Tax experts debate key issues for tax practitioners
From helping clients in their dealings with HMRC to naming and shaming, experts talk tax in our panel debate.
Taxpayers may have been reclassified as 'customers' but their relationship with HM Revenue & Customs continues to be problematic in many cases. The role of the tax practitioner can be pivotal in helping to find a way through.
The CA, in association with Professional Fee Protection (PFP), invited a group of leading tax practitioners to share their experiences. Chairing the session was PFP’s managing director Kevin Igoe, who began with the thorny topic of tax avoidance.
Neil Whyte, tax partner with BDO, said the measures aimed at discouraging artificial avoidance schemes are working, as far as he could see, adding: “Clients have become quite conservative, less aggressive. They don’t wish to risk a Revenue enquiry.”
Scott Hallesy CA, tax strategist for Condies, said: “Sometimes you get clients who are keen to look at tax schemes, but you have to explain to them that the consequence could be a seven-year fight with HMRC.”
Dougy Agnew CA, tax partner with Henderson Loggie, observed that the distinction between (lawful) avoidance and (unlawful) evasion was increasingly becoming blurred, from HMRC’s perspective. He said: “You have a long period of uncertainty ahead if you go for one of these schemes.”
Introduction of APNs
Perhaps the biggest concern for some clients has been the introduction of accelerated payment notices (APNs), under which sums in dispute must be paid over to HMRC while the case is ongoing.
Aileen Gates, partner and head of tax consultancy with Campbell Dallas, said: “The APN notices are what give the anti-avoidance regime its real teeth.”
With, effectively, no right of appeal and the possibility that the sum demanded may be substantially incorrect, APNs are a cause for concern, the panel agreed.
As Liz Ritchie, tax partner with Mazars, noted, APNs have been issued in relation to PAYE and employee trusts even though the latest legal rulings appear to be in the taxpayer’s favour. She commented: “If you’re talking about making the tax system fairer, that does not seeem fair.”
[L-R] Aileen Gates, Derek Granger and Scott Hallesy
HMRC's Connect database
The panel also considered the impact of Connect, which, as Kevin Igoe explained, is the database used by HMRC to link large amounts of data from different sources to highlight potential tax issues.
He said: “Connect is the cause of more than 80 per cent of tax enquiries now. We’ve seen things that surprised us, for example inspectors asking about charitable donations because they have records from the charity concerned, or asking about holidays because the record shows the taxpayer used his passport at Heathrow on a certain date.”
Mark Mitchell CA, a partner with Thomson Cooper, said: “My concern is that the information sometimes isn’t right, and that can mean added stress and strain for the taxpayer. It has to be used wisely.”
David Main CA, head of tax with Whitelaw Wells, observed that tax enquiries seem to be targeted more at specific issues than in the past.
Where should HMRC be concentrating its efforts?
Neil Whyte said he felt there was a reluctance to target and out criminals.
David Main commented that the black economy, and profit shifting by multinationals, should be priorities. He said: “It can be hard to persuade your clients to do the right thing when they hear about people who are apparently not paying any tax.”
Does 'naming and shaming' work?
“Naming and shaming does make a difference,” said Liz Ritchie, citing the case of a businessman with a high-profile charitable role who opted to settle with HMRC rather than risk adverse publicity.
John Cairns, tax partner with French Duncan and convenor of the ICAS Taxation Committee, also recalled a client who had been involved in a long-running dispute: “He would have died a thousand deaths if his name had got out.”
Mark Mitchell, however, said that in his experience the threat of publicity made a difference only in a minority of cases. He said: “Most people don’t care, and it is not publicised very well.”
Scottish rate of income tax
Further devolved powers for the Scottish Parliament will see the introduction of a new Scottish rate of income tax (SRIT) next year. The SRIT will mean that 10p is taken off the UK rate of income tax for Scottish taxpayers, to be replaced by a rate to be determined by the Scottish Parliament.
The panel generally agreed that awareness of SRIT is low among clients, so far. It was noted anecdotally, however, that some contracts for staff moving to Scotland from the rest of the UK now include a clause to compensate for any potential increase in the SRIT.
David Main pointed out that more change could be expected once the Smith Commission proposals, currently going through Westminster, give the Scottish Government more powers to change rates and bands. He said: “As soon as you have a differential between Scotland and the rest of the UK, then you are going to get tax planning.”
John Cairns noted that successive Scottish governments had had the power to vary the rate of income tax, and had opted not to do so. He said: “All this is doing is creating more complexity and more administration.”
Replacing Annual Returns with Digital Tax Accounts
Aileen Gates said she did not expect the move to digital would be a problem for her clients. As she put it: “It will be a bigger issue for unrepresented taxpayers who are trying to do it themselves.”
Dougy Agnew noted that under the government’s plans, many more people would have digital tax accounts than the number currently filing self-assessment returns. He added that the agent’s role would shift, from filing annual returns to checking HMRC’s figures.
Some panel members believed that large, low-cost processing centres as in the US might gain the most business from the shift to digital. There was some concern that the quality of work produced by this kind of operator was sometimes below par.
Ken Mawdsley, director, tax investigations and risk management with RSM (formerly Baker Tilly), said, however: “Digital is definitely the right way to go... but they have done it in the wrong order. The government should have simplified the tax code first, and then digitised it. As it stands it is too difficult for the ordinary taxpayer.”
David Main pointed out: “‘Digital exclusion’ may be a problem – not everyone is on the Internet. Not everyone has a smartphone or a PC.”
[L-R] Aileen Gates, Derek Granger and Scott Hallesy
Introduction of RTI
The panel also considered how the introduction of Real Time Information (RTI) had gone, concluding that payroll teams had on the whole found it less problematic than had been feared. In fact, Dougy Agnew said, with RTI in place it should be easier to adapt to further changes such as pensions auto-enrolment.
Further change is also under way in HMRC’s own organisation, with a plan to drastically reduce the number of tax offices to 20 “centres of excellence”. The panel expressed concern that this could be further demotivating for a service already suffering from job cuts and low morale.
Ken Mawdsley commented: “There are some good people at the Revenue and they want to give a good service, but they are spread thinly. You can’t keep cutting headcount in a public service sector and still deliver.”
Kevin Igoe said: “We’ve heard that staff at HMRC have been told that if they do not want to move to the new offices they can stay in a transitional office, but they will have ‘no career path’.”
Positives for HMRC
Finally, what positives did the panel feel able to highlight about HMRC? Among these were easier online access for specific forms; marked improvement in the way HMRC deals with the tax affairs of the deceased; the expertise of specialised services such as share valuation, the creative sector and R&D relief teams and the large business service; and the publication of Revenue guidance manuals to make them accessible to tax agents.
PFP’s Derek Granger commented: “The Revenue do realise that they have shortcomings, but they are trying.”
While HMRC and the tax regime it operates are far from perfect, the panel acknowledged that there are some very skilled and intelligent people doing their best to make the system work.