NAO report 'disappoints' tax advisers
Having lit the fuse for September’s media monstering of HMRC over the PAYE reconciliation backlog, the National Audit Office released a report on Wednesday identifying weak support for advisers as a source of lost tax revenue.
The headline conclusions of the NAO’s HMRC: Engaging with Tax Agents report focused on the a higher proportion of under-declared tax among represented tax payers than those who are not represented.
“A 3% reduction in the average amount of tax under-declared by represented taxpayers could lead to over £100m extra revenue each year,” the NAO concluded.
Lack of data on individual tax agents prevents HMRC from giving performance feedback to advisers, and stops it from adopting a more flexible approach to agents with differing levels of competency. “With better use of data, HMRC could make more targeted interventions based on risk and achieve greater value for money,” the NAO said.
CIOT deputy president Anthony Thomas characterised the NAO report as a “missed opportunity” as the institute picked holes in the quoted figures. Despite their tax affairs tending to be more complicated, under-declarations from represented taxpayers made up a much lower proportion of their total tax liability, compared to figures for unrepresented taxpayers, it argued.
The CIOT added that it was “disappointed” the study relied on five-year-old data and its lack of in-depth analysis.
Thomas commented: “We see this as a missed opportunity. It would have been really useful to have had proper analysis of who are making these errors and why. We have been working with HMRC for many years on these issues; it is unfortunate that the report does not reflect this. Nor does it look at HMRC’s own error rate.
“We welcome the acknowledgement in the report that were it not for the work of good agents in ensuring clients get their tax right, the level of under-declarations could be significantly larger. Overall tax agents save the government money both by helping their clients get their tax bills right and by taking on tasks that would otherwise fall to HMRC.”
Continued...
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Agents relative accuracy is better
I have read the report which is as usual far more sensible and anodyne than the coverage, although not entirely in tune with the executive summary on which most of the non-specialist press coverage was based. The report suggests that in relative terms, represented taxpayers are more accurate:
I draw your attention to the following excerpts from the full report:
The average under‑declaration on tax returns filed by represented taxpayers is £900, around 15 per cent of total liabilities on these returns, compared with around £350 for unrepresented taxpayers, around 35-40 per cent of total liabilities on these returns. The analysis indicates that represented taxpayers are not without risk despite the professional help they receive, and that tax agents may need more support to help their clients get their tax right.
The analysis indicates that tax returns from represented taxpayers do have substantial levels of under-declarations even when the size of the total liabilities are taken into account, but that the level of under-declared liabilities on returns from unrepresented taxpayers is greater still.
Self-employed taxpayers and partnerships filed a larger proportion of returns with under-declared liabilities
Statistics, statistics
Yes, the percentage of tax under declared is smaller for represented taxpayers, but I am mortified to see that 38% of self assessment returns filed by firms other than the top 100 under declared the tax due. This compares badly to 26% for the unrepresented taxpayer, and we have years of training and experience. Even the "top 100" only just do better than the unrepresented.
Even if our clients' affairs are more complex I still think this is a dreadful statistic. Filling in a tax return isn't rocket science! Yes, some of our clients don't tell us everything, but 38% underpaying is just not acceptable. Are these incompetent, fraudulent or just chancers? I would have thought a 10% error rate (over and under together) would be setting the bar quite low?
Or is it just that we push the boundaries with expenses (in our clients' interests) - and does that mean we need to rethink?
Statistics again?
I was surprised by the 38% too and wouldn't like to come across as complacent. However, the 38 % is the figure for the sample not the population and it's really hard to say what the sample says about the population as a whole .
This is almost a classic case study which shows the consequences if the ground conditions for statistical analysis aren't met :
- The sampling isn't random because non random aspect enquiries make up most of it .
- The population isn't made up of like items -you would need to do a segmented analysis between different taxpayer types (e.g. employed v self employed) .
As a result, we don't know for example whether the higher error rate for small firms is a finding in its own right or just a knock on effect of the higher error rate for the self employed who are largely dealt with by smaller firms -as NAO itself points out.
John Yudkin explains this much better than me but happy to discuss further if I haven't bored you rigid already.
Radom enquiries only
Naomi, I do agree that the statistical methods are not rigorous - segmented samples would have been a much better approach, but then proper analysis of the findings would have been even better, but I will add one thing. The 5,000 cases studied were all random enquiries, not aspect enquiries, so the population of the original sample should be OK as fully randomised - provided one accepts that HMRC's computer can properly generate random numbers. (Bit of an assumption but I'll go with it)
Not the only angle
You seem to have missed, or neglected, another angle on the report. I'm sure this was an oversight rather than an attempt to gloss over some, potentially, inconvenient findings. HMRC certainly aren't the only people coming in for closer scrutiny in the report.
Outrage from tax advisers over NAO report
Public sector auditors are at loggerheads with tax advisers after releasing a report claiming more people under-declared their tax bills after receiving advice from "agents" compared to those who fill in self-assessment forms by themselves.
The report, compiled by the National Audit Office, estimated that a minimum of £2.6bn could be lost by the Exchequer because of underpayments by people advised by a tax adviser and suggested the maximum loss could run as high as £10.5bn.
http://www.accountancyage.com/accountancyage/news/2271417/advisers-outraged-nao-report
Tax advisers and the NAO: What the papers say
The world of tax is once again in the headlines and this time it's the advisers who are under the cosh.
The NAO drew up some recommendations for HMRC - still smarting from criticism after the PAYE scandal - to work better with tax advisers, but ended up putting the boot in to the profession.
http://www.accountancyage.com/accountancyage/news/2271431/tax-advisers-nao-papers-say