In Q4 2015 I undertook a two month research programme to consult with a wide variety of citizens and businesses about the capability of HMRC to collect tax in an effective way. The programme also included a survey of HMRC staff (undertaken in conjunction with PCS), which achieved a response rate of 21 percent out of a sample of 10,000 HMRC staff. This survey proved helpful in identifying a range of issues about the current capability of HMRC.
The following responses draw upon feedback received from the consultations and the survey, but reflect my opinions.
Q1. What levels of trust and confidence do the public have in the capability of HMRC to collect tax in an effective way?
A common complaint received from almost across the board was the difficulty of accessing advice from HMRC. Many small businesses and their tax advisers felt that the situation has deteriorated in the past decade as a result of local office closures and I frequently heard complaints that too many HMRC staff have not received sufficient training to handle queries raised. This has sometimes arisen due to staff being redeployed within HMRC without receiving proper training for their new roles. This lack of training and knowledge was a common theme throughout the consultations in 2015, and led to a widespread concern that small and micro businesses have not been receiving the level of support that they need from HMRC.
Several owners of small businesses commented that large businesses have better access to HMRC (via the large taxpayers unit) and their tax advisers are also better able to access HMRC staff. There appears to be a perception that large businesses receive preferential treatment from HMRC in terms of access to advice and speed of dispute resolution.
Many tax advisers have complained to me about the extraordinary delays arising from tax cases, sometimes extending for over a decade. This creates uncertainty and anxiety among taxpayers. There appears to be a deficit of judges with specialist tax knowledge. If this is the case, the deficiency should be addressed.
Almost everyone consulted in Autumn 2015 (taxpayers and business people) felt that HMRC was not doing a good job in tackling tax evasion and tax avoidance. The majority of those consulted felt that HMRC was weak on tackling tax avoidance by multinational companies and – for political reasons – has no appetite for investigating tax evasion involving sophisticated offshore structures (the HSBC Geneva investigations were frequently cited as an example of lack of will in this respect). HMRC also lacks sufficient staff to tackle avoidance and evasion by smaller businesses.
Many of the ordinary taxpayers I consulted in Autumn 2015 were satisfied with the online services provided by HMRC through the Gateway portal, though some complained about difficulties with accessing trained HMRC staff who could provide useful support.
Q2. What can be done to improve the levels of public confidence in HMRC’s capability?
Many of the current problems of HMRC can be tackled by improving staff training and offering competitive salaries to retain trained and experienced tax officers within the service.
Small and micro businesses need HMRC officers with local, industry specific knowledge. Staff cutbacks and office closures in the past decade have depleted HMRC of this knowledge. This needs to be reversed.
The widespread perception that HMRC does not robustly tackle tax avoidance by big businesses is linked to a perception that the HMRC Board is largely composed of representatives of big businesses and their advisers. A new supervisory committee comprised of representatives of business, civil society including trade unions, tax advisers and academics would enhance the accountability of the Board and strengthen trust in the perceived fairness of HMRC.
Following on from the previous point, HMRC requires a significant strengthening of its in-house investigation and prosecution capability. HMRC staffers frequently raised concerns that capacity in these areas is depleted to the point of not being fit for purpose. Use of outside expertise is widely criticised for being expensive and lacking continuity. Everybody consulted (without exception) was agreed that the most effective way of strengthening taxpayer compliance, including among lawyers, accountants, and other tax advisers, was through robust investigation and effective prosecution.
Q3. Does HMRC provide a first rate customer service?
Despite the efforts of overworked staffers, the answer is probably no. Too many phone calls go unanswered. Too many staff lack the training and experience required to provide a first class service. Years of underinvestment have depleted capacity in too many parts of the service. Office closures have reduced the service quality at local level.
Q6. How effective is HMRC in deal with tax avoidance and evasion?
Effectiveness in this area seems to have improved slightly in these areas in recent years, largely thanks to increased media interest and the activities of the Public Accounts Committee.
However, HMRC lacks sufficient capacity to handle sophisticated tax avoidance using transfer mispricing and related profits shifting techniques, and the lack of transparency surrounding its dealings with multinational companies has fed a widespread perception, which I share, that weak deals are being struck with large MNCs which are both harmful in terms of losing revenue and creating an uneven and distorted competition between big business and its smaller rivals.
Many owners of small businesses complained about this perceived special treatment and agreed with the proposition that the tax returns and group tax reconciliations of large businesses should be made publicly available.
Q7. What legislative, resourcing and other measures would help narrow the tax gap?
The recently adopted General Anti Avoidance Rule is weak and narrow in its definition of tax avoidance, which renders it counter productive. It needs comprehensive overhaul, preferably by a panel of retired judges working with parliamentarians, civil society and business representatives, which builds on the assumption that tax compliance is acceptable and tax avoidance as a matter of principle is anti-democratic. Measures to counter the abusive activities of tax advisers would help to achieve a cultural change.
Far more transfer pricing specialists need to be recruited and retained to counter the overwhelming misbalance between HMRC capacity and that of MNCs and their tax advisers.
Judicial capacity also needs to be strengthened (see response to Q1 above)
Q8. Does HMRC make appropriate use of all the powers and opportunities in its toolkit?
HMRC is undoubtedly thwarted in its attempts to tackle abusive and illegal tax practices by the failure of successive governments to tackle opaque and complex tax structures. This applies in particular to offshore structures involving companies, trusts and foundations.
The process of fair and equitable tax collection is also stymied by governments’ mistaken view that being lax on tax avoidance and providing endless tax reliefs creates a “competitive” commercial environment. It does no such thing.
Q9. Are HMRC’s resources adequate?
No. See above
Q11. Within constrained budgets, what could HMRC do to achieve better and more sustainable services?
The premise of this question is flawed. HMRC provides an essential public service which demonstrably pays dividends in terms of the payback on investment.
The service has been cut back too far and too fast in recent years, depleting capacity to provide a genuine public service, and there has been too little investment in recruiting and training new staff. These failures need urgent remedy.
30 September 2016