More aggression expected from taxman

ADVISERS have given the news of more cuts at HM Revenue & Customs a frosty reception.

The taxman has now been told to find 15% of “resource savings” by 2014. In other words it must cut its budget even further than it is doing already. And HMRC admits that one of its biggest costs is staff.

The profession has flagged up the additional strain that it will put on the department’s dealings with advisers and its tax collection efforts.

Cathy Corns, tax partner at Mercer & Hole, said it will make tax advisers’ lives “incredibly difficult”.

She said: “HMRC is struggling to do things efficiently with the amount of staff they have at the moment.”

Another knock-on effect of the cuts could be HMRC taking a tougher line in efforts to collect tax, putting pressure on advisers and their clients. Inspectors could up their aggressiveness in enquiries, and innocent taxpayers will suffer this, warned Cormac Marum of Harwood Hutton.

Against a backdrop of the current tax code being so complex, Neal Todd, a senior tax partner at law firm Berwin Leighton Paisner, said the cuts announced in the spending review threatened the taxman’s ability to operate effectively – and the system itself required simplification before cuts.

Some advisers are taking a more optimistic stance. UK200 Group vice president Jonathan Russell said that, while the cuts sound severe, clever and more effective use of resources would be a better way to achieve the 15% aim rather than cutting staff.

“Wait and see can be the only answer but my hope is that any [job] cuts are not as large as those which accompanied previous efficiency drives at the department, which have not proved successful.”

The taxman had close to 69,000 staff as of April 2010, but revenue sources say that this will decrease to 56,000 by 2014/2015 after the latest round of cuts.

“We have already seen at least 20,000 jobs cut since 2005 therefore HMRC has already done its part. We cannot see how HMRC will be able to cope if it has another head count reduction,” said ACCA’s head of tax Chas Roy Chowdhury.

A round of new statistics foreshadows the hard work ahead for the taxman. Analysis by UHY Hacker Young’s analysis found a big increase in the amount of debt the taxman is prepared to write off.

The firm found that bad debt estimates leaped to £6.4bn for the year ending 31 March 2010, from £4.6bn a year earlier.

The Treasury’s hunger for cash to fill the huge hole in government finances suggests more aggressive debt collection in the future.

“Our concern is this is all going to lead to much more aggressive debt collection tactics in the future against both individuals and businesses,” said Hacker Young’s Roy Maugham.

Advisers might also have to tread carefully when advising clients about the possibility of them gaining a Time to Pay tax deferral arrangement with HMRC. Cuts could impact the taxman’s ability to sift through such requests. Statistics rel­eased last week revealed that Time to Pay awards have already decreased dramatically.

Fewer staff would impact the number of Time to Pay applications being vetted, potentially creating a queue of troubled businesses that could fall over before being tended to, according to Nick O’Reilly, client service director at FRP Advisory.

Other insolvency practitioners warn that HMRC could be propping up “zombie businesses” that could eventually collapse when the Time to Pay crutch is removed – potentially upping HMRC’s bad debts.

HMRC conceded that the “resource savings” would have to include further job cuts.

“One of the biggest costs we have as an organisation is people. We will look to see how the Comprehensive Spending Review plays out in practice,” said an HMRC source.

The cuts could lead to even more strained working relations as it may force the department’s hand on offering more tax amnesties. Instead of starting costly exercises to try and root out errant taxpayers HMRC could roll out more programmes like the Tax Health Plan for doctors and dentists to haul in revenue from other well-paid professionals – even accountants.

Signs have already emerged of the taxman’s attitude to wielding the axe with news that the Sunday service hotline is to be scrapped. The taxman’s logic is this: “We have also established through a survey of callers who ring on Sundays, that the majority (82%) will not face any difficulties in ringing back on another day.

“Of those who said they would struggle to call back on another day, many explained that this was because they cannot get through to HMRC during the week – a situation that these proposals will help to address [through increasing call centre capacity during the week].”