The cobweb campaign

KEY POINTS

• A capital gains tax shock.
• Tracking down CGT information.
• How out of date is HMRC’s general tax guidance?
• Who is responsible for updating the website guidance?
• The need for commitment by HMRC.
• We need your help in the cobweb campaign.

In September 2008 Colin sold his business and made a gain of £3 million. He checked the HMRC website to find out how much capital gains tax he needed to pay, and then used the balance to fund his divorce settlement and repay his mortgage.

Unfortunately for Colin, the HMRC website was not updated following the introduction of the 18% rate in April 2008, despite the fact that this change was announced on 9 October 2007, nearly a year earlier.

The website’s rates and allowances pages in September 2008 still gave a 10% rate for business gains.

Colin was therefore shocked to discover he owed HMRC a further £160,000. It would have been even worse without entrepreneurs’ relief, but this was small comfort.

The HMRC page dealing with rates and allowances has since been amended, but it only provides the rate of tax. It doesn’t explain that the entire edifice of taper relief has been swept away. And the CGT page – headed ‘Welcome to the capital gains tax area’ – also contains no headlines to alert the reader to this radical reform.

So how are people to know that a change of this magnitude has occurred? The CGT page has a section entitled ‘introductory material’, which is clearly aimed at tax novices like Colin. It contains various explanatory booklets, and is prefaced as follows:

‘Our leaflets tell you about the law as it is. Sometimes the Government announces plans to ask Parliament to change the law. Check the recent developments section.’

Two problems

There are two problems with this statement. First, it suggests that, although there may be some changes in the pipeline, the leaflets are correct for the current period. After all, the ‘welcome’ page states:

‘This area provides links to a lot of the material about CGT for individual taxpayers and trustees on the website. The materials contained on this website are provided for general information only … For advice on your particular circumstances, please contact your local tax office.’

While, of necessity, this statement must be true, one imagines that the ‘taxpayer in the street’ would presume that the basic principles of the tax, rates, allowances and factors – such as taper relief – that would apply across all gains, would be clearly signposted.

Secondly, the ‘Recent developments’ section is eclectic and opaque as shown in the Example below.

Only the most curious will click the unenticingly named ‘Reform draft legislation’ to find its dusty treasure trove – the December 2007 Finance Bill clauses and related notes, along with some technical FAQs (although I could find no mention of the fact that the provisions passed into law around six months ago).

So let us assume that the novice will not realise that he should open this part of the recent developments section, and believes he can rely on the ‘introductory material’.

The first bullet point here is headed ‘HMRC CAR’ – not a new form of transport, but a note that ‘responsibility for capital gains tax policy lies in HMRC Charity, Assets and Residence’.

The second bullet links to Capital gains tax – a quick guide. This six-page leaflet explains that gains arise on disposals, exchanges and transfers, lists some assets that may or may not be liable to tax and where to find out more, but there is no mention of tax rates.

The last page shows that this leaflet was published in July 2004.

The third bullet point explains that the key booklet here is called An introduction to capital gains tax.

Despite its somewhat daunting 215 pages, the website describes it as:

‘A good place to find out how CGT works. It summarises the rules for working out the tax and shows you the reliefs that are available, including sections (with examples) on taper relief.’

The first page states that the booklet is ‘useful if you are thinking about doing something and are wondering what the CGT implications might be’. It is thus clearly positioned as guidance for the future, as well as for the present.

Again, this is followed by a disclaimer that ‘it does not contain all the guidance you will need to work out your chargeable gain or allowable loss in every case, or how much CGT you will have to pay’, but it does say ‘it covers only common situations’.

However, it makes no mention of the 18% rate or the abolition of taper relief; indeed it appears not to have been amended since June 2007.

Unfortunately, even this piece of information would only be found by the dedicated reader who had made it through to the foot of its 215th page!

The search begins…

The novice, of course, may never have found the capital gains tax pages; he may simply have searched for ‘capital gains tax’ using the search box on the HMRC website home page.

So the search engine would have identified, as the first hit, the very same out-of-date booklet:

An introduction to capital gains tax. And to give the reader extra comfort that he is in the right place, the hit is specifically identified as HMRC’s recommended answer to his search; the site says:

‘HMRC recommends

‘Capital gains tax

‘Find information and guidance about CGT for individual taxpayers and trustees.’

Sadly, this is not an isolated example. Many parts of HMRC’s online guidance are seriously out of date. This may not matter to experts, who can turn to annotated tax guides or look up LexisNexis online, but novices like Colin risk being seriously misled.

I suspect that the website’s benighted state is the fault of no individual or department: responsibility is probably divided between many parts of HMRC. And I know that budgets are strained and expert staff scarce. It is all too easy for web updating to become the ultimate mañana task: never put off till tomorrow what can be put off till the day after.

Time for commitment

But ordinary people, like Colin, need the HMRC site to be a source of reliable, clear and accessible tax guidance. How can this be achieved? I suggest that two commitments are required.

Keep it up to date

When any change is made to the tax system, the minister currently provides information about compliance costs. Could he not also give a commitment that HMRC’s public information will be amended to reflect whatever change he has announced? The HMRC team implementing the reform would then be responsible for cleaning the website. Over time, it would gradually be updated.

Introduce a dedicated team

But, on its own, this first commitment will be insufficient. It will take too long: years, decades even. So the website also needs a team (or an expanded team) of technical writers, and an increased budget. Now that the Tax Law Rewrite project is coming to an end, perhaps some of those writers and their associated funding could be moved to the website?

The cobweb campaign

Both these commitments require time, effort and money: they are thus unlikely to have come top of the list when HMRC made their new year resolutions. But the cobwebs nevertheless need sweeping out of the system.

Taxation readers can help to make this happen. If you come across examples of out-of-date material on the HMRC site, send them to me.

I will aim to cover your contributions in future articles. This may sweep away the particular problem you have identified; hopefully it will also keep a spotlight on the wider issues.

So please contribute to the cobweb campaign. You can send any HMRC website errors to me via email. Next month I will report on progress.

Anne Redston is a visiting professor at King’s College, London, and sits on the technical committee of the ICAEW Tax Faculty. The views expressed are her own.

Issue: 4189 / Categories: Comment & Analysis , cobweb campaign , Admin