Mixed Reaction To HMRC Budget Cuts

by Robert Lee, Tax-News.com, London

25 October 2010

Despite the coalition government's renewed drive against tax avoidance, not even HM Revenue and Customs was spared Chancellor George Osborne's spending axe in the recent Comprehensive Spending Review, raising doubts that the department will be able to meet ambitious collection targets.

The CSR, announced by Osborne on October 20, aims to slash public spending by GBP80bn over the next few years, and means that HMRC will see its resource spending cut by GBP300m to GBP3.2bn by 2014/15. In addition, the department's capital spending will be reduced by 44% to approximately GBP100m over the same period.

While these reductions will be achieved largely through efficiency savings, for example by automating a number of manual processes and reducing 'face to face' contact between the department and taxpayers, tax experts suggest that further losses in manpower, coming on top of the recent cuts to senior staffing levels, could result in a net loss for the Exchequer.

“The Revenue is already unable to do its job adequately so a further cut makes no sense," says Philip Fisher, Tax Partner at PKF.

Neal Todd, a senior tax partner at City law firm Berwin Leighton Paisner, added that the budget cuts put more onus on the government to follow through with its pledge to make the tax system more simple and less onerous.

"Given the complexity of the current tax code the cuts announced in HMRC's budget threaten its ability to operate effectively," he said. "A diminished HMRC can only administer the system fairly if the tax system itself is simplified. The recommendations of the Office for Tax Simplification cannot therefore come soon enough. A simpler and internationally competitive tax regime is vital to attract business and investment to the UK."

The government has ring-fenced GBP900m in public funds to crack down on various forms of tax avoidance, targeting in particular those with undeclared offshore assets and those bringing cheap, untaxed tobacco and alcohol into the UK, but Fischer believes that this policy "conflicts with such a large cut" in the department's budget.

Gary Ashford is Head of Tax Risk, Disputes and Investigations at RSM Tenon, and expects the government to use these funds to divert more resource into tax investigations, in particular working with information it has obtained from third parties through its recently expanded information powers to pursue discrepancies.

"We have already seen the use of tax disclosure campaigns as these are resource efficient and we expect more campaigns to follow," he commented. However, Ashford argues that a fairer way to deal with non-disclosure "would be to offer a tax window so everyone is able to benefit from an amnesty rather than limit it to specific groups."

A recent survey of 390 entrepreneurs carried out by RSM Tenon found that nine in ten entrepreneurs want additional resources to be put into combating tax evasion, and almost half (46%) want HMRC to enter into more agreements with overseas jurisdictions aimed at reducing offshore tax evasion.

The vast majority of small businesses, however, would also doubtless welcome action to simplify the tax system so that opportunities to 'play the system' are removed and incentives to send money to low-tax jurisdictions are reduced.

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