Tax credits distort HMRC's focus

The row over child tax credits has gone away recently. The problem was
neutralised politically by the government’s decision to raise the level of the
‘disregard’ from £2,500 to £25,000, meaning that people with salary rises of
that figure do not now have to return overpaid credits.

But should advisers still be concerned? Though many do not handle tax credit
claims, the fact it continues to take up HM Revenue & Customs’ time and
effort suggests the problem should be on advisers’ radars.

At a meeting of the commons Treasury sub-committee last week, HMRC officials
indicated that staff levels on tax credits would continue to increase.

HMRC chairman Sir David Varney told MPs: ‘We have concentrated on getting the
resources we have got to focus on the problems we faced. We think that has
bedded down. We have some more work to do over 2006. Then the tax credits office
will become part of the productivity drive we are managing across HMRC.’

Should advisers be worried? John Whiting of Pricewaterhouse-Coopers said the
biggest concern is that, if HMRC is focusing on tax credits at a management
level, it might deprive other issues of management focus.

Might that open the tax authorities up to the risk of greater fraud? Will
clever avoidance plans escape their notice? Perhaps, in the light of the trusts
row and other changes, the greatest fear might just be that more inappropriate
tax legislation will be introduced without it being considered or consulted
upon.

Whatever the political heat of the tax credits row, it looks likely to remain
important to those with a stake in the tax system for some time to come.