With 80% of taxes paid voluntarily, and just 2.9% paid after forced compliance, the first issue discussed was the need for voluntary compliance to be pushed and increased because the statistics show it is far more effective.
“Voluntary compliance is better all round,” said John Whiting, tax policy director at the Chartered Institute of Taxation. “We shouldn’t give up policing the hidden economy and tackling avoidance though.”
Universal agreement was reached within the session over the necessity to make compliance simpler for taxpayers, through the positive efforts of HMRC.
“We need to make it easier to comply,” said David Heaton, chairman of the tax faculty at the Institute of Chartered Accountants in England and Wales.
Conservative member of Parliament, Andrea Leadsom, raised the possibility that new businesses are failing to register (and therefore comply) because of administrative problems at HMRC making compliance difficult.
“HMRC’s internal problems worsen compliance,” said Frances Corrie, technical director at Taxaid.
Tax gap
Conservative member of Parliament Andrew Tyrie read out HMRC’s main goal – the opening line under the ‘purpose’ section of their vision statement, which states that closing the tax gap is the Revenue’s vision – before questioning whether this is the right objective to hold.
“It worries me if that is the only vision, because of difficulties in calculating and measuring it. That should not be the only vision by any stretch of the imagination,” said Whiting.
Whiting added there is such a concept as a tax gap and that closing it should play a role in HMRC’s work, but any focus on it must not be blinkered.
“The tax gap is wholly and entirely misleading,” said Heaton. “Effort should go into helping people comply and to policing those people who won’t comply.”
On whether perceived failings by the Revenue body are the fault of HMRC or the fault of the legislation itself, Whiting said the legislation is overly-complex, but that more consultation and steadier evolution will hopefully provide us with better legislation, adding that the Revenue has got better at targeting the right areas.
Chas Roy-Chowdhury, head of taxation at the Association of Certified and Chartered Accountants, said HMRC are going after people who are visible but that not enough work is being done on people not in the system or on people actively trying to stay below the radar.
HMRC’s recent VAT compliance initiative perhaps goes some way to disputing this and suggesting improvement in this area is being targeted.
“HMRC campaigns address the areas where our intelligence tells us there is a significant risk of underpayment. HMRC has a National Risk Overview that sets out where our data tells us the biggest risks contributing to the tax gap arise,” said an HMRC spokesperson. “Campaigns provide opportunities for groups of people to get their tax affairs in order in a simple straightforward way. They are cost-effective and make it simple for customers, their representatives and HMRC to get it right and keep it right.”
After a brief interlude heralded by the ringing of the division bell – the bell rung inside and around Parliament when members of the chamber are required to drop their activities and assemble to vote on a motion – the session’s attention turned to measures needed to discourage avoidance.
“The Revenue must get the message across to taxpayers that there’s no easy way of avoiding tax,” said Whiting.
Exchange of information
Tax information exchange agreements (TIEAs) and disclosure initiatives are among the methods of sending the message that there is no hiding place. The panel was adamant that the Revenue must keep up this pressure to reinforce the fact that there is nowhere to hide and not just target the easy, low-hanging fruit.
Sub-committee chairman George Mudie, a Labour member of Parliament, challenged the premise that there is nowhere to hide by referencing the example of Leeds United football club and the mystery surrounding the club’s ownership. HMRC have yet to provide an answer to the question of who owns the football club.
“Surely, isn’t that a hiding place?” asked Mudie.
Regardless of a few inevitable counter-examples though, the message is still an important one to get across, the panel believed.
Exchange of information must also continue to evolve. On pushing such provisions, Roy-Chowdhury alluded to the notion of momentum and maintaining pressure, saying: “It’s easier once the car is running, to push it along.”
Active education
The question was raised over whether the work of the Revenue is active enough to encourage those outside of the system to enter into it.
“There needs to be a more permanent visible routine for people to get themselves into, or back into, the system,” said Corrie.
This will involve extra efforts from HMRC to articulate taxpayers’ obligations.
“HMRC must educate and be pro-active in teaching people when there’s a tax obligation and how to deal with it,” said Roy-Chowdhury.
With discussion of figures such as the statistic that 30% of people would evade taxes if they thought they would get away with it, the Revenue must actively reinforce the fact that taxes cannot be dodged.
“HMRC should provide guidance. But they shouldn’t frame what they say as the law. Their job is to collect taxes,” said Roy-Chowdhury.
“Guidance is important but shouldn’t be a substitute for getting legislation right. The solution is a better process for getting the law right in the first place,” said Whiting.
At present, this balance is skewed.
“The legislation has been changed three times in a matter of months. It’s not satisfactory,” said Heaton.
No soft touch
HMRC recently announced it is re-launching the Litigation Settlement Strategy.
“It does need looking at again, hence the refresh and re-launch,” said Whiting.
Andrew Love, a Labour member of Parliament, asked if HMRC has been focusing on the larger cases, which could explain the increased intervention yield figures presented.
There is a public perception that big businesses are getting away more easily than they should be.
“That perception is wrong,” said Heaton.
One explanation is that both the Revenue and taxpayers often abandon litigation if they are likely to lose.
“There are more settlements, but the Revenue hasn’t gone soft at all,” said Roy-Chowdhury.
While they may not have gone soft, the session unanimously agreed that more active initiatives are what HMRC needs to increase compliance and help close the tax gap.
