Taxpayers, HMRC and professional advisors must work together to build trust if the tax gap is to be narrowed. said Loughlin Hickey, global managing partner with KPMG at the tax faculty Hardman Memorial Lecture last week.

In his lecture, entitled 'If the trust gap widens, can the tax gap be narrowed', Hickey examined the trust gap between taxpayers and HMRC, and how that could be closed to produce a tax system that was both efficient, functioned as an aid to wealth creation , and was seen by all as fair and effective.

Hickey warned that the tax gap - in essence the difference between what ought to be paid by taxpayers given a certain level of economic activity versus what is collected - will widen unless there is greater trust between tax collector and taxpayer.

"I see the lack of trust in the tone of the public debate on tax avoidance and in meetings with taxpayers - increasingly suspicious of HMRC initiatives ranging from
new legislation, HMRC membership of the Joint International Tax Shelter Information Centre and the Tax on the Boardroom initiative. I see it in meetings with HMRC and treasury - frustrated with planning they see and attitudes of taxpayers and their advisors towards the problems of what they see as a funding gap and a challenge to the tax system," said Hickey.

In order to bridge the gap HMRC, taxpayers and HMRC must change behaviours, he added

On the positive side, most British taxpayers are keen to comply voluntarily with the tax system, he said, and he praised HMRC for its work on targeting the tax gap and trying to understand the reason for its existence.

Of course, avoidance can be construed in many ways - either as wholesale disapproval of the tax system, in which case a change would be parliament properly responding to the wishes of the electorate, ore the actions of a disaffected minority, in which case those individuals should be targeted hard.

Philosophical arguments aside, it is important for everyone to focus on the tax gap because governments need a sustainable revenue stream to fund spending plans, said Hickey.

He said there is genuine concern on all sides. "There is genuine concern within HMRC and government that it is unfair if the tax system is not seen as fairly shared and the tax system could be undermined if the perceived unfairness continues.

"There is genuine concerns among corporate taxpayers that complexity and uncertainty will harm the UK as a base for investment and the tax system could be undermined by increased discretionary application of the law by the tax authorities.

"There are examples of bad taxpayer behaviour and there are examples of bad tax collector behaviour. There are also examples of bad tax advisor behaviour.

He continued: "HMRC is a merger in transition". The treasury tax policy team is also relatively new, he said.

There were also political pressures to demonstrate sound public finances and competitive pressures with countries competing for international tax revenues and investments, he said

However, it is possible to move forward, he said. There needs to be a clear and inclusive strategy for tax policy, tax law and administration, open to challenge for change. Tax collectors and corporate must understand the pressures the other is under and appreciate their positions with regard to tax planning and compliance. Advisors also must set the tone for compliance and have a responsibility to signal the need for a change in regulation or environment.

How can we get there, asked Hickey. First, assumptions around the make up of the tax gap need to be fully explained and understood. Strategic policy and the consultative process should be published alongside principles and guidelines against which it can be judged.

There should also be formal business representation at the strategic level, for example by having business people as non-executives of the tax policy arm of the treasury.

There should be a voluntary code of conduct to regulate taxpayers, tax collectors and advisors, and a forum for collective tax training, he said. Finally, there should be a simultaneous drive to close both the trust and tax gap.

"It is not good enough to simply close one and then tackle the other," he concluded.