Tax does not need to be taxing

HM Revenue and Customs (HMRC) often make the headlines but rarely for the right reasons. The government department is frequently berated by the UK press for mistakes, inefficiencies, and unnecessary bureaucratic procedures. The latest stain on their reputation relates to the last of these failures.

This week, HMRC announced that its officers will inspect up to 20,000 small businesses’ expenses and income for any tax irregularities and impose fines which could date back years. Considering the current government’s public commitment to the need to cut red tape for businesses, and the tough economic times in which we find ourselves, one has to question both the necessity and the timeliness of these inspections. By increasing the number of spot checks, and backdating any shortfalls identified, small businesses will be placed in an even more perilous position. As John Walker, national chairman of the Federation of Small Businesses stated:

Despite the worsening economy, HMRC is launching this scheme regardless of the consequences.

The timing of this announcement is especially stark given the recent scandal in which HMRC were criticised for entering into sweetheart deals with Goldman Sachs and Vodafone, resulting in the multinationals’ joint £25 million tax avoidance. For this reason alone, HMRC’s policy of unannounced spot checks for beleaguered small businesses leaves them wide open to accusations of double standards.

Perhaps the problem is, as was suggested by the Public Accounts Committee, that the HMRC lacks tax specialists equipped to go head to head with the fire power commanded by the transnational corporations. Or perhaps, as I would suggest, the problem is more systemic.

While the Public Accounts Committee stated that it is ‘difficult to judge the efficiency and effectiveness of HMRC’ I disagree. The numerous mistakes that have been made since the department’s inception, whereby individuals and businesses have overpaid or underpaid their taxes, have resulted in increased waste and rework and cost the department, and the tax payer, millions. Only by implementing a robust quality management system to reduce inefficiencies will the public start to see improvements, and gain confidence in, the way their taxes are administered and collected.

However, systemic issues cannot be addressed unless the route cause is indentified and tackled. In my opinion the route cause is a lack of fitness for purpose. According to the HMRC website, the purpose of the department is to: ‘ensure the correct tax is paid’. Clearly, taking into consideration numerous mistakes made public just in recent months, this is not happening.

If we are to emerge from the economic downturn we must stimulate economic growth and simultaneously tackle the UK’s national deficit. In order to do this we must improve the efficiency of HMRC through the implementation of a robust quality system, ensure consistency across Government in removing unnecessary bureaucratic processes and increase the Government’s ability to spend and pay off the deficit by making the HMRC fit for purpose and collecting taxes that are due.  We must also encourage and support small businesses, widely regarded as the engine room of our economy, not penalise and jeopardise them at what is already a difficult time.

5 January 2012
Simon Feary, CQI CEO

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