Tax: The changing face of HMRC
Donald Drysdale notes that closures of local HMRC offices may affect taxpayers, tax agents and HMRC employees, but won’t hamper HMRC’s information-gathering processes.
In the good old days when the Inland Revenue (as they then were) had offices in more or less every town, taxpayers and representatives of the tax authority were known to one another. The District Inspector and their staff were on the receiving end of local intelligence and neighbourhood gossip, which were put to good use in assessing the risk of tax irregularities and deciding where interventions were needed.
The tax administration landscape has changed. In 2005 the Inland Revenue and HM Customs and Excise were merged into the juggernaut HM Revenue and Customs. Since then there have been reorganisations within HMRC – two in number according to Jim Harra, HMRC’s Director General of Customer Strategy and Tax Design, or twelve according to Andrew Tyrie MP, Chairman of the House of Commons Treasury Select Committee.
Local offices and walk-in enquiry centres have been closed – long since supplanted by telephone contact centres offering service of variable quality. Plans are afoot to replace these with more impersonal online web chat facilities.
Among taxpayers, those tempted to seek help from HMRC in trying to comply with their obligations may not get what they need. Those trying to contact HMRC may find the experience so frustrating that they give up. And for those not playing by the rules, the lack of a visible HMRC presence and the absence of local contact might suggest that pressure to pay tax is lower than it has ever been before.
HMRC’s current transformation
Hearings earlier this month before the House of Commons Scottish Affairs Committee shed some interesting light on HMRC’s current transformation plan. Oral evidence was taken from Paul Gallagher CA, a Partner with EY, representing ICAS; John Davidson, Deputy HMRC Group Secretary, Public and Commercial Services (PCS) Union; and Jim Harra from HMRC, accompanied by Ravi Chand, Director, Workforce Management, HMRC.
HMRC’s UK-wide plan announced a year ago includes office relocations and digital transformation. They have been given £2.1bn to modernise the tax system, in return for which they are expected to generate additional annual revenues of £7bn to £8bn plus ongoing administrative savings of £700m a year. Thirteen new regional centres will be established, and 137 existing HMRC offices will close.
There have been suggestions that HMRC’s planned office relocations have little to do with providing value for money. Instead, they seem to be triggered more by the fact that in 2021 HMRC will reach the end of their notorious Private Finance Initiative (PFI) contract with Mapeley, a Guernsey-based group that has been providing around 60% of HMRC’s estate as serviced accommodation.
Regarding their moves into fewer, larger offices, HMRC say that much of their compliance work nowadays can be done from any location. Their investigators and field force will remain a mobile workforce, able to cover the entire UK as and when they need to make contact face-to-face or at taxpayers’ premises. There will also continue to be mobile customer services for vulnerable individuals or those with additional needs.
With HMRC part-way through a ten-year transformation process that seems unsupported by convincing impact assessments, there are concerns that HMRC staff are suffering from ‘change fatigue’. Morale among HMRC employees is already at a low ebb, and many of them are now faced with added personal concerns about possible relocation or redundancy.
The tax gap
Estimates of the UK tax gap – the difference between revenues due to the government and those actually collected – vary widely. HMRC are trying to make inroads on the tax gap, which they calculate amounts to £36bn a year. Interestingly the Tax Justice Network has published an alternative figure of £120bn.
Reducing the tax gap – whatever its scale – ought to be a priority for government. It is in the public interest to eliminate tax evasion in all its forms. It is also in the interests of society to combat highly artificial or highly contrived tax planning that sets out to achieve results contrary to the clear intention of Parliament in enacting relevant legislation.
To reduce the tax gap, HMRC need to engage the enthusiasm of their staff – difficult when the transformation is creating so much uncertainty. The tax authority should also operate in ways that will make it easy and inexpensive for taxpayers to be compliant. The proposals for Making Tax Digital have been questioned by the professional bodies concerned about the impact, particularly for SMEs, with extra administrative costs and compliance burdens.
A report from the Public Accounts Committee (PAC) has observed that every £1 saved by HMRC on its telephone services over the five-year period from 2010 to 2015 resulted in an estimated £4 in additional costs to taxpayers as a result of increased waiting times and call charges for HMRC’s helpline.
HMRC’s ‘Taxpayer’s Charter’ used to include a commitment to keep the cost of dealing with them as low as possible. Over the same five-year period (2010 to 2015) no more than 41% of tax agents felt that HMRC had achieved the required standard in any year. Perhaps that’s why the commitment was omitted from the new Charter published at the start of 2016.
‘Connect’ and investigations
With local offices closing and staff distracted, taxpayers may think that the taxman is no longer watching. Think again! HMRC have invested heavily in technology, including their ‘Connect’ system. Connect is a force to be reckoned with – a ‘big data’ project that gathers information from all manner of sources and compares it with submitted tax returns.
Connect draws data from government departments such as the Land Registry, Companies House and the DVLA, as well as information from publicly accessible websites. It contains details of bank and credit card accounts, overseas properties etc – enhanced by data provided from tax authorities in other countries. It trawls social media for information on individuals and social networks, and tracks activities such as online trading.
With massive quantities of information now available to them centrally, HMRC are able to compare taxpayers’ lifestyles with the economic resources known to be available to them. This helps identify individuals and social networks where non-compliance is likely to arise and target their interventions accordingly.
Big data has taken the place of the local sources of intelligence that HMRC used to have, and the power it gives them should not be underestimated.
Article supplied by Taxing Words Ltd