The leaky boat of tax compliance
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.
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.