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NOWADAYS I TEND to write articles only when I am intrigued or angry about something. However, I am writing this article more in sorrow than in anger. It is a lament for a massive missed opportunity — and also for what I fear is the demise of the good working relationship that by and large the tax profession has had with the tax authorities for the last 100 years. It is also probably the only article that I have written over the last 35 years or so where I have felt it necessary to make clear that it represents my own personal views, not the views of either the Institute of Indirect Taxation or the ICAEW Tax Faculty — although I believe that many in both of these bodies agree with what I say, albeit probably not with the way in which I say it.
HMRC are spending a lot of effort currently on 'Modernising Powers, Deterrents and Safeguards' and on the New Management Act (which is intended to replace TMA 1970, Sch 18; FA 1998 and the administration provisions of VATA 1994). I have been involved in the consultations (if they can be described as such) on both of these projects and (without describing any of the details, which are confidential) I predict that the result of both is likely to represent a significant hardening of the power of the state to intrude into the private lives of its citizens whilst both sweeping away much of the current protections and imposing draconian penalties on those honest taxpayers whose efforts to comply with their tax obligations fall short of perfection.
Beginnings …
But first, a little history. The initial self-assessment legislation was included in the FA 1994. Although this was, of course, government legislation recommended to Ministers by the Inland Revenue, it was preceded by intense consultation over a period of about three years. The Revenue set up a self-assessment consultative committee (SACC) comprising itself, the tax professions and the main representative bodies. I was a member of this committee and it involved a great many meetings and a lot of hard work. In my view it also achieved a great deal, not in changing the basic framework of the Revenue's thinking (although in places it did) but in smoothing out the edges so that the end product met the needs of HMRC without imposing unnecessary burdens on taxpayers and their advisers. It was, without doubt, the most effective consultation exercise that the Revenue entered into, at least during the 40-odd years during which I have specialised in tax.
Unfortunately, when the legislation was passed and the SACC prepared to move on to the practicalities of implementing it, the committee was told in no uncertain terms that the Revenue did not want any help; it would do this in its own way. Sadly this resulted in a fairly cumbersome product. The Revenue decided it could no longer chat to the agent informally outside an enquiry; that was never discussed with the SACC as far as I can recollect. Nor was there any discussion that the taxpayer could not be asked to volunteer information until an enquiry was opened. These restrictions were introduced by the Revenue completely of its own volition. Surprise, surprise, those elements which were not consulted on are precisely the things that HMRC now feel to be unduly burdensome.
And now …
Move on to 2006. HMRC (or possibly Ministers, although I suspect not) have decided that the integration of the old Revenue and Customs departments requires common administrative rules for VAT, income tax, corporation tax and PAYE — but curiously not for stamp duty land tax (SDLT), insurance premium tax (IPT), landfill tax, inheritance tax and the other taxes administered by HMRC. Curiously because the SDLT administrative rules are based on income tax and corporation tax self assessment and the IPT and landfill tax rules on the VAT administrative provisions, so those existing linkages are apparently to be cast aside.
In recent years, the Revenue and HMRC have talked a lot about Working Together with the professions. What a great opportunity to show that they mean it by having administrative rules that are agreed by both sides in the same way as happened with self assessment. What an opportunity for a new SACC to sit for two or three years to produce a new Management Act that can give HMRC what they need without imposing undue burdens on taxpayers or agents.
Sadly, when I suggested this, it was rejected out of hand. HMRC know best. They do not mind exposing their ideas, but the thought of an agreed Management Act is another matter. Why? I wish I knew! Administrative provisions ought not to be controversial; both HMRC and the professional bodies want taxpayers to pay the right tax at the right time. The professional bodies would like the taxpayer's interaction with HMRC to be as unintrusive and painless as possible, but it is hard to see why HMRC should have any problems with that.
Two projects
What do we have instead? We have two separate projects, the New Management Act Project and the Revenue Powers etc., project, which seem to be working to different timetables and are therefore most unlikely to result in a coherent whole. The New Management Act project held a series of workshops earlier this year. HMRC did not tell the participants what changes to the existing rules it has in mind. Until recently, the HMRC website told us that draft legislation would be published 'in tranches on the HMRC Internet throughout 2006'. The first tranche of
43 pages was not published until 28 November with a ridiculously tight deadline for comment (bearing in mind that most users like to take time off for Christmas and tend to be otherwise occupied during January) of 20 February, and we are now told that drafts on the remaining areas 'will be published for consultation at a later date'. I suspect this means throughout 2007. HMRC's intention is that Parliament should not be troubled by having to consider any changes to taxpayer rights, but that the Act should be fast tracked under the Tax Law Rewrite procedure (The Tax Law Rewrite, unlike the New Management Act, is of course forbidden from making changes to the existing rules and its proposals are fully discussed in advance of draft legislation).
Consultation on the powers element has largely been with a group of individuals hand-picked by Dave Hartnett. I have no particular problem with the membership of this group as they are all leading tax practitioners — although as a VAT practitioner I am surprised that for a group that amongst other things is considering VAT powers, etc., neither Bob Davies, chairman of The Institute of Indirect Taxation, nor Paddy Behan, chairman of the VAT Practitioners Group, seems to have been invited to the party. I also think that the fact that members are not allowed to send substitutes to meetings that they cannot attend severely detracts from the effectiveness of the consultation. This consultation has been supplemented by a series of workshops with the professional and representative bodies but, like the Management Act workshops, I do not myself believe these to be a very effective means of consultation because they give little or no opportunity for discussion of HMRC's ideas.
Intervention initiative
Which brings me to interventions, which were floated in the original 'Powers, etc.,' consultation document. Annex B describes them as 'brief outlines of the ideas which HMRC is currently considering'. Subsequent to the issue of the consultation document, HMRC surreptitiously added to their web version 'HMRC will trial some of these ideas to test effectiveness after this consultation closes'. The consultation closed on 23 June 2006. The intervention trials started on 1 July 2006. It seems improbable that any notice was taken of the responses to the consultation in the intervening seven days. But then it may well be that the real intention was that HMRC should bulldoze through the powers that they want and that the consultation was a pretence. I can see no other rational explanation for starting the trials without first taking on board the criticisms that I know were made by the main professional bodies.
The purpose of interventions seems to me to be to scrap the administrative rules that HMRC imposed on self assessment in 1996 and to remove the inconvenient rights that the self-assessment legislation gave to taxpayers. When self assessment was introduced, the Revenue's aim was to strike a balance between Revenue powers and taxpayer rights; I get the feeling that taxpayer rights are now regarded as an outdated concept.
Actually, some of the intervention concepts look attractive and would form a great basis for a discussion between HMRC and the professions to refine them into processes that are acceptable to both sides. Sadly, HMRC have no intention of doing this; they are pressing ahead with their own one-sided ideas and have asked for help only to the extent of reviewing the wording of their standard letters. Anecdotal evidence is that the response to the interventions has been very patchy. It seems improbable that the trials will provide any statistically significant results. Undaunted, HMRC are now pressing on with 'Interventions Phase 2', again without waiting to review the outcomes from Phase 1. Phase 2 seems largely to be a repeat of Phase 1, but with tougher wording on the letters and more guidance notes. This is predicated on the assumption that the poor response to Phase 1 is because the message was not clear enough.
Intervention problems
Personally, I think it much more likely that the poor response to Phase 1 was largely because many recipients found the letters offensive. It is also relevant that because HMRC were unwilling to discuss the concepts with the professional bodies they were unsure what guidance they should give to their members, and because HMRC could not be bothered to talk to the fee protection insurers there was no guidance from insurers on whether volunteering to comply with an intervention might invalidate insurance policies. There was also a great deal of resentment that the interventions seemed designed to cut out advisers and force taxpayers to deal direct with HMRC.
For those who have not seen an intervention, these are purportedly risk-based, targeted approaches. I know of two accountants, one very involved with HMRC consultations, who received intervention letters on their own affairs, which seems very odd targeting to me. 'Risk-based' seems to be on the lines of 'we notice that several people with ginger hair have made the same mistake on their tax return and as you have ginger hair you have probably made the same mistake too'. It does not appear that HMRC even look at an individual's tax return before sending him an intervention letter. One that particularly annoyed me went to jewellers, suggesting that many of them do not know how to value their stock, so could the jeweller have another look at it and confirm that both he and his accountant are not completely incompetent. It annoyed me because I have seen a number of letters from HMRC over the last couple of years which suggest that many Inspectors are unaware that SSAP9 requires stock to be written down to net realisable value and raise questions based on the assumption that the write down is a provision. The words 'pot', 'kettle' and 'black' spring readily to mind.
Next steps
Although I suspect that many in HMRC think otherwise, I care strongly about the tax system and over the years have devoted a great deal of time to helping to get it right. However, Interventions Phase 2 is a step too far, even for me. I think the time has come to say 'Enough'!
I actually have a great deal of sympathy for those in HMRC charged with operating the interventions project.
I understand that the reason that they have pressed on regardless is that someone has decided that the legislation to enable interventions to be rolled out nationally should be in the next Finance Bill so, in reality, there is no time to listen to comments from outside bodies. I do not know who has imposed this ridiculous timetable. Both Gordon Brown and Dawn Primarolo seem intelligent people. I find it hard to believe that either has decided that it is better for an imposed new procedure to be rushed through Parliament, warts and all, in complete disregard of the affect on taxpayer relationships. (In general, compliance in the UK is far better than in most countries, but sending accusatory letters to taxpayers without reference to the information they have already provided is hardly a recipe for preserving that state of affairs.)
I find it equally hard to believe that the administration of self assessment is at the forefront of the mind of either Gordon or Dawn or that they fear that the tax system will collapse if changes are made in a measured manner after detailed discussion. Surely, it is better both for the country and for their own personal reputations to introduce in 2009 well-considered legislation that has the backing of taxpayer representatives than to have rushed legislation, opposed by such representatives, in 2007 and then to spend the next two years ironing out the problems. I doubt that either Gordon or Dawn read my articles, but in case they do this is a plea to think again. Administrative rules need to stand the test of time. They can do this only if adequate time has been taken to get them right. This has always happened in the past (the Keith recommendations for example were discussed fully before being rushed through). I would like to remember Dawn Primarolo in ten years' time as the Minister who ensured the integrity of tax administration by introducing properly considered new procedures in 2009. I hope I will not be disappointed.
I would also urge readers who have less confidence in Dawn than I do to ask themselves whether they think the changes are being introduced in the right way and, if not, to bring their concerns to the attention of their MP.
'Power is my mistress. I have worked too hard at her conquest to allow anyone to take her away from me.'
Napoleon Bonaparte (15 August 1769 - 5 May 1821).
