The Economics of The Madhouse

The internal chaos within HMRC over restructuring and job cuts seems to be affecting not just the efficiency of HMRC, wrt answering taxpayers queries and processing claims etc, but also HMRC's ability/desire to collect tax revenues.

It seems that, as a result of a shortage of tax collectors, the taxman is not chasing tax debts of up to £20K.

Over the last year the number of tax collectors has fallen from 8,700 to 8,000. As a result of Gordon Brown's "efficiency" drive there is no money available to hire replacements.

Therefore HMRC are "cutting their cloth to suit their budget", and focusing their resources on collecting only the larger tax debts.

Mark Serwotka, leader of the Public and Commercial Services union that represents tax staff, questions the costs and benefits of the "efficiency" measures introduced by Brown. He is quoted as saying:

"This really is the economics of the madhouse. It is ludicrous that tax that could fund vital public services is going unpaid because of arbitrary targets to slash jobs. The priority of HMRC and the Government should be ensuring the integrity of the tax system and that everyone pays their fair share."

A memo from senior managers in HMRC's debt management office details how tax collectors are prioritising debts of over £20K on income and corporation tax, and £15K on VAT and PAYE underpayments.

The HMRC document states:

"We are aiming to reach a stage where all debts over £10k are actioned, without delay."

The reality, according to sources talking to Financial Mail, is that this is unlikely to happen in the foreseeable future. HMRC sources have told journalists that any debt of less than £20K was not being pursued.

HMRC dispute the leaks and state:

"HMRC continues to pursue all debts and collects tax as it has always done."

Well, they would say that wouldn't they?

I would draw HMRC's attention to this comment, that was made here a few days ago:

"I've been in HMRC over 20 years and have never known it as bad as it is now. Thankfully, I'm getting out.

The new CIS system is an absolute shambles and we have been told not to chase outstanding employers returns because they are classified as low priority.

In addition, we have been instructed to not bother putting any cases into court with a monetary value of less than £3000."

The questions that Brown and his sidekick Darling need to ask themselves are these:

1 Is the restructuring improving the efficiency and effectiveness of HMRC?

2 Is HMRC a worldclass organisation fit for the 21st century?

Tax does have to be taxing.

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The Nearly Man

Why is Dave Hartnett still only "acting" head of HMRC?

Do Gordon Brown and his sidekick, Alistair Darling, not think that Hartnett is up to the job?

Are they looking for someone else to fill the role?

Are they waiting for Hartnett to kiss arse, a certain number of times, before they remove the word "acting"?

Tax does have to be taxing.

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HMRC's Magic Carousel

Now, as we all know, HMRC being a tool of the state is "honour" bound to treat everyone in exactly the same way and not be discriminatory.

The cynics amongst you might argue that HMRC achieves this by treating everyone equally badly. However, it would seem that some are treated more badly than others.

VAT traders have accused HM Revenue & Customs (HMRC)of discrimination, as a result of HMRC's attempts to reduce the costs of the fallout from the carousel fraud scam.

The traders say that despite complying with new regulations, HMRC is delaying repayment of hundreds of millions of pounds due to them from VAT rebates.

Peter Carnall, owner of Eurostar Global, believes that he is being "treated like a criminal" by HMRC.

He is quoted as saying:

"They have forced Eurostar to be without finance and to have extensive problems because of their actions. They haven't paid us a penny."

Mr Carnall has been trying to reclaim £114,000 from HMRC for nearly a year, without success.

"Nearly 12 months after it started trading Eurostar is still without any money which HMRC commissioners are arguably illegally holding."

Martin O'Neil, a senior consultant with Vantis Tax, business advisers that are handling more than 20 delayed payment cases, says:

"We know that fraud exists but it doesn't follow that everybody should be tarred with the same brush."

Carousel fraud has occurred where fraudsters have obtained VAT registrations to buy items VAT free from other EU states before selling them at VAT inclusive prices, they then disappear before HMRC can claim the VAT.

HMRC has decided to use the "one size fits all" approach, and work on the assumption that all VAT registrants are criminals until proven otherwise. This of course goes aginst the basic concept of English law, "innocent until proven guilty".

As such HMRC have slowed down VAT registrations and introduced the "reverse charging mechanism" for the sales of mobile phones and computer chips (where the carousel fraud occurs). Under this mechanism the customer is responsible for paying VAT first, before the trader makes a claim.

A VAT Tribunal recently ruled in favour of Livewire Telecom, over a £2M VAT claim, prompting hopes of a speeding up of payments by HMRC.

However, these hopes have been without foundation. HMRC will appeal against the decision and states that:

"We have had no complaints about delays."

HMRC in denial as ever!

Tax does have to be taxing.

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The Politicisation of HMRC

A few weeks ago HMRC sent 150 of its "finest" in to one large listed UK company. This was revealed by "acting" HMRC Chairman Dave Hartnett, during a Q&A session with the Public Accounts Committee about corporation tax issues.

He stated:

"When I meet the chairman of a public company it is to look him straight in the eye to explain why and how we are conducting an investigation. That is why I told the chairman of a public company not many weeks ago that we are putting 150 tax inspectors into his company."

Hartnett went on to say that this investigation was one of "half a dozen" that he had become personally involved in over the past two years. However, the "flash mobbing" of one company with 150 inspectors is a significant political step on the part of HMRC.

Hartnett said that HMRC was encountering new and aggressive avoidance techniques. He explained that there were advisers who were designing bespoke, niche avoidance schemes to business, and that a pattern was emerging where companies would move brands into an offshore company and then pay for the use of the brand in order to avoid tax.

Now here is where I have a problem with the attitude of Hartnett, HMRC and the government.

There is nothing wrong with tax avoidance!

When I was being taught the basics of tax, back in the mid 1980's, our lecturer made sure that we clearly understood the difference between tax evasion and tax avoidance.

- Evasion, eg under declaring or hiding revenue, is illegal

- Avoidance, eg making use of your legitimate allowances, is legal

The fact that Hartnett and his political masters seek to blur that very clear distinction, in their efforts to politicise HMRC, fills me with loathing and contempt.

HMRC's role is to collect tax in the most efficient and cost effective manner possible, it is not here to pass commentary on the legitimate efforts of people to avoid paying tax.

Unfortunately, those running HMRC are now kowtowing to Brown and his ilk, and their poltical agenda, in the hope of receiving rewards such as gongs and defined benefit pension schemes.

A politicised HMRC, ie one that has become the tool of the state, is something that is to resisted at all costs.

Simplify the tax system, and the costs of running HMRC and time and effort expended by people in trying to reduce their tax bills will fall.

Tax does have to be taxing.

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HMRC Buys Stolen Goods

Some rather interesting news emerged over the weekend, about HMRC buying a series of CDs containing the personal details (eg bank accounts) of a large number of British citizens.

Could this be the missing CDs that HMRC lost last year, containing the details of 25 million child benefit claimants?

Errrmmm......No.

These CDs apparently contain the details of a large number of wealthy people who hold bank accounts in Liechtenstein.

HMRC are so keen to track down every penny of tax, that they believe is owed to them, that they have now stooped to paying off nefarious characters in order to obtain information about suspected tax evaders.

HM Revenue & Customs paid £100K to Heinrich Kieber, for data that it will use to launch investigations of up to 100 British citizens who have accounts at Liechtenstein's biggest bank (LGT).

Now, you may well ask, how did Herr Kieber obtain this data?

Well, he seems to have nicked it.

In 2004 he was convicted of fraud for stealing sensitive information from his employer, LGT, the biggest bank in Liechtenstein, which is controlled by the principality's royal family.

Nice doing business with you Herr Kieber!

Maybe someone should remind HMRC that it is an offence to knowingly handle stolen goods?

Now that these CDs are in the hands of HMRC, given their lamentable track record with regard to information security, can we expect these CDs to be "lost" and then appear on the open market again for purchase at the highest price?

Of course HMRC would argue that none of this subterfuge, unpleasant dealings and costs (in terms of time, money and effort) would have to be undertaken if people didn't go to such extraordinary lengths to evade tax.

That in itself is true, up to a point. However, one of the prime motivations for tax evasion is the complexity of the tax system.

Simplify the tax system to resolve this problem, and cut the costs of collecting tax:

- increase the personal allowances to around £10K
- introduce a flat rate of tax of around 20%
- abolish all other perverse taxes such as; stamp duty, CGT, IHT, NI etc
- increase the rate of VAT to make up the shortfall

Do the above, and there will be a dramatic reduction in the amount of time, effort and money expended by both taxpayers and HMRC in trying to wade their way through the tax system.

Tax does have to be taxing.

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Rearranging The Deckchairs on The Titanic II

Further to my earlier article about HMRC "celebrating Gay Lesbian and transgender month" (albeit with a "secret" co-ordinator); it seems that, despite all the fanfare with which HMRC claim to be "right on" wrt gay and lesbian issues etc, reality falls somewhat short of the spin.

I received this email from a lady today, who is far from happy with HMRC's heavy handed treatment of her and her partner.

"Dear Ken

Re 'celebrating Gay Lesbian and transgender month with various events.'

The 'event' it should start with is writing off the tax credit overpayments of its LGBT 'customers' who have had their honesty in declaring a same-sex partner (as required under the Civil Partnership act 2004) rewarded by demands for thousands of pounds back, apparently representing credits overpaid on their sole awards now that their living arrangements are differently viewed, and their partners recognised in law.

My own honesty in advising HMRC of this on 5th December 2005 - the moment I was supposed to - was to receive a (2005) Christmas present of an overpayment bill for £5880 which I have been fighting ever since, with the help of www.taxCC.org.

Not only that, but HMRC - with my details before them - insisted in repeatedly referring to my partner as male, despite her very gender-specific first name. They also referred to our living together as a 'household breakdown'. Very enlightened, LGBT-aware treatment that!

These heterosexist assumptions and hurtful description of our supposedly 'changed circumstances' persisted without apology until January 2007, when - after being instructed by the Adjudicator to do so - HMRC eventually grudgingly gave one.

The letter glibly states: 'Let me assure you that we take the human rights and the equality of our staff and customers very seriously. HMRC has just been placed in the top 100 of the workplace equality index (WEI) of Stonewall, the organisation that promotes equality for lesbians, gay men and bisexual people (LGB)'.

So that makes it alright then?

'Tax does have to be discriminatory'".

Tax does have to be taxing.

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