Tuesday, October 21, 2008

Tax advisers beat HMRC 60% of the time

Reuters reported today that the Parliamentary Public Accounts Committee has urged the Revenue to get tough on businesses dodging corporation tax and to sharpen up its investigations into compliance.

Whilst the message may be right I can't agree with the two quotes attributed to the committee's chairman, Edward Leigh:

"The fact nearly 60 percent of the Department's enquiries into compliance turn out to produce less than one percent of the additional tax raised constitutes very poor targeting,"

"It's extraordinary there's no correlation between the resources HMRC commits to each inquiry and the amount of corporation tax in question."

I'm trying to be objective here. Turn that first percentage around and you find that 40% of HMRCs enquiries are generating meaningful returns on the investment of time and effort. In the other cases it is possible that there was no material tax capable of being collected. Equally the taxpaying company, their accountants or tax advisers may have succeeded in defending HMRCs challenges. The tax at stake could have been high but HMRC eventually had to back down. They won't always have been wrong to open the enquiry. Will they?

On the second point, I think it's 'extraordinary' that the Committee seems to expect HMRC to become psychics. The quantum of tax collected as a result of an enquiry or an investigation cannot be determined at the outset. The amount at stake MAY become apparent during the course of an enquiry or investigation - even then this won't always be the case. But what does the committee expect HMRC to do? Close down all enquiries where the tax at stake is below a deminimus amount? Wouldn't we all like to know how much that is......................

I'm no apologist for HMRC and I've long been among the first to criticise and complain about their procedures and approach. But I'd like to think I'm fair too.

What do you think?

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