Three quarters of tax experts responding to a Tax Journal survey believe that HMRC budget cuts announced at the spending review are likely to be counter-productive. Only 24% of the 233 respondents to date who answered the key question indicated support for George Osborne’s decision.
More than a third believe the budget should be maintained or increased, but reports suggest that a further 13,000 jobs will be lost by 2015.
The findings reflect concerns voiced by union leaders and tax professionals following the Chancellor’s announcement on 20 October. The Association of Revenue and Customs said its fears that £900 million of new investment in HMRC would be funded by larger cuts elsewhere had been realised. HMRC is to cut its resource spending by 15% and capital spending by 44%.
Thirty-eight per cent of respondents said HMRC’s budget should be maintained or increased in order to bolster efforts to increase tax compliance and improve HMRC services. The other 38% said the HMRC budget should be cut, but the scale of the proposed cuts is excessive and there is a significant risk that performance and service standards will be adversely affected.
Tackling evasion
RSM Tenon said HMRC’s recent tax disclosure campaigns had been ‘resource efficient’, and the firm expected more campaigns to follow. ‘However, a fairer way to deal with non-disclosure would be to offer a tax window so everyone is able to benefit from an amnesty rather than limit it to specific groups,’ it said.
A recent survey of 390 entrepreneurs carried out by RSM Tenon found that 91% of entrepreneurs believe that additional resource should be put into combating tax evasion. Almost half of business owners would like HMRC to enter into more agreements with overseas jurisdictions aimed at reducing offshore tax evasion, the firm said. Just over a fifth of entrepreneurs support more sector-focused campaigns.
Firefighters
‘What do you need to close the tax gap? Experienced and well trained people, that's what,’ said Simon Sweetman, a tax investigations specialist, who attended a local Working Together meeting on the day of the spending review. ‘We went through the usual list of complaints,’ he said.
Writing in AccountingWeb, Sweetman claimed that HMRC contact centres ‘are almost impossible for unrepresented taxpayers to reach by phone’, HMRC is ‘rushing staff from one job to another as bits of the fire threatening to get out of control’, and there had been an ‘extensive de-skilling of the workforce from the Board downwards’.
He added: ‘Now, it appears, HMRC will make a 25% cut by swapping people for more computers. Well, pardon me, but that seems to have been the story of the last ten years, and it may have saved some money but it has brought the organisation to its knees.’
Tax avoidance industry is ‘miles in front of HMRC’
The BBC news website reported that the Treasury’s announcement of £900 million of investment to tackle evasion and avoidance had raised uncertainty among tax advisers. It quoted Ronnie Ludwig of chartered accountants Saffery Champness as saying that many people legitimately avoid tax by making simple changes to their tax affairs. The proposal could ‘seriously affect’ the business of accountancy firms. ‘I do not know where the line is drawn on avoidance,’ he said.
But a BBC radio investigation into legal tax avoidance by some of the UK’s largest companies concluded that, for HMRC, ‘trying to collect what is due from increasingly complex companies and banks is getting harder’.
Michael Robinson investigated ‘loopholes which let big business slash their UK tax bills’ for BBC Radio’s File on 4 programme broadcast on 26 October.
Liberal Democrat Treasury spokesman Lord Oakeshott told the programme that the problem for HMRC was a growing imbalance between HMRC resources to combat avoidance and what Robinson called the ‘well-paid armies of lawyers and accountants which large companies and banks now muster to help cut their taxes’.
Oakeshott said: ‘The problem we have is that HMRC are miles behind the curve on this. It’s like a fat policeman chasing a speeding Ferrari. They really do not have the resources, or the expertise, or the time to keep up properly with the very smooth tax avoidance machine that’s running all the time in the City of London and elsewhere.’
There is no single solution, Oakeshott added. ‘I would like HMRC to concentrate on really beefing up, having much higher quality staff for dealing with large scale tax avoidance.’
The programme reported that there was a trend among larger multinationals towards collecting profit-generating activities in subsidiaries in low tax zones.
Malcolm Gammie QC, who represents taxpayers and HMRC in tax litigation, told the programme that recent case law had undercut the UK’s controlled foreign companies rules.
HMRC is now ‘more vulnerable’, he said, ‘in the sense that it’s more difficult to protect our borders against these activities’.
Gammie added: ‘When you’re looking at the European Union, the opportunity to locate and put profits in other member states is obviously significantly greater than it used to be.’
A former tax inspector, Tony Attwood, said the potential tax savings must be ‘irresistible’ to the multinationals. ‘If a multinational can decide where its profits will fall, then revenues will fall drastically in normal rate countries,’ he said. ‘The vital components that drive profit will be in a tax haven.’
Robinson said the BBC wanted to ask a Treasury minister whether it made sense, in trying to balance the nation’s books, to cut the budget of the nation’s tax gatherers. ‘No minister was available,’ he said.
‘Use skilled professionals to close the tax gap’
The Association of Revenue and Customs (ARC) represents senior HMRC officials and has claimed that HMRC is ‘among the most efficient tax agencies in the world’. It argues that raising revenue by using skilled tax professionals to close the tax gap is a ‘bolder and more radical option’ than cutting public expenditure and raising taxes to reduce the deficit.
HMRC can be made more efficient, the ARC said in its report ‘Being Bold’, published in September. But the question, the ARC argued, should not be simply one of ‘how do we save money?’ but one of ‘how can we generate more income?’ Proposals to impose further cuts on HMRC threatened to ‘increase the size of the tax gap, not reduce it’.
The ARC added: ‘It is through HMRC that the government raised £435 billion last year to fund schools, hospitals and other vital public services. But cutting staff numbers in HMRC threatens to reduce the amount of taxes and duties collected – putting further pressure on public finances. Any private organisation facing the need to repay debts would protect and enhance its main profit centre. We believe the Government should be increasing the resources of its main revenue raising department.’
The work of ARC members is highly cost effective, with the revenues recovered ranging from 30 to over 180 times salary, the union said. ‘ARC members working to counter marketed avoidance schemes generate a further £8 of tax revenue for every £1 they collect from those who have taken part in the schemes.’
Survey: respondents’ comments
Tax Journal invited comments on news of the cuts and/or on HMRC’s level of service in general. This is a small selection of the comments received so far:
‘The centralisation of the corporate tax compliance offices has resulted in a lower service and it can be extremely difficult to contact the ‘new’ office by telephone. The delay in responding to written queries, sometimes in excess of three months, adds unnecessary complications. With fewer staff the backlog of post can only increase. The HMRC staff are under constant pressure and this is counterproductive.’
‘The level of service is poor, and the blame lies squarely with Government under-investment. Staff are human, but a lot of their failings must be due to low morale.’
‘The harsh reality of how poorly the tax system is managed at grass roots level is really only seen and experienced by those in tax practice who work with HMRC on a day-to-day basis.’
‘Its hard enough to get through to anyone at HMRC at the moment that without these cuts. If all these jobs go at HMRC who will be left to answer queries and deal with our efforts to ensure that clients are paying their taxes correctly and on time etc?’
‘Any responsible adviser will welcome more attention to tax evasion.’
‘Generally improved – quality of staff variable, response times still poor, but staff more approachable and IT has transformed service.’
‘It’s all too diverse and HMRC are not at all accessible. Its impossible trying to deal with an officer on a face-to-face basis and there's no reasonable dialogue when a client has a problem. I feel sorry for the staff as they are demoralised.’
‘HMRC has always operated inefficiently. Everybody knows that all the public services are operated inefficiently compared to how they should really operate. I believe if the resources are cut they will still perform in the same way.’
‘HMRC should employ fewer but highly qualified and well paid and highly motivated individuals.’
‘On the whole, HMRC serve large businesses well but it is apparent that they are already stretched very thinly. I don't think they can cope with this level of cuts. Anyway, it's idiotic to cut staff levels, when an increase in staff would generate more tax income for the Government.’
‘At present, very patchy. The information we can access online is excellent, but we need to be able to do everything online – as we can with Companies House. Too much still seems to rely on human intervention at HMRC.’
‘Current service levels are falling with the closure of local offices and pressure on Inspectors.’
Three quarters of tax experts responding to a Tax Journal survey believe that HMRC budget cuts announced at the spending review are likely to be counter-productive. Only 24% of the 233 respondents to date who answered the key question indicated support for George Osborne’s decision.
More than a third believe the budget should be maintained or increased, but reports suggest that a further 13,000 jobs will be lost by 2015.
The findings reflect concerns voiced by union leaders and tax professionals following the Chancellor’s announcement on 20 October. The Association of Revenue and Customs said its fears that £900 million of new investment in HMRC would be funded by larger cuts elsewhere had been realised. HMRC is to cut its resource spending by 15% and capital spending by 44%.
Thirty-eight per cent of respondents said HMRC’s budget should be maintained or increased in order to bolster efforts to increase tax compliance and improve HMRC services. The other 38% said the HMRC budget should be cut, but the scale of the proposed cuts is excessive and there is a significant risk that performance and service standards will be adversely affected.
Tackling evasion
RSM Tenon said HMRC’s recent tax disclosure campaigns had been ‘resource efficient’, and the firm expected more campaigns to follow. ‘However, a fairer way to deal with non-disclosure would be to offer a tax window so everyone is able to benefit from an amnesty rather than limit it to specific groups,’ it said.
A recent survey of 390 entrepreneurs carried out by RSM Tenon found that 91% of entrepreneurs believe that additional resource should be put into combating tax evasion. Almost half of business owners would like HMRC to enter into more agreements with overseas jurisdictions aimed at reducing offshore tax evasion, the firm said. Just over a fifth of entrepreneurs support more sector-focused campaigns.
Firefighters
‘What do you need to close the tax gap? Experienced and well trained people, that's what,’ said Simon Sweetman, a tax investigations specialist, who attended a local Working Together meeting on the day of the spending review. ‘We went through the usual list of complaints,’ he said.
Writing in AccountingWeb, Sweetman claimed that HMRC contact centres ‘are almost impossible for unrepresented taxpayers to reach by phone’, HMRC is ‘rushing staff from one job to another as bits of the fire threatening to get out of control’, and there had been an ‘extensive de-skilling of the workforce from the Board downwards’.
He added: ‘Now, it appears, HMRC will make a 25% cut by swapping people for more computers. Well, pardon me, but that seems to have been the story of the last ten years, and it may have saved some money but it has brought the organisation to its knees.’
Tax avoidance industry is ‘miles in front of HMRC’
The BBC news website reported that the Treasury’s announcement of £900 million of investment to tackle evasion and avoidance had raised uncertainty among tax advisers. It quoted Ronnie Ludwig of chartered accountants Saffery Champness as saying that many people legitimately avoid tax by making simple changes to their tax affairs. The proposal could ‘seriously affect’ the business of accountancy firms. ‘I do not know where the line is drawn on avoidance,’ he said.
But a BBC radio investigation into legal tax avoidance by some of the UK’s largest companies concluded that, for HMRC, ‘trying to collect what is due from increasingly complex companies and banks is getting harder’.
Michael Robinson investigated ‘loopholes which let big business slash their UK tax bills’ for BBC Radio’s File on 4 programme broadcast on 26 October.
Liberal Democrat Treasury spokesman Lord Oakeshott told the programme that the problem for HMRC was a growing imbalance between HMRC resources to combat avoidance and what Robinson called the ‘well-paid armies of lawyers and accountants which large companies and banks now muster to help cut their taxes’.
Oakeshott said: ‘The problem we have is that HMRC are miles behind the curve on this. It’s like a fat policeman chasing a speeding Ferrari. They really do not have the resources, or the expertise, or the time to keep up properly with the very smooth tax avoidance machine that’s running all the time in the City of London and elsewhere.’
There is no single solution, Oakeshott added. ‘I would like HMRC to concentrate on really beefing up, having much higher quality staff for dealing with large scale tax avoidance.’
The programme reported that there was a trend among larger multinationals towards collecting profit-generating activities in subsidiaries in low tax zones.
Malcolm Gammie QC, who represents taxpayers and HMRC in tax litigation, told the programme that recent case law had undercut the UK’s controlled foreign companies rules.
HMRC is now ‘more vulnerable’, he said, ‘in the sense that it’s more difficult to protect our borders against these activities’.
Gammie added: ‘When you’re looking at the European Union, the opportunity to locate and put profits in other member states is obviously significantly greater than it used to be.’
A former tax inspector, Tony Attwood, said the potential tax savings must be ‘irresistible’ to the multinationals. ‘If a multinational can decide where its profits will fall, then revenues will fall drastically in normal rate countries,’ he said. ‘The vital components that drive profit will be in a tax haven.’
Robinson said the BBC wanted to ask a Treasury minister whether it made sense, in trying to balance the nation’s books, to cut the budget of the nation’s tax gatherers. ‘No minister was available,’ he said.
‘Use skilled professionals to close the tax gap’
The Association of Revenue and Customs (ARC) represents senior HMRC officials and has claimed that HMRC is ‘among the most efficient tax agencies in the world’. It argues that raising revenue by using skilled tax professionals to close the tax gap is a ‘bolder and more radical option’ than cutting public expenditure and raising taxes to reduce the deficit.
HMRC can be made more efficient, the ARC said in its report ‘Being Bold’, published in September. But the question, the ARC argued, should not be simply one of ‘how do we save money?’ but one of ‘how can we generate more income?’ Proposals to impose further cuts on HMRC threatened to ‘increase the size of the tax gap, not reduce it’.
The ARC added: ‘It is through HMRC that the government raised £435 billion last year to fund schools, hospitals and other vital public services. But cutting staff numbers in HMRC threatens to reduce the amount of taxes and duties collected – putting further pressure on public finances. Any private organisation facing the need to repay debts would protect and enhance its main profit centre. We believe the Government should be increasing the resources of its main revenue raising department.’
The work of ARC members is highly cost effective, with the revenues recovered ranging from 30 to over 180 times salary, the union said. ‘ARC members working to counter marketed avoidance schemes generate a further £8 of tax revenue for every £1 they collect from those who have taken part in the schemes.’
Survey: respondents’ comments
Tax Journal invited comments on news of the cuts and/or on HMRC’s level of service in general. This is a small selection of the comments received so far:
‘The centralisation of the corporate tax compliance offices has resulted in a lower service and it can be extremely difficult to contact the ‘new’ office by telephone. The delay in responding to written queries, sometimes in excess of three months, adds unnecessary complications. With fewer staff the backlog of post can only increase. The HMRC staff are under constant pressure and this is counterproductive.’
‘The level of service is poor, and the blame lies squarely with Government under-investment. Staff are human, but a lot of their failings must be due to low morale.’
‘The harsh reality of how poorly the tax system is managed at grass roots level is really only seen and experienced by those in tax practice who work with HMRC on a day-to-day basis.’
‘Its hard enough to get through to anyone at HMRC at the moment that without these cuts. If all these jobs go at HMRC who will be left to answer queries and deal with our efforts to ensure that clients are paying their taxes correctly and on time etc?’
‘Any responsible adviser will welcome more attention to tax evasion.’
‘Generally improved – quality of staff variable, response times still poor, but staff more approachable and IT has transformed service.’
‘It’s all too diverse and HMRC are not at all accessible. Its impossible trying to deal with an officer on a face-to-face basis and there's no reasonable dialogue when a client has a problem. I feel sorry for the staff as they are demoralised.’
‘HMRC has always operated inefficiently. Everybody knows that all the public services are operated inefficiently compared to how they should really operate. I believe if the resources are cut they will still perform in the same way.’
‘HMRC should employ fewer but highly qualified and well paid and highly motivated individuals.’
‘On the whole, HMRC serve large businesses well but it is apparent that they are already stretched very thinly. I don't think they can cope with this level of cuts. Anyway, it's idiotic to cut staff levels, when an increase in staff would generate more tax income for the Government.’
‘At present, very patchy. The information we can access online is excellent, but we need to be able to do everything online – as we can with Companies House. Too much still seems to rely on human intervention at HMRC.’
‘Current service levels are falling with the closure of local offices and pressure on Inspectors.’
