HMRC’s pipe dream of becoming ‘world class’
If you are sipping on a drink or eating whilst reading this article, then I suggest you stop now because you may splutter or choke when reading the next line! HMRC have recently published their report and annual accounts for 2017-18 Annual Report and Accounts and contained within its first few pages is a statement that the department’s vision is to be a world class organisation. No, it’s true, they seriously believe they can become one of the best in the world.
In terms of becoming one of the best tax authorities in the world – that may well be achievable, but the other qualities that we associate with the words ‘world class’ are lacking in abundance within HMRC. The department tell us that they put taxpayers at the heart of everything they do. Well, of course they do because we are central to their operation, i.e. assess and collect tax from us.
The Revenue’s state of delusion enables them to boast that they already possess the values that underpin their ambition of professionalism, integrity, respect and innovation. Other than innovation, is that your experience of HMRC because it certainly isn’t mine. Given their agenda and modus operandi in IR35 enquiries, I would absolutely question their integrity.
What a difference we made
In typical self gratulatory style, HMRC tell us that in 2017-18 they:
- Generated £605.8 billion for UK public services and other government priorities, representing a 5.4% increase on the previous year.
- Secured an additional £30.3 billion tax through their work to tackle error, avoidance and evasion, which was 5% higher than last year.
- Were successful in appeals heard in the tribunals and courts 78% of the time, thereby protecting £37 billion in tax.
Summary of tax take
| Tax type | % of total revenue | Increase/decrease on 2016-17 (%) | Reason |
|---|---|---|---|
| Income Tax & NIC | 31 & 21 | 6.8 | Number of people in employment increased. |
| VAT | 21 | 3.4 | Higher receipts for oil, gas & mining, and leisure and business sectors. |
| Corporation Tax | 9 | 4.3 | Increase in company profits, particularly industrial, commercial & finance sectors. |
| Hydrocarbon oils | 5 | -0.4 | Not given. |
| Stamp taxes | 3 | 7.8 | Continuing rise in house prices. |
| Alcohol | 2 | 1.8 | Increase in duty rates March 2017. |
| Tobacco | 1.5 | 0 | Remained static. |
| Capital Gains Tax | 1.3 | -7.1 | Reduction in rates from 18% to 10% where a person is a basic rate payer. |
| Insurance Premium Tax | 1 | 37.8 | Rise in standard rate from 10% to 12%. |
Inheritance Tax, Bank Levy and customs duties account for the remainder revenue.
Tax gap
The UK’s tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid. In 2016-17, which is the latest year for which figures are available, HMRC collected 94.3% of the estimated tax revenue due, leading to the tax gap being maintained at its lowest level for 5 years.
We know what you are
Part of HMRC’s strategy is to segment taxpayers by type and size so as to tailor their services based on behaviours, capabilities and the level of risk. To this end, there are five groups of taxpayers:
| Number & type of taxpayer | Category |
|---|---|
| 45M individuals | Income < £150K & assets < £1M |
| Excess of 5M small businesses | Turnover < £10M & < 20 employees |
| 0.5M wealthy individuals | Income > £150K & assets > £1M |
| 170K mid-sized businesses, charities & public bodies | Turnover between £10M – £200M or have 20 plus employees |
| 2K large businesses | Turnover > £200M |
Disguised remuneration
New legislation imposes a charge on disguised remuneration loans outstanding at 5th April 2019, through which HMRC expects to protect £2.5 billion of tax.
Off-payroll working in the public sector
Once again, the normal mantra is repeated in that there is significant non-compliance with the IR35 rules leading to hundreds of millions of pounds in lost tax receipts. Of course, HMRC can’t prove this with any concrete facts and figures but rather continue to purport the myth to justify their methods.
In 2017-18 it is estimated that an additional £410 million of Income Tax and NIC has been collected as a result of the public sector ‘off-payroll’ rules.
Disputes
HMRC say that they always resolve disputes in accordance with the law, their own published litigation and settlement strategy, and code of governance for resolving tax disputes. That is not the whole truth, as very recently the Institute of Taxation told the Treasury Sub-Committee a very different story.
The Revenue’s bottom line is that they treat all taxpayers fairly no matter how complex their tax affairs are. No they don’t. Just ask contractors who have suffered an IR35 enquiry if that’s how they felt both during and after their experience.
Communications
During 2017-18, HMRC received 46.7 million telephone calls to their contact centres, representing a decrease of 10% in demand to speak to an adviser.
This has been attributed to more people using the Revenue’s digital services. Whilst I don’t doubt there is truth in this, there will also be many that through past and desperate experiences, simply don’t bother contacting HMRC this way anymore, albeit that the department say their average speed in answering calls was 4 minutes and 28 seconds (within their 5-minute target).
This was however slower than the previous year of 3 minutes and 54 seconds. Of course, answering the initial call and providing a satisfactory response and service are two completely different things.
Of the 12.9 million pieces of post where taxpayers required a response, HMRC turned around 80.7% within 15 days and 97.1% within 40 days. Does anyone other than HMRC think that 40 days to issue a response is reasonable?
HMRC have a very long way to go to achieve its utopia, but even if it does, will anyone other than those in Whitehall ever acknowledge that their behaviour matches their dreams?
It’s an old gag – the big lie. World class is the spinners’ favoured term without meaning. Just say you’re world class then keep saying it. Pretty soon you’ll be world class. The government’s and HMRC’s approach to IR35, MOO, CEST’s failings is not based on whether anybody likes it. Their opening assumption is that “they” won’t like paying more tax. The war gaming they endlessly engage in is what can they do about it. Then keep changing the rules to create layer upon layer of ambiguity and contradiction which usually act in the government’s favour because only they and their agencies have the resources to defend them in litigation. If IR35 defences appear to be gaining more traction the government will certainly change the rules again to create more fear, doubt and uncertainty.
I cannot believe (maybe I can) that HMRC believes that it can become World Class. If looking with a cynical at the statement, it means that HMRC is not world class.
The first stumbling block IMO is that the Tax law is over complicated with too many loopholes that are being exploited by big corporations etc. And not fit for the modern way of working.
Until the Tax law has been simplified and clear, only then can an attempt be made to be world class. All processes needs to be inline with the objective.
Plus HMRC needs to STOP with their bullying tactics targeting small businesses and not grant the likes of Amazon ludicrous tax arrangements.
Keep repeating it enough someone MIGHT believe it before the guys with butterfly nets come for them.
Why do you need to ‘tackle’ avoidance when it’s not illegal? That’s like the police ‘tackling’ people who always drive within the speed limit.
An excellent comment about avoidance and one that is not focused on enough.
“Generated £605.8 billion for UK public services and other government priorities”
I think this highlights their delusion. It is the private sector that generated the tax paid. HMRC simply collected it.
Exactly. If anything, they may have destroyed a good deal of wealth through their current tax structure.
Equally delusional is their tendency to refer to taxpayers as “customers”. Last I checked, your customers don’t tend to find themselves stuck with a bill whether they like it or not and jail threats if they don’t pay up. At least, any business that sought to operate on such terms would be seen as criminal.
“average speed in answering calls”
The above can be manipulated.
Perhaps better metrics would be, split by call segment:
Minimum, Average, Mode, Maximum; total length of call
Minimum, Average, Mode, Maximum; % of call on hold
% of calls abandoned/cut off/transferred
% calls where customer is satisfied with the result
But that might make them look really bad. 😉
As Phil said, there are several honest measures for
call centre stuff. Having worked in data analytics, I
suspect nearly all of the metrics are not what we call
“actionable data” (data that results in suggestions for
things to take positive action on for the greater good)
FWIW I would go one further and have an NATIONWIDE
definition of such metrics, that all enterprises (state and
commercial) must be judged (and potentially punished)
on.
The tax operation is “world class” in the same deluded
way that Arsenal supporters think that anyone in their
team is “world class” .
On a more serious note, at least their valuation of the
tax gap is getting closer to the (most recent)
CIOT figure (34.5bn for them vs > 40bn for the CIOT) .
Of course, getting the IR jobsworth Nazis to accept the
CIOT breakdown of the major causes of the tax gap
is another story altogether …
You beat me to this.
Not only this, but I think even on the most generous interpretation, the figures for evasion and avoidance combined do not surpass £15bn p.a.
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/715742/HMRC-measuring-tax-gaps-2018.pdf
The rest is made up of components such as error. If this £30bn is a mere 5% of total receipts, and only half of that can be chalked up to “avoidance” (a further tiny fraction of which is IR35 “non-compliance”), then what are they carping about? Would suggest, to me, and any reasonable person, that the problem is spending levels, and not how much tax they are or are not collecting.
“You beat me to this.
Not only this, but I think even on the most generous interpretation, the figures for evasion and avoidance combined do not surpass £15bn p.a. …”
I cannot directly find the CIOT studies of their assessment
of the tax gap (WTF they have not made it easy to find
on their own website ?? ) , but I recall their most recent
summary being :
1. Tax gap > 40bn
2. Amount lost to tax EVASION ~ 8x amount lost to tax
AVOIDANCE
3. Amount lost to ‘disconnect’ (taxpayers not
understanding what they should be paying due to
poorly defined official docs etc, taxpayers contesting
that they are following the letter of the law and the IR
is wrong – and I don’t mean “Panama papers” letter of
the law) is the largest proportion.
So from 2 and 3, where the effort should be focused to
reduce the tax gap is obvious (and it is NOT IR35, s660a
or any of the other ‘squeeze the little man’ schemes
driven by the jobsworth Nazis) .