… about us.
HMRC published its consultation papers on 15th August called “Making Tax Digital” along with a series of other matters. Originally it was called “Making Tax Easier”. I assume they omitted the words, “to Collect” in error. The Telegraph focused on the draconian penalty regime proposed (The Telegraph, 16 August 2016). The Times was most interested in the new proposed powers of HMRC to penalise advisers involved in tax avoidance.
These proposals go to the heart of the relationship between government and the people. HMRC seeks powers to require unpaid work from citizens and will find itself destroying the understanding that used to exist. The relationship appears to be broken, and it seems like time to rethink it.
For centuries, tax was understood as government taking a share and using it as it saw fit. Excess taxation toppled Kings. Now, the people, and sometimes the media, are complicit in creating the illusion that tax equates to charity. Tax is necessary for society to work, but it is not inherently a benign thing.
Let us have a look at some of the proposals.
At the centre of the plan is the digital tax account (“DTA”). Most people’s income is mainly taxed at source or reported to HMRC as it is earned. The DTA is a record for every taxpayer summarising the data HMRC holds, allowing it to be validated annually. This seems easier than preparing a tax return, if HMRC get it right. But the insidious problem is that HMRC plans to use this technology to increase the number of people completing tax returns using from about 10m at present to 50m by 2025.
People whose affairs are at all complex, having more than £10,000 of income from unreported sources will provide data every three months – this covers most self-employed and freelancers, along with people with investment income. That is a lot of work, and a lot of deadlines giving rise to potential penalties. The purpose: HMRC gets digital information earlier, allowing them to process it and check tax receipts.
Four returns a year gives three more opportunities to get it wrong, miss deadlines and pay penalties. Meanwhile, HMRC resists the suggestion that paper returns should remain an option. Why? Processing paper tax returns means employing people to process them; it’s far cheaper for government if the taxpayer does it.
Taxpayers suffer penalties if they make a mistake. Mistakes by HMRC result in no cost to HMRC and it is naive to think they will not continue to make mistakes just because they have a new system. The playing field is very uneven nowadays, and HMRC will have vast swathes of data concerning taxpayers, allowing them to fish for more tax, and of course, to get it wrong.
The concept of the so-called “MTD” (Making Tax Digital) consultation is to move the burden and risks of compliance work to taxpayers, freeing HMRC resources to make enquiries and investigate. The rewards all accrue to government. It allows intrusion and unnecessary and inappropriate enquiries. There must be protections for taxpayers.
Far from it, though. Despite the world’s most extensive set of tax legislation, government seems determined to remove the ability of taxpayers to seek advice.
Government wishes to impose heavy penalties on banks, lawyers and accountants who assist clients to avoid tax (The Times, 17 August.) What on earth does this mean? While the tax avoidance subject warrants a separate article, taxpayers must be free to seek advice from professionals to ensure that they do not pay too much tax. The professional bodies, notably the ICAEW have robustly expressed the concern that advisers may so fear repercussions, that people are denied proper tax planning advice.
Government has every right to impose penalties on unlawful acts. However, tax avoidance is not unlawful, so until it becomes so, there cannot be a basis for penalties, even if the adviser gets it wrong. If, as proposed, penalties are imposed for lawful acts that government does not find acceptable, we start down an unconstitutional path.
- If HMRC get their way, taxpayers will have to provide HMRC with more information, more frequently than at present, consuming more taxpayer’s time, money and energy.
- This will allow HMRC to investigate more people more quickly with fewer staff, at a greater cost to the taxpayer because more enquiries will be costly and inconvenient whether the taxpayer is right or wrong.
- Threats to tax advisers will render it ever more unlikely that taxpayers will get good advice, resulting in less ability to plan their affairs efficiently.
HMRC wants this because it can, pretending that it is in the public interest. The public needs to understand that this is not just attacking small number of people. It attacks us all.