So what was that HMRC survey all about?

You may have seen headlines in the printed and online media last week claiming that "One in five businesses consider relocation over punishing tax regime" or that a 'poll' reveals that companies claim that "Red tape burden is on rise". I'll save the publishers' blushes by not providing links to them.

The background to this 'story' relates to a survey commissioned and published by HMRC last year. The results have only just been published.

In 2009 HMRC engaged TNS-BMRB to conduct their Large Business Survey. This involved 1,088 telephone interviews with large businesses in autumn 2009.

So the first thing to note is that the data is at least 9 months and possibly a year old. It may have a value to HMRC but it is almost irrelevant as a measure of current opinions.

HMRC have published the telephone questionnaire that was used and this shows that the target respondent was head of tax. If there was no one in that role the caller asked for the head of finance. It is also clear that this was:

a survey for HMRC to explore large business customers’ experiences of doing business with them.

and that:

The research will focus in particular on perceptions of change to HMRC’s relationship with it’s customers. The aim of the research is to help HMRC to be more responsive to businesses such as yours.

Deep in the questionnaire there are two questions which have been the focus of media coverage:

To what extent does HMRC's ADMINISTRATION of the UK tax system affect how competitive the UK is as a place to do business?

and

In the last 12 months. has your organisation considered re-locating the business, or parts of the business, from the UK to another country for TAX PURPOSES?

Looked at in the context of the whole questionnaire these seem startlingly out of place. Almost every other question relates to the relationship with and service provided by HMRC.

Going back to the 'news' stories referenced above, there are no 'claims' here. The first of the two questions asks for opinions out of context. The second question also seems designed to secure partisan responses. Many company Chairman and Chief Execs, seeing reference in the papers to the subject last year will have wanted to "consider" moving their business offshore. Once their Head of tax or FD has explained the necessary consequences however, few are taking the idea forward. Indeed, going back to last autumn when the question was asked, most will have wanted to wait for the outcome of the election. Views expressed under the previous regime are almost irrelevant now.

So what was the point of these two questions? Any ideas?

Copies of the full questionnaire and the report (outputs from the survey) are available on HMRC's website.

Don't be fooled. HMRC are NOT going soft...

The FT has published an article headlined: Tax officials to soften stance on avoidance. This is being picked up and widely misinterpreted in my opinion.

AccountingWeb asks: Is Dave Hartnett going soft? Elsewhere the FT's headline has been bastardised as: HMRC goes soft on tax avoidance and: Revenue 'to go softer' on tax avoiders. In the latter case at least the difference between avoidance and evasion is not made clear. The implication given is that tax evaders and avoiders will have an easier ride in future. This is misleading to say the least.

The author of the FT piece is the highly regarded Vanessa Houlder (although I suspect the headline was picked by a sub-editor). Let's see what's really going on.

I'll start by picking out a couple of key quotes from the article:

The Revenue’s fresh approach is primarily focused on business rather than wealthy individuals.

Mr Hartnett said: “If it is a strong case, we will fight to the death.”

Now let's go back to the opening paragraphs:

Revenue & Customs will adopt a less combative approach to resolving tax disputes with businesses in a move designed to cut a mounting legal logjam and unlock billions of pounds tied up in court battles over avoidance.

Dave Hartnett, permanent secretary for tax at HMRC, said there had been examples of officials being too “tough” in disputes over tax assessments. “HMRC is packed full of very intelligent people, but we are sometimes too black-and-white about the law,” he told the Financial Times.

I know Dave. The prospect of him going 'soft' on 'abusive' tax avoidance, whether undertaken by individuals or businesses is as likely as Gordon Brown being invited to join the coalition government.

Bottom line. This is all about a welcome change in the way HMRC approach tax disputes with large corporates. The central themes of the Litigation and Settlement Strategy (LSS), launched in 2007 are:

• Seek non-confrontational solutions where possible.
• Focus on issues that will best serve HMRC’s goal of tax gap reduction.
• Choose cases for their wider impact, as well as for their own value.
• Where we have a strong case we should seek full value from settlement, or take the matter to litigation.
• Do not pursue weak arguments.

The LSS was introduced in line with the Varney Review (Links with Large Business) principles which commit HMRC ‘to fewer enquiries, focused on material items and concluded more quickly’.

Not surprisingly HMRC are under pressure to reduce costs. They want to reduce the resources they tie up in long-lasting disputes and the number of cases they lose. In the real world of course even if HMRC are advised that they have a more than 50% chance of winning, it's likely that the taxpayer has been told the opposite (ie: that HMRC have a less than 50% chance of winning). Either side could still lose.

No doubt HMRC also want to speed up the collection of funds due to them from settlements. As the FT reports:

The recent £1.25bn settlement of the five-year dispute with Vodafone was an early indication of the policy change.

All of which points to a more commercial (as distinct from a 'softer') approach. Certain elements of the LSS may well be changing and that may be perceived as good news for companies in dispute with HMRC. Everyone's legal costs may fall as a result. There may also be a return to more 'horse trading'.

Overall though this only really affects companies involved in large scale disputes with HMRC. It should lead to faster resolution of disputes on realistic terms and less risk of having to go to court to prove your case.

As the FT report, HMRC are 'softening' their approach. They are not going soft. Only very naive or mischeivious advisers and commentators would suggest that this change in approach means HMRC walking away and letting more companies get away with 'abusive' tax avoidance activities. And as I highlighted above, "The Revenue’s fresh approach is primarily focused on business rather than wealthy individuals."

Why does it take HMRC 2 months to register the self employed?

A contributor to the blog brought this to my attention. On HMRC's website they say that the expected turnaround times for paper based self assessment and self employed registrations is currently 8 weeks. And that it will stay at 8 weeks until November.

The implication is that they would prefer the time lag was shorter than this. And that the position will improve but not until November. But 8 weeks from the posting of an application until confirmation is received of the self employment/assessment registration? As my anonymous contributor notes:

"Are they trying to ENCOURAGE the black economy?"

HMRC explain that the delay is due to the redeployment of resources to higher priority work. It is this that will result in the lengthy turnaround times for paper forms handled by the Central Agent Authorisation Team until 31 October 2010.

This seems to be yet further evidence that HMRC's staffing numbers were cut too sharply by Gordon Brown and that MORE staff are required to deal with basic functions such as the prompt registration of compliant taxpayers who want to register their liability to pay tax on time.

What if HMRC did the same as SOCA?

A comment on a recent blog post here has drawn my attention to a report in the FT: Deterrent letters put criminals on notice.

It seems that the Serious Organised Crimes Agency (SOCA) is writing to known criminals when they leave the country to tell them their departure has been noted and to “wish them a nice time”. And "welcome back" cards are sent to them on their return through ports and airports.

Apparently the rationale for this is the idea of rational choice theory, where people weigh up the potential benefits and costs of their actions. The cards and letters are intended to say to the individual: you have to make a choice, you can either play the game or not. And that every action and choice has its consequence.

I remember when the Disclosure Of Tax Avoidance Scheme (DOTAS) regime was first introduced in 2004. At the time I was Chairman of the ICAEW Tax Faculty and had many discussions about DOTAS with colleagues and Revenue personnel. I don't recall anyone referencing rational choice theory but I'm sure DOTAS was intended to have a similar impact to SOCA's letters and cards. The idea being that only the most positive risk takers would want to flag their involvement in structured tax avoidance schemes.

The practice seems to have been quite different. Many promoters (especially the naive and deceitful ones) tell taxpayers that DOTAS means the Revenue have approved the scheme. They haven't and they now make this clear on the Spotlights page of their website. Nevertheless taxpayers have NOT found their tax affairs generally bearing increased scrutiny as a result of the obligatory inclusion on their tax returns of their involvement in a registered tax avoidance scheme.

It's too late now but can you imagine the impact if, over the last 6 years, HMRC had written to everyone with DOTAS numbers disclosed on their tax returns? Such letters could have thanked taxpayers for complying with the law. The letters would also have explained that the taxpayer's affairs would now be under increased general scrutiny. This would only have had the desired impact of reducing interest in discloseable schemes if HMRC were seen to carry through with their threats. In practice they don't have the resources to do this. And these days any such letters would therefore be dismissed by the promoters of schemes as empty threats.

Do you agree? What do you think would be the impact of such letters?

Taxman says "pay up or else" to its 'customers'...

I've been reading an article in Taxation magazine about a new style of letter being sent out by HMRC. The article is titled: 'Just pay’ demands omit contact details. I too would have assumed this was an oversight but Taxation reports that HMRC have confirmed that the

"Lack of address and phone no. is deliberate."

I am afraid this reveals that (whoever authorised this within) HMRC has a complete lack of awareness and understanding of real life.

You can't blame HMRC for wanting to collect the monies that are due to them. It's absolutely right that they should write seeking immediate payment of overdue sums. And that their letters point out the consequences of a continuing failure to pay.

Taxation reports that:

While the ['just pay'] letters shows the company’s PAYE reference number, there is no HMRC office address included. Instead, space is used to say ‘No contact required. Please pay on receipt.’ The telephone number is given as 000 000 000.

HMRC have apparently explained that the reason for this deliberate exlcusion of a phone number or office address on what they call 'just pay' letters is that:

‘they are used on low-value, high-volume debts where the use of people-resources to chase would not be efficient’.

A department spokesman is also reported to have explained that:

‘Where a debtor has been repeatedly advised of their liability, through correspondence with contact details, but has not taken steps to contact us to resolve the issue, it is not unreasonable for us to assume that they have no need of contact and to ask them to “just pay” their debt,’

Er, YES IT IS UNREASONABLE.

In the case reported the tax wasn't due, there had been a mistake by HMRC. It's just as likely that the taxpayer hasn't opened previous correspondence or has put it to one side and forgotten to deal with it. Many people do not give their tax affairs the priority perhaps they should. Some taxpayers are more focused on generating profits from their business and put off dealing with papers from the taxman. Sometimes they simply forget despite good intentions.

When the taxman pursues outstanding monies it should ALWAYS make it as easy as possible for its CUSTOMERS to pay. It does that fine. HMRC must also make it as easy as possible for taxpayers to SEEK CLARIFICATION or to QUERY the amounts being claimed. A failure to recognise the need for this to be made EASY to do is poor CUSTOMER service. And, as we know HMRC does like to refer to taxpayers as 'customers'...

I'm sorry some people abuse such enquiry facilities. This is no reason though to deny all taxpayers the facility to easily check the veracity of demand notices. Especially when, as in the case of 'just pay' letters, these threaten legal action, including the seizure and sale of goods or bankruptcy, if payment is not made.