The relationship between advisers and the taxman is changing. The days when
we knew most of the people we dealt with are long gone. We now have specialist
teams spread across the country, helplines and an aspirational goal of universal
e-filing for business returns by 2012. If our starting point was personal
contact, our destination seems to be the opposite.
A recent ICAEW survey found that only 13% thought that service standards had
improved since the formation of HM Revenue & Customs in 2005. There are
concerns about training, concerns about delays in dealing with post and VAT
registrations and questions over the performance of PAYE online.
These are important issues, but ones which I believe can be resolved through
constructive dialogue with HMRC – and there is a genuine will at HMRC to engage.
But are we losing sight of something more fundamental?
Around the world, governments are looking to their tax authorities to collect
more tax but with reduced resources. There are only so many ways of achieving
this. One is to change the ‘channel strategy’ – the means through which
taxpayers, agents and revenue authorities have contact. Personal contact is the
most expensive and there are clear cost advantages in using telephone and
electronic channels. The UK is not unique in following this route.
While we would all prefer the status quo ante to prevail, it isn’t going to.
The accountancy profession must therefore take a proactive role, maintaining
dialogue with HMRC so that we end up with something that is workable.
In the 2005 pre-Budget report, HMRC said they wanted a new relationship with
the profession. The Forum on Tax Administration project also envisages an
‘enhanced relationship’ and sets out what each party might want and what the
benefits for each party might be.
As the Revenue are leading on the project, the outcome is likely to influence
the future compliance landscape in the UK. Papers released so far by the project
team emphasise the need for mutual understanding and reciprocity of rights and
responsibilities, they also hint at what the enhanced relationship might look
The goal is an efficient compliance process, which focuses on significant
issues and resolves them quickly, achieving payment of the ‘right’ amount of
tax. An ‘open and honest dialogue based on mutually understood levels of
disclosure and transparency’ is key, as is ‘mutual co-operation in advancing
enquiries and reaching proportionate resolutions quickly and with finality’.
This all sounds sensible, but some within tax authorities undoubtedly see
agents as a barrier to compliance, standing between them and the taxpayer. There
is a school of thought that if only they could deal direct, the tax gap could be
closed significantly. Others think regulation of intermediaries is necessary for
the efficient operation of the tax system.
Then there is a third school of thought that says intermediaries can actually
help close the tax gap. This third way seems to be uppermost in the minds of the
intermediaries project team at present and in their third working paper they
raise the idea of using risk management techniques to deploy scarce resource to
high taxpayer service and high revenue risk areas. Again, this seems sensible.
But how does risk management tie in with the enhanced relationship?
Would it mean tax authorities risk rating intermediaries? How might that
work? Could it be based upon membership of a particular professional body or
upon a tax authority’s own checking? How intrusive might the process be? Will
there be pressure for the way professional bodies monitor their members to
change? Might clients gravitate away from such firms, in the belief they were
‘working for the tax man’?
An enhanced relationship is an attractive goal, but it must be one that
balances professional and ethical obligations with the desire of tax authorities
to cut costs.
The Intermediaries Project
The Organisation for Economic Cooperation and Development created the Forum
on Tax Administration in 2002 with the aim of ‘promoting dialogue between tax
administrations and identifying good tax administration practices’. At the
conclusion of the FTA’s meeting in Seoul last September, senior representatives
of 35 revenue bodies issued a declaration. The declaration noted that ‘revenue
bodies are under constant pressure to close the gap between the tax legally due
and the tax actually collected.
‘To do this we need a tax administration that is efficient, effective and
provides high standards of service to taxpayers and other stakeholders and, at
the same time, collect the revenues required by law to fund necessary public
services.’ Revenue authorities, the declaration states, are being asked by
governments ‘to do more with less’.
At the meeting, HMRC agreed to lead a project to examine ‘the role of tax
intermediaries (e.g. law and accounting firms, other tax advisers and financial
institutions) in relation to non-compliance and the promotion of unacceptable
tax minimisation arrangements’.
The aim has subsequently been softened to an examination of ‘the role of tax
intermediaries within tax systems, including in relation to unacceptable tax
minimisation arrangements’. The overarching objective is to increase
understanding of the role tax intermediaries play and to strengthen the
relationship between them and revenue bodies.
The draft framework includes sections on: the ‘role, services, drivers and
obligations’ of tax intermediaries; the impact intermediaries have on tax
compliance; the ‘factors that influence the behaviour of tax intermediaries and
encouraging low risk/discouraging high risk behaviour by tax intermediaries and
There is potential for a better relationship, one that works for all parties
– but we all have to play an active part in defining it.
Paul Aplin is chairman of the ICAEW tax faculty
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