Pared to the bone

Pared to the bone

As everyone who has not been living on a desert island will be aware, we live in a time of public sector cuts. The government has pledged to reduce the UK’s public spending deficit and the outcome of its spending review is eagerly awaited.

As everyone who has not been living on a desert island will be aware, we live in a time of public sector cuts.

The government has pledged to reduce the UK’s public spending deficit and the outcome of its spending review is eagerly awaited.

Against this background, the Government Legal Service (GLS) is facing the threat of job cuts of up to 40%. While there may be some who consider that there is scope to reduce the number of lawyers employed in the GLS, a reduction in numbers at HMRC’s Solicitor’s Office could have serious consequences for the Exchequer.

The Solicitor’s Office provides a high-quality, cost-effective legal service, which includes the provision of legal advice and conducting tax tribunal and civil litigation in the higher courts through to the European Court of Justice. It also provides a specialist service to the Revenue and Customs division of the Crown Prosecution Service that handles, among other things, criminal prosecutions for tax fraud, duty fraud and related money laundering offences.

There is anecdotal evidence to suggest that many within HMRC, including members of the Solicitor’s Office, are suffering from overwork and low moral. It is perhaps no coincidence that permanent secretary for tax, Dave Hartnett, has announced a revised interpretation of HMRC’s litigation and settlement strategy.

Hartnett has signalled that HMRC will adopt a more flexible approach in resolving tax disputes, a move which many consider is designed to reduce a mounting logjam in the resolution of disputes between HMRC and taxpayers. The chief secretary to the Treasury announced in September that £900m will be made available to HMRC over the spending review period in order to “tackle non-compliance in the tax system” and “raise additional revenues from those who undermine the tax system and seek to avoid paying their fair share”.

This money will be available to fund more criminal prosecutions (a five-fold increase is intended) and to “crack down on offshore evasion with the creation of a new dedicated team of investigators to catch those hiding money offshore”. While this £900m will no doubt be welcomed by HMRC, it is not clear whether this will be additional funding.

Although the government is committed to tackling non-compliance in the tax system and increasing the tax yield, it is unlikely to achieve its stated aims if the Solicitor’s Office is not properly resourced. A strong, well-resourced HMRC will result in an increase in tax yield and a reduction in the tax gap (estimated to be £52bn). This in turn can help reduce the public sector deficit.

The mandarins at the Treasury should not be seduced by false economies. If the government insists on cutting the number of lawyers employed at HMRC it can expect a reduction in the tax yield. HMRC will not have the necessary resources to contest all disputes with taxpayers, which would otherwise be litigated through the tax tribunals and higher courts. Even the most hardened critics of HMRC will no doubt agree that risking a reduction in the tax yield when the public spending deficit is so high is not a good idea.

Jonathan Levy and Adam Craggs are partners in the tax disputes team at Reynolds Porter Chamberlain and former members of HMRC’s Solicitor’s Office

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