A letter asking Jeremy Hunt to improve failing HMRC isn’t going far enough
If you’re a contactor, especially a limited company contractor, your accountant is compelled to use HMRC services on an almost daily basis. And those services have lately become a source of costly frustration, writes former tax inspector Carolyn Walsh.
That’s why a letter signed and sent by the UK’s professional accounting and tax bodies to the chancellor, ahead of Spring Budget 2023, merely asking him to improve failing HMRC, isn’t going far enough. But being from ten bodies, the letter does show just how widely held the frustration is.
The two-way street
HMRC expects tax professionals to help taxpayers to get their tax responsibilities right; first time no less. So it’s only fair that we would imagine the government would expect HMRC to be doing its best to help tax professionals to do their job effectively.
As the ten bodies argue, it’s surely right that Jeremy Hunt steps in on March 15th to prioritise investment in HMRC’s service levels, at a time when £42 billion in tax simply hasn’t been collected, and when its staff numbers have shrunk by 24% in the past five years.
If anyone is going to challenge this government on any matter, a polite request is not going to cause more than an internal request for a nameless civil servant to frame a bland response back, however.
If this is the height of the backlash...
Also not boding tremendously well for the ten bodies if they want action, accountants are never going to go on a rampage down Whitehall. A polite letter to Mr Hunt may therefore be the height of the ‘backlash’ against this reducing level of customer service by HMRC.
That said, what an unenviable job Hunt has – setting a Budget from HM Treasury when its bedfellow department is the subject of, in effect, a letter of complaint by no less than ten professional bodies that probably know HMRC better than anyone else. Those bodies include the CIOT and the ACCA.
The joint-letter to the chancellor states that the delays and business disruption faced by taxpayer advisers have become “a regular occurrence when dealing with HMRC,” with some businesses waiting upwards of six months for repayment and relief claims. I know from LinkedIn feed that some advisers would like to be waiting just six months!
Stress, real-time and getting tax right
Further from a personal perspective (having run an ICAEW-member company), I can tell you that accountants and tax advisers working on the frontline suffer from high levels of stress. They work in a profession where accounting processes have been automated to the point where some are questioning their future in the industry.
Making Tax Digital is a key part of the government’s Tax Administration Strategy, aimed at reducing the tax gap, by requiring businesses and individuals to keep digital records and to submit updates every quarter. In HMRC’s own words to ‘bring the tax system closer to real-time.’
This necessarily requires taxpayers (or their accountants) to use software which is MTD-capable and herein lies a possible reason for the reduction in staffing levels in HMRC. MTD isn’t just about taxpayers getting it right, it’s about cutting HMRC’s budget, and as MTD was expected to be fully rolled out by now, the current budget probably fits an expected scenario which hasn’t yet materialised.
How HMRC (probably) sees things
Asking the government to throw money at a scheme it has devised in order to cut public sector spending is unrealistic. Furthermore HMRC will claim that the tax-gap data proves there is little detriment to the overall picture between what is owed and what HMRC collects. So unfortunately in wake of the letter, I can imagine my former employer asking, ‘What’s a little frustration among tax professionals in the great plan?’ Not that this will ever be admitted by the tax department of course.
Let’s consider that tax gap data, which may get a mention at Budget 2023 to justify some large number of new pounds going to the Revenue to combat avoidance.
HMRC is the only tax authority which publishes data on annual tax gaps in such a detailed manner. So it can show, for example that, 48% of the tax gap in 2020/21 -- that is £15.6 billion, was down to small businesses. Ominously for PSC contractors included in this category, this small business population represents the largest proportion of the tax gap by a customer group.
Real-time tax reporting and more control over paying taxes due on time, will positively impact that 48%. And it doesn’t take much imagination to see that HMRC will be focusing on the eventual benefits of the new tax system, while overlooking the consequences caused by the transition and being deaf to all complaints.
Tax gap close-up
The HMRC press release on that tax gap, citing it steady at 5.1%, states:
There has been a long-term reduction in the overall tax gap from 7.5% in 2005 to 2006, to 5.1% in the 2020 to 2021 tax year. The reduction is a result of the government’s action to help taxpayers get their tax right first time, whilst bearing down on the small minority who are deliberately non-compliant.
So, the annual tax gap figures shouts success as far as HMRC is concerned, with resources being used to tackle deliberate non-compliance. The department must feel it’s on a roll; with plans for the digitisation of the UK tax system well under way; being seen as the way to achieve the smallest tax gap in the world and more realistically it seems, at least based on the Public Accounts Committee’s damning findings, fatigued taxpayers and weary tax professionals trodden underfoot in the process.
Put another way, strained tax professionals under pressure to provide a good service to clients, and businesses suffering the detrimental effects of waiting weeks for rebates and tax issues to be resolved, are probably all seen as collateral damage. After all (the internal HMRC script will say), tax professionals will cope with the current difficulties, just as they have always done.
Too few HMRC improvements incoming, but don't bank on a reply
Barring the unlikely prospect of a Treasury boss getting tough with taxman at a televised address, my fear is that there will be little improvement with HMRC for many, and for many moons to come, partly due to how the tax system is changing.
Remember, HMRC is on a mission to digitise the tax system which means there will be less need for customer service, and less need for staff to process refunds or see to your next query if you phone up. As for the letter to Hunt – which the ten bodies should be commended for trying, it will invariably end up in the inbox of a senior civil servant, with he/she bound to dutifully call in a head of department at HMRC. Only if the Revenue is concerned about lack of funding and cuts negatively impacting its organisation, will there be any (any) admission of a problem and what’s more, that admission certainly won’t be shared or uttered by our tax overlord on Wednesday.
If you have a question about contracting please feel free to ask us!