The tax profession’s hackles were raised when the National Audit Office decided to highlight cases where people had filed incorrect tax returns despite being helped by an adviser.
The watchdog’s attack provoked anger because advisers felt their reputations had been damaged by the report, ironically named “Engaging with Tax Agents”.
But where do the problems really lie when it comes to errors in tax returns, and what are the options on the table to rectify the situation?
Advisers say that the spotlight should be turned towards HMRC. They have cited the main problem as the taxman sending out incorrect codes to tell people how much they should be paying in tax.
The coding notices can be inaccurate because of HMRC’s VAT registration and tax return processing times. The department’s processing of tax returns can sometimes drag out. People’s tax affairs – which can be very complex – change in the meantime, which results in the coding notices being incorrect. This leads to the wrong amount of tax being declared later down the line.
Speeding these processes up would tackle head-on the key problem of under-declared tax and also help the taxman be more accurate.
“With errors seemingly abound within HMRC, no one should accept these demands without double checking the figures,” said James Fowler, manager of business services at accountancy firm Old Mill.
Of course the profession admits that tax advisers don’t always get it right.
Accountants said they may have to shoulder some responsibility for failing to properly coach taxpayers on their own responsibilities.
Clients’ record-keeping can sometimes be unreliable which also leads to errors on a return submitted by advisers.
But as a counterweight to this comment, the profession has called for the government to distinguish between the qualified and unqualified tax advisers.
HMRC admits it has a lack of data on individual tax agents in terms of whether they are qualified or not.
It is now considering segmenting the tax adviser group between non-profit, friends and family, and paid tax advisers.
It would then register the paid-for tax advisers to provide greater assurance in terms of legitimacy and security and then introduce an advisers’ self-service portal. Agents could have increased rights and access, including facilities to amend tax codes and manage payments more effectively.
This all seems workable in theory, but HMRC will have a lot of work to do in practice.
Eight million taxpayers receive help from third parties in completing and filing income tax and corporation tax returns each year.
For a department pushing through staff and budget cuts despite a sizeable workload, and a PAYE technology which is still full of glitches, monitoring and operating a new system with so many moving parts could be overly ambitious.
Third parties help file 65% of self-assessed income tax returns, 78 % of corporation tax returns, 33% of end-of-year PAYE returns filed by employers and 43% of VAT returns.
43,000 professional “tax agents”, ranging from international corporations to sole traders, would have to be fed through a new system, which puts the scale of the task into sharp focus.
HMRC is giving itself three years to make improvements but, if this system is brought in, it will not be cheap.
The department estimates it will require a capital investment of around £10m on top of more than £13m from “one-off staff reduction costs through the move to self-service”.
But how does the tax adviser community work with HMRC while these plans are being fine-tuned?
Calls have been made for both sides to share resources and expertise or even investment costs, perhaps starting with the design of more specialist software.
Tax advisers and HMRC have managed to work together successfully on other projects such as the Compliance Reform Forum, so HMRC could explore “joint engaging” with accountants and their representative bodies on more ambitious projects such as this one.
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