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The National Audit Office has found that tax agents help their clients get their tax correct, but, according to a sample of 2004/05 tax returns, self-assessed income tax returns filed by taxpayers represented by agents are more likely to have under-declarations of tax (resulting from error, failure to take reasonable care or evasion) than returns filed by non-represented taxpayers.
A key reason may be that the tax affairs agents deal with are more complex.
However, under-declarations for represented taxpayers represent a much lower proportion of their total tax liability, compared to figures for unrepresented taxpayers, with the average underpayment on tax returns filed by represented taxpayers being £900, i.e. around 15% of total liabilities, while the average for unrepresented taxpayers was £350, approximately 35% to 40% of total liabilities.
However, the NAO suggests that HMRC could increase tax revenues by providing better support to tax agents and by tackling of poorer ones.
Lack of data on individual tax agents currently prevents the department’s taking a tailored approach to its dealings with agents and providing feedback on performance.
With better use of data, HMRC could make more targeted interventions based on risk and achieve greater value for money.
According to the report, HMRC recognise the importance of developing its relationship with tax agents and have taken steps to work more effectively with this group, e.g. with the introduction of a priority telephone line for agents’ queries on self-assessed income tax and PAYE.
The department has also encouraged tax agents to file tax returns online.
Amyas Morse, head of the National Audit Office, said HMRC have:
‘a strategy for working more closely with tax agents but implementation will require a plan detailing how the expected benefits will be achieved. To the extent that there are opportunities to increase tax revenues significantly, it may make sense to incur some short term set-up costs’.
The Chartered Institute of Taxation welcomed the recommendations in the report on how HMRC and tax agents could work together more closely to improve tax systems and services.
However, it is disappointed by the age of the data used (more than five years old) and by the lack of in-depth analysis. Additionally, the report takes no account of over-declarations of tax which can clearly be very significant.
‘We see this as a missed opportunity’, said Anthony Thomas, CIOT deputy president.
‘It would have been really useful to have had proper analysis of who are making these errors and why. We have been working with HMRC for many years on these issues; it is unfortunate that the report does not reflect this. Nor does it look at HMRC's own error rate.’
He welcomed the acknowledgement in the report that ‘were it not for the work of good agents in ensuring clients get their tax right, the level of under-declarations could be significantly larger’.
He went to say:
‘tax agents save the Government money both by helping their clients get their tax bills right and by taking on tasks that would otherwise fall to HMRC’.
Frank Haskew, head of the ICAEW Tax Faculty, while welcoming many of the recommendations in the NAO report, said the faculty was:
‘disappointed that the report contains a number of more controversial conclusions based on a survey of the work performed by tax agents which we do not think is sufficiently detailed to justify those conclusions.
The data appears to suggest that tax returns where an agent was engaged are more likely to have underdeclared tax than those where an agent wasn’t engaged, but we do not think that this compares like with like’.
He concluded:
‘the survey appears to compare chalk and cheese and we think the NAO report is a missed opportunity.
This is disappointing given the considerable concerns about HMRC’s own service standards and the continuing discussions between HMRC and the tax profession to improve standards and relationships.
With HMRC under immense pressure to do more with less and the Comprehensive Spending Review due on 20 October, the timing of this report is unfortunate’.
