Taxation vs Justice

My thanks to Anthony Thomas (Chairman of LITRG [Low Incomes Tax Reform Group], past president of CIOT and Master of the WcOTA) for providing me with the text of a speech about taxation that he made on the 1st of March at the Worshipful Company of Tax Advisers Budget Banquet where David Gauke was the main speaker.

Here is an extract of the speech:

I am sure you would be surprised if I did not make any comments about HMRC this evening, especially at a Budget Banquet and so very likely would our fellow diners.

Ever since HMRC was set targets for yield back in 2010, the “tax” world has been undergoing a significant transformation. There is an inevitable tension between maximising yield and maintaining fairness between taxpayer and state, and that tension is increasing. HMRC and the profession must work together to ensure a good outcome, which is bound to affect every person in this banqueting hall even if they do not practice tax or are guests of members. Of necessity, the transformative journey is a long one----perhaps infinitely long. It is crucial that both the objective of each step on that journey and the means are clear not only to those who are supposed to be leading it from the HMRC side, but also those impacted by the changes, taxpayers, tax agents and many more.

Chris Jones, the current president of CIOT has recently commented on the digital agenda. He quite rightly pointed out that the government’s digital strategy is most certainly not constrained by ambition. That must be the understatement of the year so far. In 2015 the Chancellor signalled the end of the tax return. That statement took the country by surprise. There was an emphasis on making tax easier, a slogan that promised to reduce the administrative burden.

Subsequently---one might say predictably---there appears to have been a change of emphasis---simplicity no longer features in the ambitions to make tax digital. Concerns have quite rightly been raised by many against the compulsory aspects. And not just by those in the tax profession. Even HMRC accepts that filing business records with HMRC on at least a quarterly basis cannot be made to work for everyone. HMRC’s own research published last August showed there are very significant numbers who for various reasons will be incapable of coping.

I can understand the government wish to drive into the digital world and I support that. But the response from government on digital was a little disappointing. Their response to mandation was interesting—I quote—“quarterly updates will largely be a matter of checking data generated from record-keeping software or app and clicking send”. This simplistic response, by way of a “sound bite”, is worrying. There could be no clearer indication of HMRC’s failure to understand how businesses operate, especially smaller ones. Nor does it give any appreciation or recognition to the huge burdens and costs that would be placed upon ordinary citizens and businesses in trying to comply while at the same time attempting to run their business and deal with the vast array of other state-imposed bureaucratic burdens, which add absolutely no value to their businesses or day-to-day lives.

Every pronouncement focuses on how quarterly reporting will help taxpayers, of course. But I suspect the truth is that record information will be subjected to computer analysis and used as a further tax compliance tool in HMRC’s relentless, misguided and wholly unachievable quest to eradicate incomplete records, with penalties for those who get things wrong and needless enquiries when HMRC fails, as it inevitably will, to understand the numerous innocent reasons why records, accounts and returns do not seem to match. If the information is to be used simply to highlight the few tax evaders that HMRC already know about, then this seems to place a disproportionate burden on the tax compliant. Of course we all expect HMRC to do what it can to ensure that the right, rather than the maximum, amount of tax is paid. I would be a lot more relaxed if I was confident that HMRC is being transparent about its intentions.

I am confident that most taxpayers and the tax profession are supportive of the government ambition to exploit digital technology to assist tax collection and compliance. However, little thought appears to have been given yet to the immense communication programme that will have to be rolled out, if the changes are not to prove a disaster and harm the already fragile relationship between taxpayers and the fisc. It is no exaggeration to say that digital will not work easily despite assurances by HMRC that in many cases this will be simply done by clicking the “send” button. It is naïve to think that it will be that easy.

On a concern for tax litigants that I raised in September, I cautioned against the Ministry of Justice’s proposals for tax appeal costs. Regretfully they have been imposed more or less unchanged in spite of robust challenge by the legal, accountancy and tax professions. Access to law has become the preserve of the rich---and of course HMRC, whose costs we pay for anyway. The new appeal costs have been implemented and consequently justice will not be available to the less well off or the poor. This is the very constituency which crucially ought to have access to justice, particularly against an increasingly aggressive tax authority. The concern for justice is also worrying the Lord Chief Justice.

 In his annual report Lord Thomas noted “Our system of justice has become unaffordable to most. In consequence there has been a considerable increase of litigants in person, for whom our current court system is not really designed”. How right and how concerning. Particularly in tax cases, the technical issues are routinely beyond the understanding of non-professionals. Now HMRC Officers, perhaps with inadequate training and with one eye on yield targets, may find it all too tempting to leave to a Tax Tribunal the exercise of sound judgement that they should have exercised personally.

That of course might be an easier way to get a quick win, simply because a taxpayer might not have the money to have his case heard. That would be a sad day for the relationship between HMRC and the taxpayers it should be serving and a sad day for democracy. Anyone with a legitimate case but limited means now faces a huge burden. There was a time when the rule of law ensured that justice, rights, lawful judgment, liberties and security was available to all but regretfully, this is no longer the case.

The Latin phrase “Quis Custodiet Ipos Custodes” can be translated as “who will supervise the supervisors?”

On tax matter, the tax profession increasingly has to do that---Parliament certainly does not do the job effectively. Sadly, it is becoming very difficult and time consuming. The many who ought to be listening seem not to hear.

“Justice between citizen and State”, is the translation of the motto that appears on the CIOT cost of arms. The owls on either side of the shield signify the wisdom of tax officials on the one hand and of tax advisors on the other. They are shown as balanced to indicate the aim of both sides to achieve justice and impartiality. However, I do question whether, today, there is in reality equality as between tax adviser and HMRC. It is hard to detect on occasions. Our valid and carefully thought out comments are sometimes dismissed as obstructive or self-serving. HMRC needs to recognise that the tax profession is honest and does a worthy job and that sunlight is the best disinfectant. Marking your own homework is totally counter-productive, as HMRC discovered when it attempted to refresh the Charter.

The public have increasingly exacting standards. They want justice to be done and to be seen to be done. It is not acceptable to be judge, jury and executioner. Some may feel that public shaming is a reasonable way to deal with tax dodgers. But we should be wary of government or departmental attempts to mobilise popular anger to extend state powers or toughen laws in ways that are questionable or Orwellian. History tells us that an ill-informed populist reaction
can be used all to easily as a stalking horse for oppressive or bad law.

The new strict criminal liability offence for failing to make offshore disclosures, and the new draconian GAAR penalties are clear and chilling examples----and it is a temptation that must be resisted until there has been a clear public debate into which all sides enter honestly and openly.
So where do we go from here? There needs to be a better way forward and I think there is one.
Our tax system could be much clearer. It could be much simpler. It should be easy to understand so that everyone knows how much tax they have to pay, why and when; and there should be proper, easily understood and realistic safeguards for taxpayers. Parliament needs to ensure that it does not over extend the might of the executive.

Taxpayers have a right to be able to understand how much they are paying and how it is calculated. The digital world will surely achieve that objective at least. There should also be greater certainty in tax so that businesses and individuals can plan ahead with reasonable confidence that the legislation will not be amended in the short and medium term. That is not an unreasonable goal, albeit that at the moment HMRC often seems to be driving tax policy in very much the opposite direction which is understandable if it is given a target to maximise revenue, which surely is the remit of Parliament, not the executive. In closing I readily confirm that the tax profession and tax professionals are willing to help achieve those laudable objectives of simplicity, certainty and fairness.

Comments and opinions are welcome.

Tax does have to be taxing.

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