As a result of this and of many people’s erroneous belief that between them, HMRC and the employer know all about them and can get things right, it is doubtful that the codes are checked by many taxpayers, as they are supposed to do. Part of the problem with the codes derives from the fact that politicians are incapable of resisting over-complicating the structure of tax rates and allowances, particularly at very modest levels of income. Nevertheless I suspect few would prefer the task of completing an annual tax return to either dealing with this confusion or risking the consequences of simply ignoring it.
The most obvious exception to the picture of near universal compliance is the habitual offer, or request, made by many small-scale tradespeople of their customers to be paid in cash (which a few people seem genuinely to believe secures a legitimate exemption from VAT, although most probably understand well enough that illegal evasion of that and/or other taxes could be involved).
One suspects that state and general public morality have got a little out of kilter here, with civil society’s disapproval of illegal evasion by small-scale tradespeople being less pronounced than that implied by its legal position and the official views and actions of the state, as is arguably the case in areas such as ‘marginal speeding’ and illegal parking. Perhaps there is a belief, a widespread if largely unspoken one, that struggling minor entrepreneurs should be cut some slack on account of not being able to afford to be properly advised on how to legally mitigate their taxes.
People do seem to believe that tax evasion will be seriously punished, typically by being sent to prison; perversely, in many cases this seems to deter, not such small-scale tax evasion itself, but any contact with the authorities to enquire about identifying and correcting it.
It may also be that the (let us acknowledge) still high level of compliance overall itself goes to explain the repeated furores over multinational and high income or net worth avoidance: the contrast between the automatic and apparently implacable nature of the deductions experienced by the majority and the seeming ability of a minority to negotiate and control their taxes is just too great to bear.
In one respect, the tax system is appallingly bad and consistently getting worse.
In his 8 January 2014 article in Taxation, Robert Leach wrote: ‘In his 2011 Budget speech, George Osborne said “our tax code has become so complex that it recently overtook India to become the longest in the world”. He boasted that “this Budget at a stroke removes over 100 pages from our tax code and begins the work of simplification”. This included repealing the provisions for millennium gift aid “which we won’t need for another 989 years”. We have not heard much about reducing the tax code recently. In the meantime, he has added 1,854 pages of Finance Act. How many have been removed?’
The two 2015 Finance Acts added over 330 pages, with of course more to come through this year.
Osborne’s interest as chancellor in simplification and establishment of the Office of Tax Simplification (OTS) have not reversed the long-term trend, the scale of which has been variously estimated at doubling every ten years or multiplying 12-fold every 50.
Besides the article cited above, there are numerous studies on the length of our code. See, for example, the article by Caroline Turnbull-Hall and Richard Thomas (‘Reviewing the length of the UK tax code’, Tax Journal, 1 February 2012) and the March 2016 CPS study (at www.tinyurl.com/jzqv3rb).
Length can be measured in various ways. The OTS concluded (see www.tinyurl.com/hkemzby) (in early 2012) that the actual number of pages in the Yellow and Orange Tax Handbooks 2010/11 (ignoring blank pages at the start and end and introductory pages), was 17,795 pages; but
In any event, sheer length is not of course a perfect measure of the complexity of the system, and indeed there is more than one dimension to the concept of complexity. Indeed, the erstwhile Tax Law Rewrite Project demonstrated that some tax legislation owed its opacity to being too compressed, and to make it intelligible it was necessary to rewrite it at greater length. Nevertheless, few would dispute that these statistics give a fair enough impression of the growth in the complexity of the system.
A year before George Osborne’s statement cited above, the incoming 2010 government had indeed established the Office of Tax Simplification, which has done sterling work in addressing many significant aspects of the complexity of the system, and proposing worthwhile reforms, some of which have been adopted. However, as the figures show, the impact of this work has been dwarfed by the constant creation of new complexity alongside the old. Successive governments have ramped up the commitment to consult on tax law changes: firstly on the general direction of new proposals; secondly at the stage that the options are clearly narrowed down and choices made; and thirdly when there is draft legislation. Much improvement has come as a result, and the volume of consultative activity is enormous. Yet one feels that the commitment to the first stage of the consultation process is ignored, more often than not. The major cause is the role of the Budget (and in substantially similar autumn events which made this a twice, and in an election year maybe thrice, annual pantomime which is the crowning glory of Britain’s ‘elective dictatorship’ constitution, the endlessly repeating appearance of yet another rabbit from the chancellor’s hat). At least now Philip Hammond has announced a plan to return to having just one major fiscal even a year.
One reason given for complexity is avoidance. Other countries, of course, suffer from tax avoidance. Now that the courts adopt a more purposive approach to interpreting legislation, and striking down ‘schemes’, it seems less necessary for the legislature to envisage every possibility and write something down about it. Where, increasingly exceptionally, the courts fail to strike down apparent avoidance schemes, it is typically because the legislation imposes multiple detailed tests (which the scheme has met) without clearly exhibiting any underlying principle of the sort that HMRC try to show in condemning the scheme and trying to have it struck down.
In turn, many avoidance schemes in their heyday were based on anti-avoidance legislation, or at least on the excessive detail of the legislation. When avoidance does challenge the structure of a tax system, the most elegant response is to consider fundamentally the source of the arbitrage opportunity and seek to remove it, as happened in the 1990s with arbitrages based on the UK’s archaic taxation of much interest and similar income on a cash receipts basis.
But since the 2004 DOTAS rules, the ability to respond quickly, scheme by scheme, to avoidance, and increasingly since then the political difficulty for any opposition of being seen (by challenging such legislation) to be half-hearted or ambiguous in condemning it, have conspired to make the process of new legislation virtually immune from effective scrutiny (other than by convincing HMRC and through them ministers of glaring deficiencies in the third stage of the consultation process). So paradoxically, while the policy intent behind structural features of the tax system have to some degree become more reflective of wide-ranging principles – all salaries, bonuses, and benefits taxed to income tax; corporate profits taxed on a basis more consistent with accounting treatment, with more limited and better defined exceptions – the expression of these principles in law has got ever more complex and unwieldy.
The appeals by the authorities for taxpayers and advisers to follow ‘the spirit of the law’ can in part be seen as a plea to treat the actual legislation as an arcane, nostalgic and decorative afterthought to the real work of collecting the sums predicted in the Red and Blue Books while managing the expectations of the taxpayers to believe that they are being taxed as Parliament intended and to satisfy themselves with enjoying an acceptable ‘customer experience’. If this succeeds, the people will arguably be following the government and Parliament as one has the feeling that tax legislation has been treated as something of an afterthought to the real work of devising the digital systems used to collect the sums predicted – designing the software first, then writing the legislation to fit the software. As long ago as 2001, the Tax Credits Bill went through the Commons in one form, then was re-introduced in the Lords in an entirely different form – the differences, one suspects, being to do with the incompatibility of the Commons version with the systems devised to handle the system.
HMRC has been subject to spending cuts, not just since the dawn of austerity, but to efficiency reviews dating from the Gordon Brown era and to its creation from the two previous tax authorities.
Its apparent task in collecting unprecedented volumes of tax with increasingly constrained resources – and a system whose complexity seems likely to be without parallel anywhere in time and space (except, if we are realistic, in its own future) – is a daunting one. Any sensible strategy would cherish and seek to nourish the compliant nature of the taxpaying public. What is the plan?
The core answer is ‘digitalisation’. Sensibly enough, the potential of new technology will be harnessed to the task. The annual tax return will disappear. Information (typically already collected from sources such as employers, pension providers and other financial institutions) will be captured and used consistently and taxpayers only required to input the balance. They will do this through digitalised tax accounts, more in real time, with the potential for unifying their tax payment arrangements across the taxes. Few would dispute the sense of moving in this direction.
The changes are exciting controversy, for several reasons. I will pick on two.
Currently, most businesses need at least some support from agents in meeting their compliance obligations and initially at least, there were some mixed signals about the extent to which the authorities saw this persisting or would accommodate it in the technology – the messages are now much more accommodating but many practical questions remain.
Secondly, the government’s vision seems to require that the digitalised tax accounts flow from and into the digitalised underlying records of the business itself, entailing a major transformation in how many such businesses are managed. Most initiatives in cultural and technological change of this nature proceed in stages with larger, abler and/or more enthusiastic participants coming on board first, to help iron out the glitches, before a proven product is rolled out to and perhaps imposed on the rest. However, the initiative seems to have been captured to some degree by the tax gap police within HMRC who see an opportunity to force smaller and medium-sized businesses to provide information (of a yet unspecified nature) quarterly or anyway more regularly so that they are obliged to keep better records: bad record keeping by such businesses being in HMRC’s estimation a major cause of the tax gap. This is causing concern in some quarters, particularly as the whole initiative entails that with HMRC’s ongoing administrative resources depleted, the vast majority of taxpayers will ‘self-help’, with only generic guidance from HMRC and input from their own advisers (coming of course with a price tag, and with the advisers themselves having in most cases less regular ability to enter dialogue with HMRC), and they will have to do this in the context of the longest and most complex tax code yet devised by humanity, with limited and largely token plans to address this.
This seems misguided. The big picture is surely that we are a very tax-compliant nation and we should seek to build on that, and prepare the ground for digitalisation, firstly by following the more phased approach to rollout described above and secondly by aggressively simplifying the underlying rules so that they can better be understood by the people. Unfortunately, the risk is that the tax law (which we have already seen is in danger of being reduced to a decorative afterthought to the real administratively defined and delivered requirement) will be reduced further to this token status, becoming the tax equivalent of the electronic terms and conditions which you have to click to affirm your pretence to have read when buying things on the Internet.
As regards the tax gap, as we have seen, probably the most intractable element of it is the ‘pay in cash’ culture, where official and public morality have got out of sync. In another public policy area where this has happened – marginal speeding on the roads – the reaction of the authorities is more enlightened. Those caught with evidence of criminal behaviour are invited to divert the fines they would otherwise pay (and escape the loss of ‘points’ on their licence) by going on a ‘speed awareness course’. Why not ‘tax awareness courses’ to explain the cost to the country’s public spending programmes of tax-evading behaviour, and also to explain the relatively civilised process of escalation of penalties and the like? As people seem currently transfixed with fear of contact with HMRC when they think they might be in some form of non-compliance, they react by thinking it safer to ignore the whole issue.
Without this, it is to be hoped that digitalisation, however handled, will bring the success and efficiencies that are sought. There is a risk though, of a perfect storm developing under which smaller and medium-sized businesses and their agents will feel burdened with additional reporting requirements, imposed upon to change their business practices, ignored when they try to contact the authorities to discuss genuine uncertainties, penalised without facility to give reasonable explanations, publicly accused of avoidance and evasion to legitimise this treatment, and resentful at the contrast with the reported treatment of multinationals who (accurately or not), are believed to get special ‘deals’ and who certainly have more ability to have a meaningful discussion with the authorities.
