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Opinion: Where did it all go wrong?

by
9th Jan 2006
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Simon Sweetman examines the taxpayers up and down relationship with HMRC and asks - where do we go from here

Let us assume that we mostly want to see our relationships with HMRC on a better footing than they are now.

It seems to me that there was a high water mark in those relationships when Self Assessment was introduced. It was done carefully, there was a lot of material made available, and most of all the Inland Revenue went to great lengths to run seminars for agents which by common consent were well prepared and generally well delivered. Everyone recognised that there was a steep learning curve into Self Assessment and seemed to make allowances.

What has gone wrong since then? almost everything, you might think.

# The government has piled too many additional tasks onto the Inland Revenue. Child support payments, national minimum wage, NIC, student loans and tax credits have all been added in the last few years. Some of them brought their staff with them but there has been constant pressure to do it on the cheap
# Ambitious computer systems have failed to do what it said on the tin. There is nothing unusual in that: large computer systems often do not work from the off. But public systems fail publicly and there seems to have been a tendency to underestimate the resources needed time and again and an air of astonishment when the system has fallen over under pressure
# The moves to centralisation and away from the traditional district model have not been well handled, with no attempt by the Revenue to explain what is going on to its community of customers. Furthermore, past lessons do not appear to have been learned and the changes currently underway seem to be a surprise to HMRC staff as well as customers. Because of these changes existing links between agents and the Revenue have broken down. You are not likely now to have met the Inspector who is carrying out the enquiry into your client
# Call centres are not working well, with very low success rates against their targets for answering calls, and much frustration at their inability to either answer difficult questions or find someone who can
# The early approach to enforcement under Self Assessment was fairly low key. The Inland Revenue used its information powers infrequently, and it was several years in before daily penalties were invoked against those failing to put in tax returns. That has now changed and people feel they are being beaten up.
# As far as the agent community is concerned, there has been far too much legislation year on year, some of it ill-conceived (IR35, NCDR') and much of it aimed at forms of avoidance they'd never even heard of
# The inconsistent approach to small companies, offering encouragement one minute and accusing them of tax avoidance the next, has left agents baffled : and IR35 and the settlements legislation have enraged a fairly substantial category of customer who run through limited companies because the agencies they get work through demand it
# It is accepted that under Self Assessment the Inland Revenue has not had to give a reason for taking up cases for enquiry, but it has not made life easier for anyone
# The secrecy of the computerised risk assessment process used for the selection of cases for enquiry, coupled with the fact that it appears consistently to pick the wrong cases, is a further cause of frustration
# Everybody in government (or opposition for that matter) has told us frequently how wonderful small business is and how much they want to encourage it, but so far the deeds have not matched the talk
# There is a sort of competition between the larger specialist investigation firms to make the behaviour of the Inland Revenue seem as randomly ferocious as possible, because putting the fear of god into people is a good way to sign them up for your services

So the question is, have we reached bottom, and will we improve from here? Will the gallant efforts of working together succeed, and will putting small business at the heart of HMRC change things?

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Replies (14)

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Richard Murphy
By Richard Murphy
10th Jan 2006 14:12

I hate to disagree ... but
I think we have to recognise that accountants do have some responsibility for the problems that have arisen. Not all accountants, of course. But let's be realistic; aggressive tax avoidance (however you define it) became more common during this period. Most of it has been done by large firms and specialist tax boutiques. The rest of us have paid the price. It's been a high price, and there is no doubt that the Revenue could have done better. But let's not pretend that they weren't aggravated, because some in our profession went out of their way to make sure that they were.

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By User deleted
10th Jan 2006 10:37

Agree with comments
But the Revenue themselves are not entirely blameless in this process.

They have made agents rely more and more on the call centres making it sometimes impossible to speak to the relevant person who can sort the problem out wasting their time as well as that of the agent or taxpayer.

Form 42 debacle - the Revenue refused to listen to common sense certainly for over 18 months.

Their investigation policy also needs some serious looking at. How many times are smaller often unrepresented taxpayers investigated in preference to larger well-represented ones more able to defend themselves on a technical point? And often after the conclusion of such enquiries there is no attempt made to ensure that taxpayers are treated uniformly.

Also repayments - there are considerable efforts to improve collection of these - but when the boot is on the other foot it is often like pulling teeth to get a refund.

The Inland Revenue website has definitely descended into an unintelligble maze of information.

Yes there has been a lot of pressure put on the Revenue and there are still many very good people working there with a sense of proportion and good technical knowledge of which the service should be proud. But it is in the Revenue's interests to work with agents and ensure the right amount of tax is paid - whether that be sharing reasonable trader percentages or sending details of common errors on returns and accounts. It seems the Revenue have changed their policy of collecting the right amount of tax to the maximum amount of tax - whether it is really due or not. That is not acting in the public interest.

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By Nick Graves
09th Jan 2006 18:42

Dead cat bounce
Very well summarised, I agree.

You could also add the Arctic systems case - the sheer affrontery of the reprehensible methods used to force a nonsensical case in the Revenue's favour was dispicable.

With the continuing changes being imposed from above and the infighting between Customs & Revenue, I can only see organisational collapse being the way forward.

Things will only get worse, before they get better. It will be mayhem, before "Tax Cheats" Primarolo rolls.

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By AnonymousUser
09th Jan 2006 19:22

Agreement
Unreserved agreement (there's a first).

Although I think self-assessment was a major step forward, that's where it stopped.
The whole process of how Government spending is financed needs to be altered.
All taxes need to be abolished and we go back to the drawing board.
The EU has to be re-hashed or aborted in favour of something like the old free trade agreements. Why do we need umpteen Euro MP's??? For what purpose?????
What does a business, or family come to that, do when things aren't working. Back to basics!!!!!!! Now where have I heard that before!!!!!!!!!!!!!
We have swopped common sense and flexibility for compliance and rigidity. Stagnation has to follow. Happy days!!!!!!!!!!!

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By AnonymousUser
10th Jan 2006 10:37

I am NOT a customer
Agree .. a very good article, but with 1 reservation. I am not, have never been and never will be a customer of HMRC. ‘Customer’ infers that I have some choice in the relationship which obviously I do not. I am a taxpayer.. its as pure and simple as that.

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By hedleyg
10th Jan 2006 20:16

The problem is more about desperation for tax, and forgetting th
It seems to me that a vast amount of tax is being collected, and is not being spent totally and exclusively for the benefit of the public. An increase in the headline rate of tax is politically unacceptable. We have had stealth taxes, taxation by non-compliance fines, taxation by the addition of time-wasting and costly bureaucracy, and future taxation by the unrestrained government borrowing. At the same time targets have been substituted for services – another form of tax.
The rules of good governance were known long ago. The famous Adam Smith quote, “taxation should not obstruct the industry of the people” has been forgotton.
Then we had IR35. What could you do?
As I am now 58 years old, like so many experienced people in this age group, the best option was to fully comply with IR35, but work less than 6 months per year. Other people buried their heads in the sand, ignored the rules, and to date appear to have got away with it. Others, paid for an employment status review from their accountants, who gave the written answer required.
In answer to Nick Graves, you can cancel your subscription – this is called early retirement – my Company was closed last year.
What for the future? Just as S660a wrong-footed many accountancy firms, the next attack will come from the McEwan v Martin (Inspector of taxes) decision from the Chancery Division (published July 1st 2005). This was basically a case concerning an incorrect calculation of GCT by an accountant. The Inspector claimed the 'right of assumption' that the accountant had made the correct calculation to argue that he could go back more than the statutary six years to 1986/7 in the case of an error. IR35 status reviews take on a whole new meaning.

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Dennis Howlett
By dahowlett
11th Jan 2006 00:27

Is there not a case...
Just as Richard Murphy has campaigned for fair taxation and is now considered a top 50 influencer, I'm wondering whether there is a case for funding an independent, academic body that could examine the status quo and report to all sides. It might be one way to bridge an ever widening chasm between government and professionals.

That way, neither 'side' could say it was biased. I'm not thinking judicial review as that's not appropriate at this stage but a short study.

This need not be complex, convoluted or especially detailed but something that outlines the realities.

It may sound naive, but someone has to make a start somewhere or I can see whatever goodwill is left between professionals and government being eroded to the point where a maverick may very publicly say 'no more.'

Simon's exposition of key events could well be seen as a worthy starting point - especially given the overwhelming support expressed in these comments.

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By User deleted
09th Jan 2006 12:58

Can a leopard Change its Spots
I do personally hope (My Christmas Wish) that HMRC or the Inland Revenue get a grip and put their own house in order before legislating those funny and ill thought off ideas about small entities. It is like a Punch and Judy Show within Revenue with inexperience people coding up tax returns and often making mistakes and with inexperienced and low calibre officers deciding and making ill conceived ideas. What they have forgotten is that no 2 people's habit are the same. One may like lavishing out their monies when they have them and the other storing for the rainy days. I have come accross one low calibre inspector quoting that bad debts are not allowable even evident with liquidation papers and the other saying that new car tyres and car batteries are capital expenditure therefore tax is not allowable. Short trips of 3 days to a foreign is counted as holidays and not business.

What more can you say? GET A GRIP

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Dennis Howlett
By dahowlett
09th Jan 2006 13:27

110% with you Simon
Simon makes a clear set of excellent points. Speaking to the IT issues, my belief is that government has failed to understand that outsourcing just about everything may be a great cost saver in the long run but it requires the retention of expertise in managing the contractual relationships that deliver (or not) the systems requirements for public sector.

That has not happened.

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By Rachel Battersby
10th Jan 2006 17:37

I agree there were some very artificial schemes out there
Richard,
I see your point but I don't think the Revenue can justify their failings as just the extra burden this Government has undoubtedly & unreasonably put on them, or the IT failures (which I do try to be patient with them for - I think the IT desk do a very good job on the whole) or the aggressive tax planning by a small minority of advisers. (And I'm not trying to make a political point there as I think I'd conclude all the parties seem pretty incompetent - but perhaps if there was better consultation there would have been fewer problems). If the Revenue has a problem with advisers it has many powers to deal with those - even getting changes in law passed in the Finance Act which it has done. No I don't buy that the failing relationship is primarily the profession's fault. The Revenue dealt with a tax scheme problem it should not continue to bear a grudge - mainly against innocent taxpayers and advisers. It's the everyday routine things that are failing and causing the real headaches such as call centres and no taking responsibility for getting a job done not the now disclosable tax planning schemes.

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By listerramjet
11th Jan 2006 09:01

Hi Dennis
Your point may be naive but it won't fly because it is far too sensible and pragmatic. If we are lucky we may end up with a 2 billion word white paper - Government works in mysterious ways its wonders to perform.

8 ayes and 1 noes - who is Richard influencing? Perhaps it is a shame, but it is Simon who is the voice of reason here. In any case the list in the Age includes David Tweedie, Gordon Brown and Eric Anstee - perhaps they need a new dictionary?

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By AnonymousUser
11th Jan 2006 10:16

Down down doobie doobie down down
No - we haven't reached rock bottom yet.

With the Chanceller's economic forecasts awry, and the black hole in his budgets

THERE WILL BE MORE PAIN TO COME

So watch for the squeeze on small businesses on the grounds that since small business owners 'mostly vote conservative' the government won't lose too many votes from it.

Which would ignore the impact we have on the the economy as a whole...

But hey! What can you expect from a government that taxes pension funds, then wonders why
(1) we have a pensions crisis
(2) we don't see the capital growth in the economy that used to come from that extra money needing to be invested
(3) ohhhhhhh - is it time to become an ex-pat??? somewhere with sun, good food and low taxes

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By Nick Graves
10th Jan 2006 12:23

Customers of the Revenue
What a good point!

I wish to cancel my subscription and make my returns to the Estonian tax office instead - 20% flat tax seems a better deal.

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By Taxi
12th Jan 2006 09:31

I do not think that Gordon Brown has helped here. He
is " a meddler", introducing rules and relief and credits in the name of "reform", and so of course we have got into the chaos to which Simon refers. He is backed by a Paymaster General, who many people still refer to as being "thick", and the pair are so totally obsessed with tax-avoidance that they seem to have lost the plot.

HMRC have had lots of interdepartmental shuffling, changes in personel, and how can we forget the merger with Customs. Two departments who had some very different working practices now puched together. It is not going to be easy.

We need leadership from the top, a more relaxed Chancellor, who to start with could recognise that the risks of running a business must be compensated for with rewards.


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