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The leaky boat of tax compliance

22nd Mar 2019
Water filled boat on calm water
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Wendy Bradley reviews HMRC’s policy paper, Tackling tax avoidance, evasion and other forms of non-compliance, and separates fact from fiction. 

What is the SPR?

The policy paper introduces us to HMRC's new tool: Strategic Picture of Risk (SPR), which is described as "the department’s top-level assessment of the compliance risks that HMRC faces, driven by data, analytics and business insight." Apparently, the SPR and the department's tax gap analysis are the twin pillars of HMRC's understanding of the "drivers" of non-compliance, but I'm still none the wiser.

The description of SPR as made up of "visual and analytic products across HMRC’s customer types, tax regimes and customer behaviours" brings back bad memories of my days in HMRC. I recall being pressed to think of something numerical about impact assessments that could produce a sexy-looking graph to put on the wall of an office for a meeting around our "dashboard" of achievements. If the SPR isn't just a rehash of this "dashboard" concept but something innovative and of real use in decision making, perhaps it ought to be published like the tax gap analysis? 

MTD will solve carelessness

The paper repeats assertions that MTD will drive out the scourge of "carelessness" by taxpayers, but I’m not convinced. As many tax experts have pointed out in discussions around MTD, it is at least as likely that people are careless over their expenses rather than their receipts, and it is therefore as likely that MTD will reduce taxable profits as increase them. HMRC's mind is made up on this, but it will be interesting to see if the mood music changes once the first MTD results start to come in later this year.

Divide and rule

The paper highlights HMRC's segmentation of its customer base without connecting it to the report required by FA 2019 ss 92,93 on the anti-avoidance measures in that Act (in Annex B) or its equality performance.

HMRC segments taxpayers according to the size of their business. As a result, larger businesses get a dedicated customer manager but smaller ones don't. But HMRC seems to have overlooked that size of business is not a protected characteristic under the equality legislation.

Has HMRC spent a similar effort on segmenting taxpayers according to protected characteristics and examined whether compliance weighs more heavily on (say) different age groups? The paper is silent on this point.

Data or people?

There is a great deal of pride expressed in HMRC's use of data. I can only applaud the theory, but I remain mildly sceptical about how this works in practice. In a shrinking department, does any amount of data replace boots on the ground? What is the point of knowing where profits might be disappearing if you don't have the staff to pursue them?

The answer to this is more money. Apparently, HMRC has another £2bn to spend made up of; £900m from the 2010 spending review, £800m from the summer budget in 2015, and £155m from 2017. Unfortunately, this is not new money on top of the original spend on HMRC in 2010 but represents a slower rate of cut than other departments. It amounts to quietly taking away with the right hand but giving some headline-chasing amounts back for specific compliance purposes with the left.

Conclusion

On the whole, it is perhaps useful to have this overview of the tax compliance environment over the past nine years but it seems ill-advised to put front and centre a boast of bringing in 21 new compliance measures at Budget 2018 and over 140 in the period since 2010. Those measures are carefully listed in Annex A of the policy document and make for interesting reading.

Overall it feels a bit like taking credit for baling a leaky boat 100 times while only throwing 20% of your sailors overboard. A more rational response might have been to fix the actual boat. But – not to strain the analogy too far – the "boat" of tax legislation has always been a hybrid, and it's hard to rebuild it while you're actually sailing in it.

Replies (10)

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By ireallyshouldknowthisbut
22nd Mar 2019 10:21

MTD will solve carelessness?

Given HMRC now class each and every mistake taxpayers make as "careless", whether it be computational, omission, or simply not understanding the tax rules, this seems such a stretch as to undermine any small credibility in the authors of the report might have.

Id be interested to know how much of the 'careless' total represents data supplied through existing digital systems which are MTD compliant.

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chips_at_mattersey
By Les Howard
22nd Mar 2019 15:28

MTD solve carelessness?
No!
I uploaded a car park ticket. The software automatically posted it to Xero. But it used the time of arrival as the value, so massively over-claimed VAT. I happened to spot it, but would not always have done so.
Had I used my previous manual procedure this mistake would not have occurred.

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By GHarr497688
22nd Mar 2019 17:42

If Hmrc condone computers why bother .

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Replying to leshoward:
Hallerud at Easter
By DJKL
25th Mar 2019 17:24

Well, better start parking at pay and displays at 17:20 for say ten minutes- nice little earner.

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Replying to leshoward:
Chris M
By mr. mischief
26th Mar 2019 12:02

Thanks for that Les. I see lots of similar errors from my clients who use Xero, QBO etc. for "DIY" accounts then get me for the corporation tax.

The emperor of Xero is not wearing all that many clothes in my view.

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By SteLacca
22nd Mar 2019 22:50

It would be nice if HMRC were to adopt the same analytical view (which I agree with BTW), but they are never likely to.

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By C.Y.Nical
25th Mar 2019 10:17

The seriously worrying thing about this is the title of the paper: 'Tackling tax avoidance, evasion and other forms of non-compliance'.

This is another brick in the wall they are building, encouraged by politicians, to encircle taxpayers so that anything we do to reduce our tax bill is regarded as non-compliance, even if it is lawful. The distinction between evasion and avoidance is gradually being whittled away, by HMRC if not yet by the courts. It is quite wrong to lump the two together like this, but HMRC have either lost the plot or have a different plot in mind, one in which anything that a taxpayer does to reduce their tax liability is deemed non-compliant, and they can shove their shovel into our stores as much as they like with impunity.

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By johnjenkins
25th Mar 2019 10:42

SPR. Well now what could that mean in the eyes of HMRC. Scamming People Refined. I'm sure there are many others meaning HMRC are just out to get more money which ever way they can without tax payers being aware. MTD solving carelessness? That must rank with some of the biggest cons going.

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By rbw
25th Mar 2019 12:03

I don't understand what is meant by "But HMRC seems to have overlooked that size of business is not a protected characteristic under the equality legislation."

It is true that it is not a protected characteristic. But that means HMRC can lawfully discriminate on the basis of size of business.

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Replying to rbw:
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By johnjenkins
26th Mar 2019 14:17

That's why Amazon et al pay what they want and the rest of us have to pay what HMRC want.

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