Spending Review: The fallout for the taxman and the advisers


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. The taxman admits that one of its biggest costs is its 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. HMRC is struggling to do things efficiently with the amount of staff they have at the moment.

“This is just going to get worse with less people.”

Corns also questioned how the £900m injection of funds to fight tax avoidance would sit alongside the savings drive.

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.

“This cut in the HMRC budget will encourage inspectors to adopt an increasingly aggressive approach in their enquiries. More innocent clients will be subjected to this treatment,” said Cormac Marum, from accountants Harwood Hutton.

Institute chiefs also criticised the moves. “Cutting HMRC’s budget isn’t good news. HMRC is already struggling on its current resources. Remember the tax over/underpayment debacle earlier this autumn?” said Chas Roy-Chowdhury, head of tax at ACCA.

“The Treasury is placing a lot of store on closing the tax gap and, although £900m pounds more on combating tax evasion and fraud is a way forward, the test will come with how HMRC’s day-to-day activities can cope with what is effectively a 15% budget cut.”

In the 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 HMRC’s budget threatened its ability to operate effectively.

“A diminished HMRC can only administer the system fairly if the tax system itself is simplified. The recommendations of the Office for Tax Simplification cannot therefore come soon enough,” Todd added.

But some advisers are taking a more optimistic stance.

UK 200 Group vice president Jonathan Russell said: “As regards HMRC, this is potentially worrying as a department already under pressure and of low morale.

“Cuts of 15% may sound a lot and the easiest way is job losses but many believe, not least Philip Green, that there are huge efficiency savings to be made simply by cleverer use of resources.

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

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.

“If there are to be fewer staff, this will inevitably impact how many applications can be vetted at any one time, potentially creating a queue of troubled businesses that could fail before they can even join the scheme,” said Nick O’Reilly, client service director at FRP Advisory.

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.”

Further reading:

Spending Review: Coalition are ‘deficit deceivers’, says shadow chancellor Johnson

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