Testing the taxman

IT’S WORTH stating the obvious: spending cuts are never easy. And when applied to government services the choice about what stays and what goes is fraught with acrimony and political risk. So it was with the recent spending review, though it now seems far in the past.

However, its ramifications and the argument over the details, sometimes even the basics, are still with us. For accountants the review as a whole will be of interest but the issue that will touch them professionally is the cut in the budget of HM Revenue & Customs. As we detail opposite, this will be 15% by 2014 and, as the taxman concedes, could involve substantial job cuts. 

The question is whether this was a wise decision for the very body that the chancellor will rely upon to collect tax revenues so desperately needed by the exchequer. Since 2005 HMRC has cut 20,000 jobs to a current staff headcount of 67,000. In short a quarter of the department’s staff have gone in three years. A further 13,000 are likely to go as part of the current round of cuts. Some staff will be redeployed. And though HMRC has been granted £900m to combat avoidance and evasion, this is likely to come out of savings. In an indication of the direction HMRC might take, Sunday service is to be cut from call centres.

For good reason, therefore, advisers have been pessimistic about the direction HMRC might take. Some have described the decision as “incomprehensible”. Indeed, PKF has even suggested that HMRC should be increasing its headcount to maximise the tax take. Others have publicly questioned whether the taxman can effectively cope with another round of redundancies.

Strategically, we can expect two things from the taxman: a greater reliance on technology and automation; plus an increased aggressiveness when it comes to pursuing liabilities.

Over-reliance on technology is risky. Systems can be built, but errors creep in. And with the taxman they have in the past proved huge and embarrassing. As the austerity measures bite, the taxman’s paymasters will want to avoid mistakes that takes money away from already struggling households and inflicts damage to the reputation of the coalition.

Increased aggressiveness against individuals and business should not surprise us –  it has been ramping up over recent years. But there is a danger that the taxman develops a culture of suspecting everyone of dodging their taxes by default. Such a position would be damaging and not justified for the average taxpayer. In that context, innocent errors are interpreted as deliberate mistakes resulting in disproportionately harsh treatment. 

The government said it wanted HMRC to seek more prosecutions. The last thing we need is a jumpy tax office filling the courts with people whose behaviour simply doesn’t warrant such draconian measures. We stand on the brink of seeing the character of HMRC being transformed out of all recognition if care is not taken.


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