THE TAXMAN has made no attempt to hide the fact it is baring teeth. With £917m ring-fenced funding being given to HM Revenue & Customs to bring in a targeted £7bn extra a year, collection has understandably been a priority.
But many advisers have suggested a slump in service levels, to such an extent that there are inquiries being carried out by the Office of Tax Simplification, the Treasury select committee and the CIoT, whose new president has cited relations as being his number one issue.
So are the threatening letters a by-product of this tension between increased emphasis on collection and a perceived drop in standards?
The letters inform businesses that their “outstanding tax debts” have been transferred to the HM Revenue & Customs Distraint Department “to list your goods so that they may be sold at a public auction”. They are advised to call a telephone line or pay the full outstanding amount immediately.
Which in itself might not be a problem. However, several advisers have said that the clients who are receiving them owe nothing. Paul Aplin, partner at AC Mole & Sons, said that his clients began receiving these types of letters in the past few months. “The thing that is missing from the letter is the amount of the debt that has prompted HMRC to consider such serious action. The figure is in fact nil.”
This is a common complaint. Matt Coward, a tax partner at Price Bailey, said that his firm’s clients have received these “and sometimes a debt is due and sometimes it isn’t”. Ellen Green, an independent accountant, has dealt with three of these letters and in each case no fee was due. Katharine Arthur, a McIntyre’s partner, says her clients have received them for tax due of less than £200 and one where a payment plan had been agreed.
The list goes on. According to advisers, these letters have proliferated in the past few months. The CIoT has said it is hearing stories about these letters and have asked members to get in touch with any examples.
HMRC, on its part, says that this it is simply getting more efficient in chasing up debts. The distraint power – which allows the taxman to collect goods for debts without many of the regulations surrounding private sector firms – has been in existence for centuries. These letters show that HMRC is using its powers more effectively, it explained.
The only businesses that will get these letters when there is nothing owing are those that have failed to submit a nil payment form, a spokesman said and these firmer letters only goes to people who already have unresolved debts or previous poor history. The seizure of goods only comes at the end of a series of contacts and the debtor has every chance to contact HMRC to pay the debt or set up a time to pay arrangement, he added.
The taxman has a point in so far as you have got an obligation to tell them there is nothing owing, Aplin concedes, and his client in question had failed to send a nil payment form.
However, the problem lies in the tone of the letter. “I can see the point of sending a letter saying you haven’t told us if any tax is due but to send a letter saying we are sending people round to mark goods for auction is ludicrous,” he said. Furthermore, the liabilities that marked his client down as a “problem” debtor was no more than a late payment of a few hundred pounds over four years ago.
There is also the problem of what to do when the letter is received. It has been commented that it is very hard to pay off a debt that doe not exist.
The perceived drop in service levels means that advisers are reluctant to spend time on the phone sorting out the mess, and having to charge clients for the time.
The Distraint Department does not have any flexibility as it has to act on the inspector’s instructions, says Arthur. “Trying to get the process stopped, once it has started can be quite a challenge.”
The general consensus is that HMRC has every right to chase up debts and even threaten the auction of goods where necessary. But this must not be the first step, which it has been in the case of these letters.
So why is this happening? The most obvious explanation is that the taxman is being burdened with the responsibility in collecting money as quickly as possible at a time when its overall funding is being cut, Mazars tax director Alastair Kendrick says. And this urgency leads to this particularly “clumsy” way of going about it.
Because of this cut in overall funding, the Revenue has “call centre standard staff” taking responsibility for much of the collection, Kendrick adds.
But there is also a lack of communication at HMRC, according to advisers. Coward says “when you go on the Revenue’s main website and let the person know the debt has been paid, it is news to them. Something is not quite right.”
This created problems for the taxman as well as advisers and taxpayers. HMRC staff are consistently polled as having the lowest morale in Whitehall. Dealing with the complaints of people who have received these letters. When Green called the helpline number on the letter, she was told by call centre staff that there was a lack of morale in the front office as a result of the problems the letters are causing. “Speaking to a call centre operative, she said ‘the back office people are a bunch of tosspots and I do not give a shit if they can hear this conversation’. The morale between front office and back office is unprintable.”
This morale and the use of these letters are two sides of the same coin – a tension that comes about through being asked to collect far more debts far quicker while having overall funding cut. The £917m “extra” funding has come from budget cuts elsewhere at the Revenue, but has also come with the £7bn higher collection target. Because of this, there is still sympathy for HMRC’s position in the tax profession. But more letters of this type will see this sympathy drain away.
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