For the tax system to operate effectively and efficiently there must be mutual trust between taxpayers, the tax profession and HMRC. In the author's view, that trust has been dented, but moving to a ‘healthy tension’ between tax practitioners and HMRC could help restore trust. To achieve this, there needs to be a fundamental review of the HMRC governance arrangements. Genuine consultation with the profession, such as that on ADR, has been proved to work well and should be a model for future work on other consultations. Concerns remain regarding the HMRC tax agent strategy, the impact of HMRC powers, further cuts to HMRC staffing, and the rush to go live with the Single Compliance Process in 2012. The HMRC service levels initiative is encouraging but there is more to do in 2012.
The UK tax system depends hugely on taxpayers complying with their obligations. For the tax system to operate effectively and efficiently there must be mutual trust between taxpayers, the tax profession and HMRC. It seems that trust has been severely dented. To improve things we need to make sure there is a proper balance between taxpayers, businesses and the tax profession on the one hand and the tax authority on the other. It is inevitable that the authority can be aggressive, and be endowed with overbearing powers – but these must be reserved for those who deliberately get things wrong. When these relationships which impact upon citizen, tax agents and HMRC go wrong the system is imperilled.
It is possible to restore that trust, but first there is a need to start a shift back to that ‘healthy tension’ between tax practitioners and HMRC.
Good governance is critical to restoring trust
HMRC must recognise that its governance is widely perceived as deficient. Hence there needs to be a fundamental review of the governance arrangements, not simply surrounding tax disputes but of the whole of HMRC. This is critical to start the process of regaining public trust; the most important element of trust being that taxpaying citizens having confidence in their tax authority.
A clear governance structure is the first step to a better public understanding. The main board of HMRC comprises nine members including a non- executive chairman and four non-executives. The non-executives are non-tax people. Operational tax experience for some of the non-executives of HMRC is essential. Having a number of non- executive tax experienced people on the main board would strengthen the governance.
There needs to be a balance on the board with business experience at chairman level but plenty of ‘deep’ tax knowledge elsewhere on the board. A non-tax CEO is likely to be a disappointment, but a COO non-tax ‘systems’ person would probably work well. The conflict of interest argument for appointing non-executive tax experienced people to the board is no justification nowadays not to appoint. If the will is there, a way can be found to address that issue.
Operational tax experience is equally essential on the HMRC Executive Committee (Ex-Com), being the decision-making body immediately below the main board and consisting of full-time HMRC executive directors. Insufficient ‘deep’ operational tax experience at this level has almost certainly resulted in poor decisions or communications leading to bad press comment. These difficulties may have been avoided by seeking external input. This could be supported by a couple of non-executive tax advisers to advise and strengthen the Ex-Com board. Some external appointment should provide balance and proper independent input to the decision-making process.
Genuine consultation really works
There is no doubt that consultation is vital to trust and efficiency in the tax system. The new Tax Policy Making document recognises this. While there has been significant improvement in some areas, it still sometimes appears that the decision has already been made by HMRC or HMT for example possibly on the 10% IHT rate leaving consultation merely on peripheral matters; that is not something which should be considered as proper consultation. If decisions have already been made, then please let us know so we do not waste time. The CIOT and other bodies put in a considerable amount of expertise and time into formulating a sensible and balanced response and it is exasperating when the combined efforts of experts are simply wasted.
Short response deadlines too are quite ridiculous on occasions, as is the sheer volume of change and hence consultations, which has grown enormously over the last few years. We do want to be consulted but is this really the best way to continue to seek the considerable input of expertise? For example, could HMRC/HM Treasury help by telling us where to focus our efforts? By following the Tax Policy Making procedures we are likely to avoid the problems.
One example of a consultation during 2011 that worked particularly well was the Alternative Dispute Resolution (ADR); all sides worked together and the pilot was extraordinarily well run. The HMRC personnel involved with this project are to be congratulated for their approach. The consultation comprised a considered piece of work and the ongoing pilot seems to be going well. This is the right approach to consultation and should be a model for future work on other consultations. Such an honest and fresh way of working is essential and could be very worthwhile.
HMRC and tax agents
I have major concerns about the HMRC tax agent strategy. The consultation worked well and we benefited from a huge involvement from CIOT and ATT members. We need to keep this involvement up: I cannot emphasise how important it will be for all tax agents to read, consider and comment on the next round of consultation in this critical area of future working. It is clear that there are major concerns around ‘self-serve’, IT security and the agent view. The ‘agent view’ could be a rather involved way to identify a few ‘bad apples’; we must ensure that HMRC does not evolve into a cross between an Orwellian ‘big brother’ and MI5.
The relationship between HMRC, tax agents and their clients is at serious risk of changing irrevocably. I know as an agent I have a responsibility towards the integrity of the tax system, but the main responsibility is to my client and not to HMRC and we must never lose sight of this important principle.
The tax agent strategy poses fundamental questions about the role of tax agents. The HMRC response to the consultation dodges a key issue of formal qualifications. It does not see a tax qualification as a necessary or single test of competence. This is something which needs proper debate.
I accept that there are many very able ‘qualified by experience’ agents. But the role of professional bodies in maintaining professional standards seems to have been sidestepped. Independent oversight is also something which cannot be ignored. It must be a line in the sand for all the professional bodies supporting HMRC in their future work in this area.
When reading the HMRC summary of responses it is hard not to think that it is all about regulation and that ‘self-serve’ is more of a sideshow. Ask yourself, regulation by whom? Would you rather be regulated by your peers or by HMRC? Do agents understand the implications of the proposals? You have been warned!
The impact of HMRC powers is worrying
The latest example of the ever-increasing powers being given to HMRC is the ‘dishonest conduct’ legislation. I totally support HMRC tackling dishonest tax agents. I remain unconvinced that this new legislation, apart perhaps from the information power, is needed, even though it is much improved. The rights of the taxpayer are important and new powers must only be introduced where the existing law is deficient or too complex. A lack of manpower or will to use the existing criminal powers of HMRC where criminal activity is an issue should not be used to justify new oppressive legislation.
The conflation by HMRC of evasion and avoidance must stop. A recent example was the HMRC statement on 22 November 2011 in connection with the launch of the new offshore unit. The comments in the public release were unhelpful and blurred the distinction between avoidance and evasion. This is wrong. Concern has been expressed in the past about such comments coming out of HMRC.
HMRC staff and training
Tax training is something which HMRC takes seriously. Getting its staff to better understand tax administration, processes and taxpayers and to apply the law correctly must be a priority. This requires commitment from the top and should not be ignored.
It is clear that HMRC is under-staffed and under-resourced, with further significant cuts on the horizon. Is cutting HMRC staff a sensible strategic move on the part of government? Staff morale and the tax collection engine are now under considerable strain. HMRC is the UK’s ‘moneybox’ and could end up being severely damaged. Any perceived or real weakening in the tax system could have a major impact for tax administration, collection and an adverse effect on taxpayer attitudes.
Business Record Checks (BRC) and Single Compliance Process (SCP)
I am hoping for a sensible resolution to the BRC project before any damage is done to professional and client relationships. This has been a difficult experience and it would have been much better if HMRC had been upfront and consulted over its strategic objectives from the outset. Expecting the smallest business to have perfect records is quite unrealistic so I welcome the recently announced review by HMRC.
The rush to go live with the SCP in 2012 is a concern. This is far too quick, needing further time to consider the impact and implications of the pilot. There is no point in upsetting the entire tax agent community with rushed and ill-considered processes.
HMRC service levels initiative
The current key areas under consideration are post, tax codes, repayments and bereavement. HMRC is totally engaged with this project and are ‘seized with the issues’ which is encouraging. There is support from the highest levels within HMRC, the professional bodies and tax charities. Any slowing down in 2012 would be a massive blow to the trust that is slowly being rebuilt; though there is so much more still to do.
There are certainly challenges ahead in 2012!
The views expressed here are the author’s own and should not be attributed to CIOT policy.
Anthony Thomas, President of the Chartered Institute of Taxation
