“We think you are all cheats and we’re coming to get you”

(or “by the time we’re finished you’ll wish you were employed under PAYE too”)

Time was that a major consultation programme on the idea of giving the Revenue more power might be headline news. 

However, the pace of change (additional law and red tape) is now so relentless that a major HMRC drive to increase Revenue powers has gone almost unremarked in public.  Somehow "Smeaton to visit New York" has more appeal that "wake up to an HMRC officer in your bedroom (and have no right to ask him or her to leave)".  However, the latter is really far more important if you run your own business than whether Kate Moss is really tipped to marry Paul McCartney (I made that up).

Aside from some minority interest articles the sort of magazines that are more embarrassing to admit to reading than soft porn (“naked Kristin Scott-Thomas inside” isnot the headline on the Tax Journal) not much has been said about this issue (sadly, reading Taxation magazine at Heathrow Terminal 1 does not enhance your chances of an upgrade and is as effective as having dog poo on your shoe for keeping people from sitting near you - must try it on a busy Edinburgh train soon).

I digress - I’ve always tried to avoid boring those people who take the time to read my observations on the life of a tax partner but I will take a chance here as I think that some of the following ideas for “reasonable powers” for an HMRC officer might make some of the self employed clients we have lose sleep (and remember this is the HMRC proposals for consultation i.e. they want these powers now) ......

1. a power for HMRC to access your bank account without a Court Order if they think you owe them money (NO Court Order - just in they go to your account and take it!).
2. a right to offset all and any tax liabilities in one area against overpayments elsewhere.
3. a right of unannounced entry to your business at any time and a right of entry to your home if your business is partly run from there (no Warrant/Court Order needed - just the safeguard of a senior officer..)
4. a right to look at your business records for the current year i.e. before you have submitted your return to test how good you are at book-keeping or to simply have a look - this means you can't rely on Milne Craig to tidy it all up.
5. a joint working policy for investigations - so you get Vat, PAYE and income (or corporation) tax visits in one go.
6. a right to demand information they want at any time up to 3 years after a year to which it relates (longer if there is dishonesty).

The consultation has some interesting general commentary.  The average full investigation lasts about two years.  The Revenue think their current structures don’t allow a quick way of getting in and out.  One of the main themes is that HMRC dislike the fact that PAYE and VAT visits are just that- visits – with a chance for a nosey – whereas income and corporation tax is based upon a system with no actual right to visit or see the taxpayer – the law envisages that a normal enquiry can be handled through correspondence and paperwork - as it sets out to verify the accuracy of the submitted return.

I have to ask what has changed?  The answer is, to me, simple – the Revenue want the powers Customs have.  VAT was introduced “only” 36 years ago (ish) and when it came into being the taxpayer got a slightly rough deal in that it was conceded Customs might want to visit.  As part of alignment (remember Customs and the Revenue are all “HMRC” now) it is obvious that Revenue officers want Customs powers.

What does this mean for you?  Well, the answer is “it depends” and there may be some good out of the changes I suppose.  Some clients might like joint visits...however, it is my experience that the stress for a smaller business of having a joint visit is immense and that full enquiries generally lead clients to

1. believe they are being victimised by the state
2. think of emigration or retiral/sale as a result
3. hate HMRC and take a more entrenched, cynical and obtuse approach

Indeed, clients who have regular dealings with the HMRC invariably come to the conclusion we have.  The systems don’t work and with the quality of staff is “variable”.  Some of their processes were clearly designed by the same person who developed the “heatproof glue” for the spaceshuttle tiles before going on to come up with the software plan for Tax Credits – in short –the system is constantly a problem and the sorry staff are stuck in it – some work round it, others give in and become institutional obstructions to your normal trade and end up with “computer says no” syndrome – sorry, Little Britain, your travel agent has left to join the Revenue long ago.

The risk here is that more power is now to be given out and that this includes a small number individuals who are not to be trusted to refill the photocopier with paper, let alone investigate your tax affairs in an impartial and articulate manner.  It is, frankly, more than just a technical worry for real small businesses who carry a disproprtionate burden of red tape.

The tax press (did I mention that it is socially unacceptable to read the Tax journals in public?) articles are actually good fun just now (trust me).  Even this week, a well written and amusing article confirms we are not alone in our belief that the HMRC systems don't all work - it's the old "leaning trains", the Titanic, the Dodo etc - it is doomed - other tax advisers are as worried as me – change is being driven through in the name of alignment and it's going to bring more misery for small businesses trying hard to keep up with the complications of the system. 

1. in the event you get through to HMRC by phone staff never give their name unless asked and even then only a first name (in the USA they automatically read their full name and staff number to you when you call for your log).
2. you cannot contact the Revenue by email as they have security/risk issues with that even though Customs permit this.
3. if you deal with Glasgow or Hamilton tax office the headed paper has a central Glasgow address, slowing mail by a couple of days- if you send it direct it is re-routed to Glasgow for sorting.  If you fax an HMRC office the fax takes a day to get to the officer in most cases.
4. VAT registration applications have a 12 week mail backlog.

I cannot, for the life of me, reconcile the theme of continual complaint in the profession with the HMRC “top level” initiatives to give more powers to local offices on debt management and enquiry work when these offices often seem to be undeserving of it. 

It brings me around to a further comment – Nick Leeson brought Barings to its knees because the London office allowed him to settle up his own trading book and report back to them at the end of the day (if I simplify this, I am sorry) – at the time it was said by other banks that Baring had made a “school boy error” in terms of normal fundamental good practice – the other traders on the floor knew he was in for a massive hit before Barings did....I wonder that giving Revenue officers more power to visit dark deeds upon a taxpayer (without the Commissioners or Court approval) has the same feeling to you too?

I’m afraid I have nothing much to say about tax within politics this month as it seems that Alistair Darling has said relatively little in the press so far.  George Osborne is busy trying to help with damage limitation after the Tory party made another attempt at internal suicide.  Oh, I say all that BUT the Mail on Sunday carried an interview with Osborne saying the Tories would scrap IHT on family homes.  That alone has to be worth a vote from anybody who wants to pay less tax and have some “fresh thinking” – it may be a chink of light appearing – a crack in the current establishment view which is founded upon a large state sector, lots of tax and lots of politicians (with fat pensions).

As an observation, the number or articles and amount of client interest in offshore structures is growing fast – take note Mr Darling! – and do not believe for a minute there is any way to prevent tax going overseas other than reducing the UK burden to a lower rate – for the super-wealthy UK tax is “optional” and only worth paying if it is at a low rate and the payment provides additional flexibility i.e. they can spend the whole year in this cold and damp island if they want (whilst enjoying the best sense of humour in the world –provided they don’t read by blogs).

A final rather odd comment - HMRC are thinking of starting to allow payment of tax by credit card - the reason they don't, at the moment, is that they have historically felt that encourages taxpayers into expensive debt to settle their tax - is it just me or do you think that sounds like a Nanny State rationale?  My experience is their debt management teams will be content to force the sale of your car, your house, your Rolex and your children for their money (maybe fair enough in most cases) - I can't see that payment by credit card should be contentious - at least you'd get some air miles and could fly a long way away before the next bill arrives!

Hopefully you’ve had a good summer too despite the weather – and thank you for reaching this far.

Regards

Donald

PS my good friend and client, Allan Ross, MD of “First Independent Finance” is trying to prove he’s not just great at building his businesses but can study too – his final stage of his MBA needs some business volunteers to be interviewed about the cycle of a young business life and how people plan for an “exit” or not.  If you’re willing to give him a little of your time, he’d enjoy that – he’s on allan.ross@f-i-f.co.uk – thanks!

***The views above are the personal views of Donald Parbrook and not those of the firm or any Institute to which we are affiliated.  The article is intended to be humorous (hard to believe, I know)***