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Tax policy making on the cheap

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Wendy Bradley refers to earlier HMRC research into obligations placed on taxpayers, to question the depth and value of the latest OTS project on tax claims.

6th Mar 2020
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I'm a retired tax inspector and I'm reasonably familiar with what I need to do to complete my annual tax return, but it’s still a right royal pain. I'd happily pay £100 to be rid of the hassle of actually doing it at all, even though that's consistently more than the tax payment I need to make as a result.

I can understand the impulse to use a repayment agent to claim a trivial amount from HMRC for some kind of expense (say for equipment or uniforms). It's not worth the hassle for a tax refund of £15. But if someone will do the claim for you and charge you £5? You've got nothing to lose, as it's better to have two-thirds of something than 100% of nothing, which is what you have if you don’t submit a claim.

The burden of claims

The Office of Tax Simplification (OTS) has identified this issue in their latest scoping document for their review of claims and elections. They identify an excellent research question: Why is there a need to make a separate and specific claim or election to benefit from a relief at all?

However, the OTS also specifies a concern about "high volume repayment agents." It's not clear to me whether their concern is the fact that high volume repayment agents exist, or that the burden of making a claim leaves space for their existence.

The OTS scoping document and the follow-up call for evidence go on to elaborate that their review "will seek to establish the broad numbers and types of claims and elections across the main taxes in the UK" before they focus on the ones they deem to be more significant.

Earlier research

At this point, the OTS should call upon some institutional memory at HMRC. I recall that HMRC spent north of £100,000 on having a database drawn up of all the obligations imposed on the taxpayer by UK tax system, collected together as the administrative burdens database.

A firm of external consultants examined the tax legislation systematically, identify every obligation imposed on businesses, calculated the numbers of affected taxpayers and the average costs of each transaction.

It is this database which forms the underpinning of the administrative burden calculation in tax information and impact notes (TIINs) published alongside new legislation. The database was initially kept updated, at least until 2016. It was also publicly available but is now listed as a "not released" dataset.

Reinvent the wheel?

Why is the OTS asking individual taxpayers, agents and representative bodies to tell them, amongst other things:

  • What are the types of claim or election that you deal with most frequently?
  • Which claims and elections do you find the most time consuming to deal with?
  • Provide examples of any types of claim or election that you consider are particularly difficult or complex to administer.
  • Provide examples of any types of claim or election that you consider are particularly easy or simple to administer.

Research base

This is a piece of bread and butter research. Mapping the claims and elections in existence in tax legislation is something that would be worth doing, although it would be time-consuming and relatively expensive to achieve. If the OTS had a large pot of money to award to a university tax department to draw up a claims database, then asking taxpayers and tax agents which of the results are most in need of simplification would be a sensible way forward. 

However, if the tax claims are neither systematically recorded in the admin burden database (because they are claims rather than obligations) nor being systematically mapped in some current research project, then what OTS is doing is policy-making on the cheap.

Don’t start from here

The OTS should have the best dataset they can muster before they make any recommendations on tax claims. The admin burden database was an in-depth and serious review of the cost of tax-related red tape. This OTS exercise – unless there's a lot of serious research going on behind the scenes – looks like a cheap and ineffective stab at a much larger problem.

Having said that, I would nevertheless encourage you to respond to the OTS if you have experience of particular tax claims.

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By SteveHa
09th Mar 2020 08:44

It suits HMRC to have high volume repayment claim agents rather than a transparent and automatic system.

If a taxpayer is entitled to a refund of £100 and HMRC automatically make that repayment, it costs HMRC £100.

If a claim is required and prepared by an agent who charges 25% commission, voila, £25 of that £100 is suddenly converted to income, and HMRC get £5 back (obviously, this will vary according to the entity acting as agent and allowable expenses).

However, the fact of the matter is HMRC have allowed something that is not income to be converted to income that they can collect tax on.

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By Moo
09th Mar 2020 15:46

I took over a client from one of the repayment agents and was very unimpressed by the service they had provided:
They did not make it clear to the client that they were actually filing self assessment tax returns on his behalf (without getting his formal approval of the return).
As a consequence he did not appreciate that some non job related income should have been included on those returns.
The claims company appear to have put in claims for inflated travel expenses which had actually been partially refunded by the employer.
The claims company staff did not, in the main, appear to have external training or qualifications and relied on 'in-house' training, presumably geared towards inflating the claims and therefore their share.
I wonder whether, rather than focusing on types of claim the OTS would do better to focus on the types of taxpayer using these services to see how better their needs could be served. Members of the armed forces would be a good place to start.

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