A career in taxes

Key points

• The mid-1970s marked the end of a decade of profound change in the UK tax system, but there were no computers in sight.
• HMRC is one of the most digitally advanced tax authorities in the world, so the challenge now is to restore public trust and to be seen as fair and just in all its dealings.
• About £1.2bn of the tax gap reflects tax avoidance. By contrast, illegal activities cause estimated annual tax losses of £13.2bn.
• It seems inevitable that all tax advisers will be subject to regulation.
• Policymakers should concentrate on who should pay how much tax and on what.
• Even if the public understanding of taxation is at a low ebb, the public awareness of taxation is greater than ever.

The world of 1976, when I began my career, training as an inspector of taxes in what was then the Inland Revenue, seems like a faraway land. Having retired at the end of March 2022, two questions inevitably arise. First, where did all the time go? Second, what are the major changes which have occurred over the years?

Career – noun and verb

Career, as somebody once observed, is a verb as well as a noun. That is certainly apt to describe my initiation into working for the Inland Revenue. In 1972, I embarked on a university degree in geology. New discoveries in the earth sciences, coupled with a boom in oil and mining exploration, made a career in geology an exciting proposition.

However, things did not quite turn out as I had expected. By the time I graduated, much of the oil and gas industry was looking for production engineers, not exploration geologists. I received a very promising offer to work with asbestos but, even in the 1970s, its dangers were becoming apparent. There were, of course, other opportunities. A three-year contract with an oil company in Southeast Asia would have changed my life in more ways than one: the contract was unaccompanied and my fiancée and I were about to marry. Not ideal! A career in geology was beginning to look less likely.

Here, career asserted itself as a verb. Following a university vacation job in the local tax office, the district inspector had recommended that I should also consider becoming an inspector of taxes via the open Civil Service exams. That proved to be prescient advice, so on 23 August 1976, having got through those exams, I began work as a trainee tax inspector in a west London tax office. In 1982, having discovered that I enjoyed taxes but not so much the Civil Service, I joined the accounting profession.

Profound change in the UK tax system

The mid-1970s marked the end of a decade of profound change in the UK tax system.

Capital gains tax had replaced various forms of income tax on gains. Surtax had been replaced by higher rates of income tax. Estate duty had given way to capital transfer tax. VAT, as an EU tax, was new on the scene and was administered by HM Customs and Excise. Benefits in kind were being taxed more systematically than ever before. Companies were paying the relatively new corporation tax instead of income tax. And district inspectors in local tax offices up and down the country, for decades appointed as the local representatives of the Board of Inland Revenue with ‘independent command’, were seeing their powers eroded as tax districts were organised into groups and regions.

Those local tax offices bore little resemblance to HMRC’s 21st century regional centres. Within the district, every individual taxpayer, PAYE scheme and company was allocated to a particular tax officer or inspector. While highly labour-intensive, this helped the department deliver a level of personal service which has now disappeared. These busy offices were full of paper. Computers would not appear on the scene for several years so, without expert filing clerks, the whole system would have fallen apart.

The future is digital

Fast forward to 2022 and we see HMRC striving to be a modern, digitally advanced organisation. It is disappointing that, over the years, a range of scandals along with increasing remoteness, poor telephone service and errors have undermined both public trust and the morale of HMRC’s own employees. HMRC is one of the most digitally advanced tax authorities in the world, so the challenge now is to use the collection, organisation, interpretation and presentation of data to rebuild the morale of its own people, to restore public trust and to be seen as fair and just in all its dealings. The way HMRC chooses to use its IT infrastructure will be crucial.

With making tax digital (MTD) for income tax just around the corner in 2024, HMRC must take a long hard look at the list of ‘specials’ and ‘exclusions’ which detail circumstances in which online income tax self assessment filing may not be possible (tinyurl.com/sam120540). Last time I looked, 71 circumstances were identified. Many of these are longstanding problems which have been known about since self assessment was introduced on 3 July 2000. HMRC must get a grip on this. It is ridiculous that MTD filings could be impaired by software shortcomings which will by then have been known about for almost a quarter of a century.

Rise and fall of tax avoidance

In some respects, my entire career in taxes has been marked by the drum beat of tax avoidance. Much has been written about the game of cat and mouse which has played out between the tax authorities on the one hand and would-be tax avoiders on the other. I will not repeat that here. However, it does seem to me that two points are easily overlooked.

First, it is tempting to allocate businesses and individuals to one of three possible groups:

• those who do their best to comply fully with their tax obligations;
• tax evaders; and
• tax avoiders.

This is to miss an important point. While full compliance or tax evasion may be a regular hallmark of a person’s tax behaviours, by its very nature tax avoidance is a temporary state. At its simplest, a tax avoider is a person who takes particular steps or actions on the basis of which they adopt a filing position which discloses a tax liability lower than it might otherwise have been. HMRC may accept that filing position or it may challenge it. If the challenge succeeds, the taxpayer will join the ranks of the compliant by paying more tax along with interest and penalties. If HMRC accepts the filing position, or if its challenge fails, then no more tax is due. The taxpayer has already complied with their obligations. While tax compliance and tax evasion may be stable states, so to speak, tax avoidance is metastable: sooner or later it will be resolved one way or the other.

HMRC’s tax gap figures for 2020-21 reflect this (tinyurl.com/hmrcmtg). The latest edition estimates that just £1.2bn of the tax gap reflects tax avoidance. By contrast, illegal activities such as evasion, criminal attacks and the hidden economy cause estimated annual tax losses of £13.2bn. The war on tax avoidance may be sexy, but it’s high time that parliament adequately resourced HMRC to tackle illegal activities. While MPs are making efforts to reduce the burdens on HMRC by, for example, using targeted allowances to remove many people from the tax net, there is little if any evidence that the enactment of new legislation is accompanied by a consideration as to the resources required by HMRC to administer that legislation in line with the intentions of parliament.

My second point relates to the unsuitability of tax avoidance arrangements for many individuals who buy into them. At the outset, the prospect of a substantial tax saving may be overwhelmingly attractive, especially if it is accompanied by some level of guaranteed litigation support should the arrangements be challenged by HMRC. Over time, the scheme buyer may find themselves suffering from increasing anxiety as the tax return enquiry deadline approaches. This anxiety may morph into profound worry and stress during any enquiry.

Over the years, I have talked with more individuals who have regretted tax avoidance schemes than have seen an overall benefit from them.

Calls for the regulation of all tax advisers

If the world of taxes was changing in 1976, developments since then have been revolutionary. UK tax law has grown massively, becoming so complex that many individuals and most companies cannot comply with its requirements without professional advisers.

HMRC now has more powers than ever. Many of these target tax evasion and avoidance, whether individual or corporate, national or global. Globalisation has raised its own problems for tax authorities around the world, culminating in new Organisation for Economic Co-operation and Development initiatives.

Simplification of the existing tax law is as important as introducing new tax law to deal with new situations.

The tax profession has also changed enormously. Demands for tax services, including compliance, advisory and contentious services, have mushroomed with the increasing complexity of tax law, the significant impact which tax can have on business and personal decisions and, of course, the consequences for taxpayers who get it wrong.

While most tax practitioners are members of professional bodies and conduct themselves to the highest standards, taxpayers remain vulnerable to unregistered practitioners whose advice may have shortcomings. There are far too many cases where what purports to be tax advice simply does not work, with clients left blissfully unaware until HMRC seeks recovery of the tax which ought to have been paid. Clients then find they have no support from the unregulated advisers on whom they had relied and no funds to pay HMRC because the tax saving has been spent. Such unregulated tax advisers simultaneously cause harm to taxpayers and to the exchequer.

Having contributed to the Independent Review of Legal Services Regulation (tinyurl.com/indrlsreg) I believe that it will only be a matter of time before all tax advisers are subject to regulation.

Advice for policymakers

Every country deserves a tax system which looks as though it was designed to be that way. MPs must raise their eyes beyond measures to boost the possibility of being re-elected at the next election and consider the legacy which they are creating now. Two examples illustrate the problem.

First, a recent tribunal case on the VAT position of flapjacks has once again shone a light on the UK’s outdated and inflexible approach to taxing food products. With the government priding itself on having ‘got Brexit done’, when will it finally take action to bring these rules into the 21st century?

Second, the burning question of what will replace fuel duty. Notwithstanding the UK’s statutory obligations in respect of the climate emergency, when quizzed by a parliamentary committee about the 2030 deadline, HMRC indicated no urgency to bring forward new proposals until 2029. Most likely among the possible alternatives is a form of per-mile road charging. This cannot be achieved in the legislative timetable between a consultation, a budget announcement and the resulting Finance Act. Huge infrastructure changes, invasive for businesses and citizens alike, will be required. Action is required now.

At the heart of tax policy-making is the urgent need to decide who should pay how much tax and on what. Policymakers must recognise this challenge and push it higher up the political agenda. If they do not, the UK faces the grim prospect of having a tax system which is not fit for future purpose.

Public concerns about tax justice

During my career in taxes, the two main purposes of the tax system have remained unchanged. Briefly stated these are to:

• pay for running the country; and
• permit a degree of redistribution.

However, the public understanding of taxation and the public awareness of taxation have changed significantly. The public understanding of taxation seems to have declined. Too many people have no idea how the PAYE system affects their employment earnings, or even what their National Insurance number is and why it matters.

Even if the public understanding of taxation is at a low ebb, the public awareness of taxation is greater than at any time I can recall. Back in 1976, it was not unusual to encounter people who genuinely thought that tax-dodging was a victimless crime. Somehow, the Inland Revenue was seen as fair game.

Now, tax dodging, money laundering and dirty money in all their forms are a matter of widespread concern. Organisations such as the Tax Justice Network, the Fair Tax Foundation and Church Action for Tax Justice have been formed to promote and recognise the use of tax and financial systems as powerful tools for creating a just society. It is not difficult to understand why. The £13.2bn lost every year to illegal tax activities is money that could be used to fund the health service, education or social benefits.

Fair Tax Week 2022 ran from 11 June to 19 June. In a neat twist, this coincided with the government’s wrangling about using tax cuts to shore up its parliamentary majority. Time will tell whether voters see through these shenanigans, recognising that tax cuts are likely to be swiftly followed by cuts in public services.

Respect at three levels

In closing, it seems to me that if the UK tax system of the future is to meet the needs of the country and its people, then respect has to be earned at three levels.

First, respect that the government of the day governs for all of the people, not simply those who elected it to power, which is a fundamental principle of representative democracy.

Second, respect that tax legislation creates social justice.

Third, respect that HMRC administers the tax system in a way which restores public trust and demonstrates fairness and justice in all its dealings. 

Issue: 4849 / Categories: Comment & Analysis