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KEY POINTS
- Three bullet points from initial consultation.
- Whether rights and responsibilities should be included.
- Effect of consultation with HMRC staff.
- Stronger legislative backing needed.
So what went wrong?
How on earth did we get from ‘aiming to improve the relationship between the department and its customer base’, which was one of the expectations referred to in the first consultation document on the taxpayers charter, to ‘pursue relentlessly those that break or bend the rules’, which is one of the proposed principles in the draft charter as issued in February this year?
To discover the answers, we have to look at the whole of the consultation process on the draft charter, and in particular at a document that received rather less attention than it might have: the consultation responses document issued as part of the pre-Budget report on 24 November last year.
First thoughts
Taxation had of course campaigned for a taxpayers charter, supporting the CIOT’s long-standing advocacy of the idea.
We were, therefore, very pleased when in January 2008 HMRC announced that they were going to introduce one, although like everyone else we were slightly surprised to find that as a consequence HMRC ‘planned to withdraw’ the previous Inland Revenue and Customs & Excise charters, since we had all assumed that they had been withdrawn on the merger, if not before.
The initial consultation document, HM Revenue and Customs and the taxpayer, issued on 19 June 2008, emphasised that the charter was not to be set in legislation, although it asked whether there were other options that could be implemented ‘to ensure it is an effective and enduring document’.
The discussion which surrounded this issue perhaps drowned out some of the other important questions in the consultation.
This first consultation paper started by looking at the other charters in existence around the world and highlighted three potential purposes which a charter could fulfil:
- ‘it provides users with “headlines” about their rights and responsibilities;
- ‘it sets out a statement of some of the broader values of the organisations in their relationship with customers;
- ‘it establishes the standards of service that customers can expect from the organisation.’
Again, perhaps more attention was focused on the middle one of these aims, because there were some very promising features in the consultation paper.
It promised the possibility that ‘broad principles such as treating customers courteously, dealing with their issues promptly, being fair and professional’ could be included under this heading.
It also said that ‘a charter is often seen as a good vehicle for this because it can set out more flexibly the broad principles as opposed to specific rights and responsibilities’.
What had, perhaps, been missed were the references to HMRC staff, particularly in the discussion of the first bullet point above.
Although these were comparatively anodyne, such as ‘it makes it clear and transparent to staff what is expected in working with customers’, it seems to have been the combination of HMRC staff input and the section on rights and responsibilities which caused the subsequent problems.
Rights and responsibilities
In principle, as the document outlines, there is a lot of sense in combining both rights and responsibilities in a charter. Sometimes there is an inherent link between the two:
‘a right for the customer to be presumed honest; and a duty on the customer to be honest in dealings with HMRC.’
Quite rightly the consultation document made it clear that entitlement was not linked in the same way; a failure by the taxpayer to meet a charter responsibility would not disentitle him or her to the corresponding charter right.
However, sensible though it might seem to make this link, it does rather depend what the purpose of the charter is.
From the profession’s point of view, by the middle of last year there was a strong feeling that the need for a charter, and a statutorily-backed one at that, was the only real hope of tipping the balance back on HMRC powers, where it was felt that the new rules were heavily weighted in HMRC’s favour.
So although it makes a lot of sense when starting from scratch to balance rights with responsibilities, it is not so clear that this is the right approach when the charter is seen as the taxpayer’s last line of defence against an over-powerful fiscal authority.
Consultation response
The summary of responses to the consultation was published in November 2008 with the pre-Budget report, and was entitled A new charter for HMRC and its customers.
Inevitably the first response was a negative one to the replacement of ‘taxpayers’ by ‘customers’, coupled with a positive reaction to the promise that there would be at least some statutory framework requiring the charter to be issued and updated.
The other announcements in the pre-budget report meant that the rest of the comments from the consultation rather took a back seat.
The consultation reinforced the view that the three elements outlined in the consultation should all be addressed by the charter, at a high-level strategic level.
However, about half of the people who thought that service standards should be included (as part of the third bullet point above) also thought that they should be included only as annexes to the main charter.
The point which perhaps was overlooked in the consultation response was the unusual level of involvement of HMRC staff in the process. As well as a list of 29 businesses and representative bodies who responded, and 13 individuals (including seven HMRC staff) who responded formally to the consultation document, there were workshops and questionnaires for HMRC staff and focus groups for ‘customers’.
Altogether 460 HMRC staff and managers and 100 individual customers responded in this way.
There were also other ‘fora and workshops’ for individuals and agents, including about 120 contributions from ‘seldom heard’ groups such as pensioners, those with learning difficulties, students etc.
I find it hard to decide what I think about this. In principle it seems laudable, and certainly if the charter is genuinely to be a document allowing taxpayers to understand personally what they can expect from HMRC then it makes sense.
However, it’s not clear that a charter which fulfils that function can also genuinely fulfil the purpose for which the profession wanted it.
We needed something which could be used in arguments and even tribunal cases to limit the apparently wide-ranging powers which HMRC now have. Often the only limitation is one which requires information to be ‘reasonably required’.
While legislative backing would strengthen the case for quoting charter provisions as evidence of unreasonable request, the consultation document’s acceptance that ‘the Government has decided to include a clause in next year’s Finance Bill to explicitly recognise the existence of the charter’, although welcome, seemed weak.
How many?
A further problem is shown by the statement in the consultation that ‘about a quarter of respondents, mostly individuals, expressed the view that the charter did not need legislative backing in order to be effective’.
Given the strength of feeling in the profession this seemed surprising, but a quarter of what? Are the 460 HMRC staff who made contributions all considered to be separate respondents, each ranking equally with the submission of the CIOT, for example?
Even if the comparison is only within the 42 formal responses, it still means that each of the seven HMRC individual responses are being treated as ‘worth’ as much as those from each representative body, which are trusted by thousands of members to put their point of view. It is far from clear how the quantitative statements in the summary of responses are to be viewed.
Indeed, it appears that HMRC had the same problem, since they say in paragraph 3.40 that:
‘including obligations was also seen by some a few [sic] as a way of obtaining increased buy-in from HMRC staff.’
And this, it seems to me, is where things have gone wrong. I understand that there has been considerable disquiet among HMRC staff about the charter.
They were apparently concerned that they would be held individually to account by taxpayers for breaches of it. I can see nothing in the charter which indicated that might happen, and if that was the concern it could have been specifically addressed.
The perceived need to obtain staff buy-in was presumably behind the continuing involvement of staff members as well as stakeholders in the drafting of the final draft for consultation published on 3 February 2009, which appears to have completely changed the direction of the charter.
HMRC first
The first thing that was wrong with it was the name: HM Revenue & Customs Charter. That, of course, was precisely what it was not. Even in HMRC’s own jargon it was a charter for its ‘customers’.
The CIOT rightly pointed out that the actual draft charter includes very few ‘rights’ that taxpayers can expect from HMRC.
These are that customers can expect HMRC to:
- Treat you as honest, believing that you are willing to pay what you owe, claiming only what you are entitled to, unless we have good reason to doubt you.
- Respect you, listening to your needs and taking into account your circumstances.
- Provide you with accurate information, making it easy for those who try to get things right.
- Recognise your right to be represented by someone else.
- Protect the information that we hold about you.
Included within this same section is something which is not a right at all, but a threat: ‘pursue relentlessly those that break or bend the rules’.
Given HMRC’s view of what might constitute ‘bending’ the rules, this is an extremely worrying provision to have in a charter which is supposed to reassure taxpayers.
What’s missing
Combined with this weak set of rights is the weak legislative backing they have been given.
All that clause 91 says about the ‘rights’ within the charter are that they are ‘standards of behaviour and values to which HMRC will aspire when dealing with people’. So there is no real expectation, let alone a requirement, that HMRC will meet these provisions, they are merely ‘aspirational’.
Coupled with the omission of any sensible legislative backing, many of the key rights which were expected in the charter simply are not there. These included provisions such as ‘treat you even-handedly and in accordance with the law’, and ‘aim to keep the costs of paying tax and claiming benefits as low as possible’.
These omissions are supposedly in part because the charter should fit on a single side of A4, but in that case why not omit the couple of sentences at the beginning of the document which explain what HMRC does?
Absent even from the omitted sections is any reference to taxpayers being treated ‘fairly’, something which might have been used to attack the proposed withdrawal of equitable liability.
Surely if you don’t have equitable liability you must have inequitable and unfair liability?
Start again
Sorry, but this just won’t do. In an attempt to keep staff onside the whole purpose of a charter has been lost. We need real statements of principle about fairness, assumptions of honesty, minimising tax collection.
We also need these to link through to more detailed examples of what they mean in practice.
This is what happens in the Australian charter, a model to which every consultation document seems to have referred, but without actually adopting this key element to the way that it works.
And finally, we need to have a legislative provision which says that these are the standards which a taxpayer can ‘reasonably expect’ to get from HMRC.
Only then are we going to get anything worthwhile from this charter.
