The Turn of the Taxation Tide

The Turn of the Taxation Tide

Fri 14 Dec 2018

Despite popular legend to the contrary, most tax advisers try not to be overly critical of HMRC – and this is especially true of those who specialise in the arenas of tax disputes and tax enquiries, many of whom have (like the author) come from the ranks of HMRC. After all, at the end of every dispute, it is necessary to reach some kind of agreement with HMRC and even when that agreement is one imposed upon the two sides by the Tax tribunal, it still makes sense for both sides to try to conduct the correspondence, discussions and negotiations in a civil manner. The approach of both sides has traditionally been that we might well disagree but we can always do so politely. That said, a straw poll of tax practitioners suggests that there is a concern that, in recent years, the approach from HMRC has hardened and that, in some instances, it has hardened beyond the point that is acceptable. We rush to add that this is by no means widespread and may be, as yet, limited to certain pockets within HMRC. But, however one couches it, there is an increasing concern that in some instances the approach from HMRC has become – and we choose the term carefully – aggressive.

The past decade has also seen a dramatic shrinkage in the size of HMRC, and not just in terms of staff numbers but also in terms of offices. Within the next two years, HMRC will have reduced down to a mere 13 regional centres from more than 170 offices less than ten years ago, with staff numbers at less than half of what they were at the turn of the century. The staff losses have largely come from natural wastage via retirements: HMRC like much of the Civil Service tends to recruit and retire staff in a thirty-year wave pattern, which started in 1946 with the boom in Civil Servants after the end of WWII. The ‘1946 Intake’ as they were known retired and were replaced in the 1970’s – and the 1970’s intake started retiring in the Noughties – but largely without replacement. And governmental austerity has also taken its toll – If you deny staff pay rises year after year, those able to get jobs elsewhere will leave. Together these factors have not just resulted in a loss in numbers but a disproportionate loss in experience and expertise.

Of course, old soldiers always claim that the next generation aren’t as good, but this has been coupled with severe cutbacks in the training given to new HMRC staff. Once upon a time, an HMRC officer would be required to spend years in training and gain expertise in many different disciplines – a PAYE group, or in a local district dealing with the self-employed, partnerships or trusts, capital gains or company taxation – before he or she was considered competent. Now instead trainees learn by limited modules that equip them just to deal with the immediate and most simplistic aspects of their role, the objective being to get them from ‘street to seat’ in six months, as opposed to the previous four years. Anything that is even slightly complex, or covering more than one discipline – such as a query concerning both Corporation Tax and VAT – has to be referred up to a ‘specialist’ who, like the snow leopard, are an increasingly rare and elusive breed.

All in all, there appears to have been a dumbing down of HMRC and nowhere is this better illustrated than in the overtly simplistic seminars they produce or the overly simplistic guidance – be it in printed leaflets or their on-line guidance – which very rarely addresses any genuine technical question. Yet the accountancy profession and technical advisers have said very little of this for fear of being accused of ‘simple Revenue bashing’. But the whole situation has then been exacerbated by what appears to have been quite exceptional growth in the powers granted to HMRC over this same past decade, many of which can rightly be described as draconian.

Amongst these have been the range of weapons introduced to combat the ‘evil’ that is tax avoidance, which has included such blockbusters as Accelerated Payment Notices (APN’s) and Follower Notices (FN’s). Powerful enough in themselves, these would be tolerable were it not for the fact that the taxpayer is denied a right of appeal against them. All the taxpayer has is the right to ‘make representations’ against such notices – but if HMRC decides to ignore or overrule those representations, then that’s it. Even worse is the General Anti-Abuse Rule (‘GAAR’) where, if you pursue an appeal against a GAAR beyond a certain point, you run the risk of a 60% penalty for daring to appeal. You have to be very brave or very foolish – or very, very rich – to run that risk.

All of the foregoing sounds like no more than the moans and groans of a battered tax adviser were it not for the fact that all of the comments are echoed within the Report of the House of Lords Economic Affairs Committee[1] into the powers of HMRC. It is recommended reading for any tax professional – or indeed for any taxpayer who feels he or she has suffered unreasonable behaviour at the hands of HMRC in recent years. The report talks of the behaviour of some HMRC staff as falling ‘well below standard’, of the department’s cultural drivers having pressured staff to take a more aggressive approach and ‘in doing so impaired the ability to be fair to taxpayers’. It talks of witnesses reporting HMRC as continuing to pursue enquiries after it became clear that only minimal amounts were due ‘in the hopes that they may find something’. It also suggests that HMRC’s declining resources have ‘rendered it unable to perform its dual roles of tackling avoidance and evasion and ensuring taxpayers are treated fairly’.

The most telling part of the report is in its summary of conclusions and recommendations which alone run to six pages and include such bombshells as recommending that the new proposed increased time limit for assessments of offshore liability of 12 years should be dropped (in favour of a more proportionate and targeted measure), that a right of appeal be granted against APN’s and FN’s and, indeed, that all HMRC determinations and Notices should be appealable to the Tax Tribunal. Any reader excited by these proposals should read the whole of the report, because in a Blog such as this we can do little more than mention a few of the most notable parts – but there are many more.

But where does this leave us? The popular if unspoken view of the accountancy profession in recent years might perhaps be summarised as suggesting that HMRC was an organisation that was becoming increasingly aggressive, whilst decreasingly technically capable yet at the same time being granted increasingly draconian powers. This could be blamed on many factors, not the least being Civil Service cutbacks, recessions that drained the Treasury and an abundance of tax avoidance schemes that stripped the country of much needed funds. All these could be seen as justifying the worst extremes of HMRC actions, much in the way that shooting deserters in the First World War was justified on the grounds of ‘pour encourager les autres’. But times change and, with them, so does morality. Is this the beginning of the turn of this particular tide? There are many in the tax profession who will hope so.

[1] House of Lords Economic Affairs Committee 4th Report of Session 2017 – 19 The Powers of HMRC: Treating Taxpayers Fairly HL Paper 242