How can it be good and bad at the same time? Too many Revenue procedures are immutable. They decide what to do and stick with it, irrespective of any problems that arise. It is, therefore, a good thing that the enquiry procedure is to be reviewed after a mere two years.
However, it would be better to do a complete review of the income tax self-assessment procedures. Why single out the enquiry procedure? The suspicion must be that inspectors are finding taxpayers still expect to have rights, whereas many seem to see the new enquiry procedure as giving them carte blanche to crawl over the whole of a taxpayer’s affairs rather than merely to check his return. In particular I have seen quite a lot of opening letters (not on my own clients!) which ask for private bank statements but not a single one of them explains why the inspector thinks they may be relevant to the return, as paragraph 319 of the Revenue’s enquiry handbook requires.
I, and I suspect most accountants, do not consider business economics exercise or a capital and income reconciliation as having anything to do with the return unless, and until, an examination of the business records has suggested there may be something wrong with the accounts.
This suspicion is reinforced by the fact that the second item on the Revenue’s list for review is faster working. Remember that? It was supposed to be offered as a matter of course on virtually every enquiry started after 5 April 1998, but again I have not seen a single case of its being offered.
I am told that inspectors do not find it speeds up enquiries. I find this intriguing. It may not get information in more quickly than an aggressive use of formal section 19a notices, but the object was to engender a spirit of co-operation between the Revenue and the agent so that problem areas could be identified early on and an early dialogue might enable the agent to explain items that the inspector thought looked odd, thus obviating the inspector chasing after ‘red herrings’. That still seems a laudable objective to me. Surely nobody knows if the procedure has achieved that objective if most inspectors have not even given it a try.
The second reason I think the review is bad news is that it seems to me to be premature. In the first year most accountants felt the Revenue had fallen short of their enquiry targets. Last year was better, but I suspect few 1997/98 full enquiries have progressed very far. So there cannot be a great deal to review yet. The sensible time to carry out a review would be this time next year, when most 1997/98 enquiries should have been resolved.
The third reason is that I doubt Revenue officials are the ideal people to review self-assessment. This was one of the most fundamental changes ever to the tax system. The Revenue has a vested interest in showing that it has been successful. Accordingly it would be far more sensible for a review to be carried out by an outsider, such as the Treasury Select Committee or the National Audit Office.
I am concerned that a review by the Revenue (which I suspect is intended to result in some legislative changes) might pre-empt the review that ought to take place later this year by one of those bodies. That is not to cast doubt on the objectivity of the Revenue, but merely to point out that a review by an outside body is more likely to inspire confidence in the result.
In spite of these reservations, this is your chance to make your views known. It is unfortunate that between 9 December (when the review was announced) and 31 January most agents will have been pre-occupied with 1998/99 returns. So the Revenue’s deadline of 29 February hardly allows time for considered thought by those outside the Revenue most likely to be able to contribute constructively.
But maybe that is what Dawn Primarolo wanted when she set such an inconvenient deadline (my understanding is that she personally approves such things). Or am I being unduly cynical?
Robert Maas is a partner with Blackstone Franks.
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