HMRC’s squeeze will pile pressure on taxpayers

Friday, June 11, 2010 | Posted by: Dave Jennings
Categories: Protecting your wealth | Tags: tax, HMRC, government, Dave Jennings, budget, online, trends, deficit, public sector, amnesty, DIY, HNWI unit, Anti-Avoidance Group, efficiency, call centres, spending, self-assessment, helplines, cuts

Expect less help from your ‘local’ tax office and more onus on you to understand and sort your tax affairs as public sector cuts start to bite.

Spending cuts are service cuts
The Conservative/Liberal Democrat coalition has agreed to review government spending in order to address the UK’s multi-billion pound deficit. Inevitably, the public sector will feel the squeeze. And while traditional cost-cutting at the Inland Revenue saw staff having to produce their worn-out Biros before being given a new one, any additional budget-slashing is bound to impact the service taxpayers receive from HM Revenue & Customs (HMRC).

Cost-efficient tax collection
The drive for a more efficient tax department is not new; the previous Government chipped away at the former two departments – the Inland Revenue and Her Majesty’s Customs and Excise – following their merger in 2005. The intention was to generate more revenue for less cost.

Departments such as the Anti-Avoidance Group and High Net Worth Individuals (HNWI) unit were created to focus resources on areas that traditionally receive high returns (a high ‘yield to cost ratio’).

Cost-effective ‘amnesties’ have been run, encouraging the taxpayer to do the leg work while HMRC reaps the disclosed rewards for little manpower.

Smaller corporates have been offered a customer relationship (previously only available for large multinational businesses) to encourage an ‘open and transparent’ approach to paying tax.

Changing HMRC’s service for individuals
But what about the other millions of income taxpayers who don’t warrant special attention? How will a more ‘efficient’ department (that aimed in 2005 to lose 10,000 staff by 2010) meet their needs in terms of service?

If you have little interaction with HMRC, you may not have noticed the gradual disappearance of opportunities for face-to-face dialogue. Once upon a time, the Inland Revenue Enquiry Centre was a fixture in most towns. These were staffed by Inland Revenue officers and inspectors who would, between 9am and 5pm, be a face who could answer your tax queries.

You would also have had a telephone number for your tax office, and been able to contact it with any queries. If you were a director, you probably had a named individual you could call.

Ineffective helplines
If you look up your local tax office online and enter your postcode, you will find that the HMRC website responds promptly.

Let’s say you are a self-employed individual and live in central Leeds. Then you can contact your local tax office, which is Central Yorkshire for individuals, and the number is 0845 300 0627.

If, however, you are an employee in north London, you will need to contact the Oxon and Bucks Tax Office for individuals, on 0845 300 0627.

Those of you with a keen eye for detail will notice this is the same telephone number, and not necessarily located in Oxon or Yorkshire.

On dialling HMRC’s call centres, if lucky enough not to hear the engaged tone, you can press through the menu options only to be informed that all the operators are busy, asked to do your own research or ‘look online at the frequently asked questions’ before then being cut off. Or if you are really lucky you can sit on the line as you wait, and wait, and wait.

DIY tax trend
Efficiency measures will inevitably mean an increased amount of DIY for taxpayers. Filing online will become compulsory, but cost-cutting means that HMRC is unlikely to invest in a system that can cope with the demands of so many millions of users.

Taxpayers will increasingly be encouraged to find their own answers on HMRC’s website. Those game enough to have a go will find themselves highly penalised under the new penalty regime if they ‘carelessly’ get it wrong.

And the future?
There is some good news for those who rely on HMRC’s guidance as seen in the recent Tax Tribunal case of B&J Shopfitting Services v HMRC TC390. In this case the taxpayer relied on HMRC’s website which stated that “If all the tax has been paid by 31 January the penalty notice will be issued in the sum of nil as the penalty cannot exceed the amount of the tax outstanding at 31 January.” However, this guidance did not apply to partnerships and the taxpayer found himself issued a penalty for a late tax return even though the tax outstanding on 31 January was nil.

HMRC agreed that its website was misleading but argued that this was not a reasonable excuse as ignorance of the law is no defence. However, the tribunal agreed with the taxpayer and found that it must be reasonable for a taxpayer to rely on HMRC’s guidance and HMRC must ensure that it does not mislead taxpayers into mistaken acts which incur a penalty. 

Image: © Joel Ormsby

Read more posts by Dave Jennings