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UK Tax Industry Concerned By HMRC's Expanding Workload

by Jason Gorringe,, London

15 January 2018

The Association of Taxation Technicians has called on HM Revenue and Customs (HMRC) to ensure that its taxpayer services do not crumble under strain when the Making Tax Digital initiative is rolled out alongside the UK exiting the European Union.

MTD was a controversial announcement from the Government, with concerns then about the administrative burden on small firms. Initially, the UK Government was to introduce mandatory digital record-keeping by small businesses and landlords from April 2018.

In July 2017, the UK Government delayed record-keeping obligations concerning income tax until at least April 2020 and provided that, from 2019, only businesses with a turnover above the value-added tax (VAT) threshold, currently GBP85,000 (USD117,300), will have to keep digital records and only for VAT purposes. They will have to: keep their records digitally (for VAT purposes only), and provide their VAT return information to HM Revenue and Customs (HMRC) through MTD-functional compatible software.

With comments that echo concerns raised in a new report from the UK's Public Accounts Committee (PAC) on HMRC's performance in 2016-17, Yvette Nunn, Co-chair of ATT's Technical Steering Group, said: "We share the PAC's concerns about the additional pressures facing HMRC and the risk that this may negatively impact on taxpayers' dealings with them."

"We believe that the situation will only become more challenging for the tax authority and taxpayers alike, with the upcoming introduction of MTD. We strongly urge HMRC to retain the levels of telephone support for taxpayers until MTD has been established."

"HMRC need to realize that automated messages are a source of frustration; by making it hard to speak to someone they increase the risk of taxpayers guessing the answer and getting it wrong."

"There are serious concerns as to whether HMRC's digital infrastructure can cope today. We have already seen unexpected system failures during the busy Self-Assessment tax season in January 2018, as well as delays in giving agents access to the Trust Registration Service."

"The PAC notes that HMRC's original assumptions on the extent to which customer demand could be reduced were too aggressive in the past – there are concerns this could be the case for the introduction of MTD also. Taxpayers are likely to need significant support when MTD is first introduced. We suggest it is unlikely to result in a lack of demand for phone calls in the short term, at least."

The ATT also addressed a different finding in the PAC report: that small- and medium-sized enterprises are the main contributors to the UK's tax gap (the percentage of total revenue that goes uncollected each year). The ATT urged that caution should be exercised with regards to the finding in the PAC report that SME non-compliance makes up a large part of the tax gap, noting that it could largely be as a result of unintentional errors, rather than intentional non-compliance.

"While the SME Tax Gap is stated to result from errors or a failure to take reasonable care, the complexity of the tax system is likely also to be a contributory factor. Errors resulting from a failure of small businesses to deal with complexity could increase if HMRC struggles to maintain service standards in the future," said Nunn.

"There is a risk that focusing on the SME sector will cause them to feel victimized, which may push them more towards the hidden economy. MTD may reduce errors but this may have a negligible impact on those businesses and individuals in the hidden economy who deliberately evade tax by operating under the radar – for instance, not registering with HMRC, or under-declaring their income."

The Chartered Institute of Taxation (CIOT), too, warned that HMRC risks stigmatizing SMEs without better Tax Gap scrutiny. John Cullinane, CIOT Tax Policy Director, said:

"HMRC have clearly believed for some time that the impact of small- and medium-sized enterprises (SMEs) on the Tax Gap is especially significant. The nature of this issue merits a more detailed explanation from HMRC than the tax authority shares at present. Without more granularity on the nature of the impact on the Tax Gap, HMRC risk stigmatizing SMEs, which could be unfair and does not seem calculated to improving whatever underlying behavior is the cause of the problem. It is also unhelpful to the public's understanding of tax. If more focussed information on SMEs and the Tax Gap is simply not available to HMRC, then more needs to be obtained, so targeted initiatives can begin, which we would be keen to support."

"For example, we are still awaiting publication of the final report following the Business Records Checks initiative, which would both indicate the extent to which inadequate record keeping contributes to the Tax Gap and provide more information on the nature of the errors."

"HMRC's statistics on customer service and call handling, which show a clear improvement, warrant further investigation to see if this is because, in part, some services have been switched off. For example, early in 2017 HMRC stopped providing pay and tax details over the phone to agents, because HMRC were being flooded with calls, but they did this before a suitable alternative arrangement was made available. This risks HMRC being seen to say that customer service has improved, when in fact in some areas they are simply providing less of a service."

TAGS: individuals | compliance | tax | small business | business | value added tax (VAT) | United Kingdom | tax authority | HM Revenue and Customs (HMRC) | standards | HM Revenue and Customs (HMRC) | services | Europe | Tax

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