Crossroads?

TO JAW, JAW, was, as Winston Churchill famously said, better than to war, war. Perhaps I am being a little melodramatic, but lately I have started to think that this might be a suitable phrase for both HMRC and tax advisers to bear in mind when considering their dealings with each other. After writing 'Zugzwang-a-lang' (Taxation, 29 June 2006, page 350), I did start to wonder whether I would spend the rest of my journalistic career writing critiques of HMRC; not something, I suspect, that I, HMRC or Taxation subscribers would particularly look forward to! It seemed to me that most of the problems that were and are arising could be resolved by effective communication between HMRC and advisers and the existing Working Together initiative seemed the best conduit for this. But is Working Together working as it should?

The HMRC view

I was recently invited to a meeting with HMRC at their offices at 100 Parliament Street and met Dave Carr, the Deputy Director of Central Compliance — which in the words on the departmental newsletter, 'coordinates and develops compliance strategies with other HMRC units to close the tax gaps, and oversees the powers review'.

I explained the background to the 'Zugzwang' articles and the feeling that was filtering through to Taxation magazine (following instances such as the proposed advance in tax return filing dates, legislation introduced without consultation, enabling letters, interventions, etc.) that practitioners were feeling, more and more, that their role in the tax system was being devalued.

Dave began by stating that the importance of agents and their key role in delivery, especially at the 'harder end' of the tax system, was recognised by HMRC. However, he also acknowledged that HMRC had not been doing the greatest of jobs in managing that relationship. The Working Together initiative was a step in the right direction, but Dave felt that other areas required attention and HMRC needed to focus more on how they engaged with, and how they could support, agents. He stressed that HMRC were keen to begin a dialogue with the profession to enable them to establish what they ought to be trying to do. It had to be recognised that dealing with a customer's tax affairs (whether a customer of HMRC or the agent) was an 'end to end process', which HMRC had to realise included the agent's work. Having recognised that, and the fact that at present the system operates as 'a semi-adversarial process', Dave felt that HMRC also had a role to play in advising agents on how they could carry out their work in a way which would assist HMRC; i.e. to ensure that the work of the agent was cost effective to them and their clients.

Steps were already being taken to progress matters in that regard, such as a recent 'open day' at HMRC's Bristol office and the fact that VAT practitioners were meeting with HMRC at seven locations to discuss revenue issues.

HMRC had also recently formed a 'Tax Advisers' Unit' to look — with Working Together — at service and compliance matters. Issues that it would address were a better service; improved communications; and to ensure that HMRC are 'alive' to the things that cause 'grief' to an agent in his day to day dealings with HMRC.

To take this forward, Dave said that HMRC were keen to have preliminary informal discussions with practitioners. As he put it, HMRC 'need to get a feel for the blend of issues affecting practitioners, especially those at the smaller end of the market'. They were keen to improve services to agents and were, for example, working on a new form 64-8 and procedure, and the online authorisation service with the ability of agents to 'tidy up' their own records, which would hopefully solve some of the problems associated with 'dirty data'.

Accountants' forums

For several years until 2005, the HMRC at East Hampshire and Wight Area held a regular 'Accountants' Forum' where any accountant or tax practitioner could come along to the meeting with representatives from the various HMRC work streams. These meetings seemed an ideal way for the practical problems of each side to be directed at the relevant people (both to and from HMRC) and seemed to fall very much into the Working Together 'vision'. There was a good attendance, often of between 50 and 100 local accountants ranging across all sizes of firms, but perhaps with many from small/medium-sized practices (that HMRC seem keen to engage with) and who presumably deal with the small/medium-sized businesses that make up a substantial proportion of the business economy.

It was a useful forum for such advisers to come together and share their experiences of the tax system with HMRC as well as each other. It seems that this was a local initiative, although I understand that there were one or two similar forums in Bristol (organised by Richard Mannion), Leicester, South London and perhaps elsewhere and out of which grew the Working Together initiative. If there are any other such 'accountants' forums' out there, I would be very interested in learning about these as other local accountants may be interested in them and this might be an incentive for other areas to consider forming a forum themselves.

Whither Working Together?

It seems to me that the relationship between HMRC and advisers is now at a crossroads. It has been mentioned to me — and this accords with my own experience in practice at that time — that a substantial amount of goodwill was built up between HMRC (or the Inland Revenue as it then was) and advisers when income tax self assessment was introduced. This necessitated changes in legislation and practice and there was a great deal of cooperation between the two sides to ensure that the introduction of the system was a success. This is not to say that there were not problems, but it did seem that HMRC and advisers were 'fellow travellers' at that stage.

Sadly, it seems that recent years have seen that goodwill being dissipated. 'The introduction of self assessment led to a lot of tolerance on both sides. Will people exercise such tolerance in the future?'

Issues such as the revision of HMRC's view of the settlements legislation in Jones v Garnett, the surprise inheritance tax changes to trusts, changes to tax return filing dates, enabling letters and the latest 'interventions', together with the perceived more aggressive stance taken by HMRC as compared to the Inland Revenue appear to have resulted in an increasingly widespread view in the profession that their importance to the smooth operation of the tax system has been eroded. There is a feeling that 'things are being sprung on agents' and surprise that HMRC are not discussing proposals with the profession. The merger was felt to have 'thrown everything up in the air'.

It has also been suggested that the message coming from HMRC is that most advisers are crooked or would be, whereas one professional source suggested that 'the reality is that most are honest, trying to do a professional job and would not know a tax avoidance scheme if they fell over one!' As an aside, the fact that this is probably the case may be supported by a PricewaterhouseCoopers' survey ('Enterprise in the UK: Impact of the UK tax regime for private companies') which showed that with regards to nine tax incentives provided by the Taxes Acts, awareness of the reliefs was low (41%) and actual usage was even lower (11%). Businesses that are not using the legitimate reliefs available are presumably unlikely to make use of riskier avoidance schemes.

'Interventions' are the latest cause of grief. But this seems to have been another missed Working Together opportunity. One correspondent agreed that 'TMA 1970, s 9A is a blunt instrument and the objective of a “lighter touch” was something that the profession had been after for years. Communication between HMRC and the accountancy and tax profession on this issue might have resulted in a more practical, robust and “do-able” procedure'.

Another correspondent suggested that HMRC needed to realise that Working Together should be trying to make life easier for both themselves and the profession, 'by ensuring that there is no “grit” in the system'.

A customer facing organisation

At the outset of Working Together, I understand that Ministers had told the Revenue that it had to be 'a customer facing organisation'. With regards to their relationship between themselves and their 'customers', several contributors have wondered how HMRC will manage their departmental cut backs, and the move from 'area management' to 'business streams', yet still provide a good customer service. What is crucial to the success of Working Together is that everyone is kept informed of the initiative's work and the benefits of it, that suggestions are made to improve it, and that the parties are honest and direct with each other.

Is this happening? As an example, AccountingWeb recently reminded us of David Varney's statement that 'my vision for HMRC is one in which small businesses will know where they stand, with simple information on what they owe, what they have already paid and what they need to pay available when and in the form they need it'. Several people to whom I spoke despaired of the fact that when the recent client statements of account were wrongly issued without showing the payment due on 31 July 2006, the Working Together team were not notified at an early stage. This was an instance when, if HMRC could throw off their distrust of the profession, some input from advisers may have been useful in warning practitioners in advance — via their websites and the press — that there was a problem and may have suggested ways of working around it. The suggestion was that HMRC training should include a module written by the Working Together team to encourage staff to ask themselves such questions as 'how does an agent or client react on receipt of this letter?'.

Several contributors have praised the commitment of HMRC staff at national level to Working Together, particularly Theresa Middleton and Keith Lang. However, there is concern about the impact of the reassignment of Keith and the departure of Sir David Varney who has ensured that either he or his deputy have attended every National Working Together meeting. There is a feeling that others in the department do not share his commitment to the initiative or to 'the customer service ideal' and the worry is that his successor may not give this the attention it deserves. It was suggested to me that the way in which Working Together works prevents those involved at national level from singing its praises when it succeeds in improving matters, giving a preponderance to bad news if there are areas where it fails to make progress.

Such concerns are reflected at local level. In addition to the fact that, as I understand it, the local Working Together functions now fall into a different 'business stream' to the national meetings, the departmental reorganisations mean that many HMRC staff at local level are unsure whether they will 'remain in post' in the coming months, thus threatening the continuity of local relationships that have been built up over a period of years.

There is a feeling that HMRC needs to reinvigorate its staff in this regard.

Trust

There seems to be a feeling that although working with HMRC can be a frustrating experience and a lot has been achieved, a lot more progress could have been made had HMRC listened. HMRC say that they are keen to help agents work more efficiently and ensure that they are attending to areas of importance to HMRC. From the profession's side, one suggestion was that HMRC might make their risk assessment factors for businesses available to agents, thus enabling them to concentrate on the pertinent areas. Such information might of course be restricted to accredited agents as part of their 'rights and obligations' commitment to the tax system, but Working Together could multiply the message from HMRC regarding practical issues. The comment was made that 'HMRC have a “blind spot” and had to understand that the profession can be trusted to have ideas shared with it at an early stage'.

There was a general perception that the relationship between the profession and HMRC had 'deteriorated' or 'gone backwards'. The comments 'lost its way' and 'a big disappointment' were also made.

Several comments were made to the effect that Working Together needs to concentrate on operations and compliance and to be solving practical problems and not getting sidetracked into political areas. There was also the question of whether some professional representatives might have lost sight of this and 'gone native', with HMRC simply using the forum as a sounding board, which was more properly the function of the operational consultative committee. This leads to the question of whether a change of personnel might reinvigorate the system from the professional side and the politics of doing this; although, again, there would be a danger of losing the experience and commitment of present members.

Where are we going?

Let's hope that the relationship between HMRC and advisers does not simply stall at the crossroads — the traditional siting of gibbets I seem to recall — and that the demise of the printed Working Together publication is not symptomatic of a greater malaise.

Perhaps I should end with some comments of Loughlin Hickey in last year's Hardman memorial lecture. 'I believe that people working together are capable of great things. I believe that people ignored or made to feel untrustworthy in turn do not trust others. Without trust we are in conflict and can become blind to opportunities to make things better. This is as true in the area of tax administration as other areas of life, as in essence we are dealing with the attitude of taxpayers towards contributing on trust to a common fund over which they have no direct control on the way their contribution is expended.'

Issue: 4068 / Categories: Comment & Analysis , HMRC powers , Admin