HMRC research says ‘emotional’ small companies feel its fear-factor

The fear-factor in dealing with HMRC as a small company has been laid bare in new official research euphemistically entitled “Exploring the perceptions of tax administration burden.”

Commissioned by HMRC, the research was carried out by data firm Kantar and, awkwardly for a taxman far behind in the PR stakes, it says scared taxpayers are their own worst enemy.

‘Highly inefficient’

In particular, fears of HMRC deadlines, scrutiny or threats in its letters, cause people to go into a “cognitive overload,” which causes them to develop “highly inefficient processes”.

Tending to give the jittery some reassurance (against mistakes or HMRC penalty risks), these processes taxpayers come up with take up “unnecessary amounts of time,” the report scolds.

Disclaimers in the research that the views expressed are that of the authors and not of the Revenue’s aren’t calming the Twitterstorm from the HMRC-commissioned report finding tiny traders to blame if tax seems taxing.

‘Perception of HMRC burden driven by emotion’

But running past 40 pages, the research makes another big stab at HMRC’s customers.

“Perceptions of burden appear to be predominantly driven by emotional rather than practical considerations,” says the report, based on 47 “in-depth” phone interviews with small firms.

The researchers add: “The emotional response to these fears pushes people into a reduced state of functionality, or ‘cognitive overload.’

“[Such] fears are driven by the underlying perception of HMRC as a punitive rather than supportive organisation.”

‘Non-engagement by debtors is when HMRC bares its teeth’

Online, one adviser suggested people base their fears on their past experience of dealing with the Revenue, not anything imaginary.

Referring to the £42billion in outstanding tax debt that the NAO says HMRC faces having to collect, Simon Bonney, managing director of Quantuma said:

“HMRC’s biggest issue is when debtors don’t engage. [And] that is when [HMRC’s] teeth come out.”

‘Making taxpayers too damn scared is the end game’

Reflecting too on the NAO’s findings, which found HMRC has insufficient staffing (to clear debt from the pandemic), a former Revenue inspector suggests the fear-factor plays a key role.

“HMRC [knew it could give up] on adequate staffing when it gave them ‘psychological training’ and took a keepnet approach to taxpayers,” says the ex-official, Carolyn Walsh.

She also told ContractorUK: “When taxpayers become self-governing, because they’re too damn scared of not paying their taxes, HMRC’s job is easy. And I’m sure that is the end game [for the government agency].”

‘Threatening, and passive-aggressive’

But it’s not just taxpayers who are at the sharp end of a resource-conscious Revenue.

“We can’t do that for EVERY client,” posted accountant Jeri Williams, albeit quoting an attending HMRC officer who she asked to put in writing his request for the address of one of her firm’s small business customers.

The founder of Smooth Accountancy, Ms Williams reflected on her refusal to cooperate: “I’m quite frankly not going to be intimidated by…[a] threatening and passive-aggressive [HMRC officer] at my office”.

‘Serving its customers well’

Having previously trodden the investigative path for the tax authority, Ms Walsh, now boss at CWC Solutions, says an old internal plan may still be in place at HMRC as revenue matters more to the department than rave reviews.

“Years ago HMRC came up with a plan to increase revenue at less cost, although staff levels in the recovery sections have increased, staff losses elsewhere counteract that, but HMRC might believe it seems to be working on the basis its ‘tax gap’ figures show the gap getting smaller year-on-year.

“But,” she added, “whether the department is today serving its customers well as an outfall of the process of reducing overall staff numbers is another matter.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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