JOURNAL 37

WHY NOT INDEED?

“Why not file your Tax Return online?” said the note enclosed with my tax return. Why not indeed? Surely its time for me to square up to technology, to join the 21^st century, to realise that the computer is here to help me, not to create chaos with my life.

Of course it’s a nuisance that you can’t simply decide to fill in your return online and go ahead and do it. You have to decide in advance, apply online for an activation PIN then go away and spend days worrying whether or not you’ve done the right thing. But if a little aggravation this year is going to reap benefits in future years shouldn’t I overcome my resistance to dealing with what seems to me to be pointless bureaucracy and make the effort?

So I signed up and waited eagerly for the Activation PIN to arrive. A few days later an envelope plops through the door. The Activation PIN? No, a pretty plastic card telling me my user ID (which the HMRC website had already given to me when I had registered and told me to make a note of it, and which I had dutifully copied down). And, perhaps as a precursor of things to come, addressed to “Mr *R W* Maas PERSONAL”. But the next day the postman brought the Activation PIN (identically addressed) and a warning that it would self destruct, or meet some other such fate, if I did not use it within 28 days.

10.00pm January 29^th, log on to home PC. Input Authorisation PIN. Yippee. I am now ready to do my tax return. The computer takes me back to the Self Assessment Main Menu. That is now headed “Robert William Maas” (with no asterisks). Unfortunately, it contains a message, “We are unable to display your tax return information. This may be because…if you have only just activated this service, there will be a short delay before we can display your information.” Stare at the screen for a couple of minutes. Wonder what “short” means in HMRC parlance. Log out and play a few hands of solitaire. Come back 15 minutes later. The computer now tells me that I owe HMRC £25.08. It also says, “We sent you a notice to complete a tax return on 06 April 2006. Why not file your tax return online this year?”

Grit my teeth. Isn’t that what I’ve been trying to do for the last half hour? Click, “file your tax return online”. Now screen, “Welcome to the Online Tax Return”. Click “next” Page headed, “My Details”. HMRC helpfully tell me my UTR, my NI number, my home address and my initials. They also say that I must tell them my marital status and date of birth if I really want to file my return online. Hang on! What’s that got to do with my tax? I don’t have to give HMRC that information if I file the return manually. Perhaps the conspiracy theorists are right. The government want to build up a dossier on me. If I give HMRC information manually they can’t be bothered to record it but if I give it to them electronically it will get relayed to the government’s Big Brother computer. Decide I don’t care if the government know how old I am, and fill it on the page.

Press “next” and am presented with a page headed Other Forms. This tells me “You cannot currently use the Online Tax Return to submit the forms listed below. You will need to use 3^rd party products that support these forms, or complete a paper Tax Return. Disheartened, I read the list: Share schemes, foreign, trusts etc, capital gains, non-residence etc, Ministers of Religion, Lloyd’s Underwriters, Multiple chargeable event gains are also currently unsupported”.

Sadly I need a foreign page as, like I imagine several thousand others, I received shares in Abbey National when it floated and now receive dividends from Santander from which Spanish tax has been deducted for which I want a double tax relief credit. I also need a capital gains tax page because I have some transactions, albeit that my investment expertise is such that I have managed to amass more losses than gains.

There is a link to third party software; but HMRC very firmly tell me “We are not able to provide support for these 3^rd party products. Any queries or difficulties experienced by users should be taken up directly with the 3^rd party supplier”. I also notice elsewhere on the site a warning, “You cannot complete your Tax Return using a combination of different software”. In other words as I need to complete the foreign page I cannot use the HMRC online form at all, even for the rest; I have to rely wholly on third party software –some of which HMRC tell me is free and some of which I have to purchase. I look at the long list of supplier’s telephone numbers. It is now 10.45pm. What should I do?

Well, the answer to that is easy. I have had to collate all of the underlying information as I do every year. I have scheduled my dividends, my interest and my gift aid payments. I have worked out my capital gains. If I download a foreign page and capital gains tax page from the HMRC website it will take me 10-15 minutes to complete the form manually. I have already spent three times that trying unsuccessfully to complete it electronically. I doubt that any of the third party suppliers are eagerly awaiting my phone call at this time of night. And I cannot really see any point in seeking to acquire their software when, if something goes wrong, HMRC are going to say, “Nothing to do with us” and slap a penalty on me.

So I have filed my return again manually this year – and come to think of it, I will almost certainly continue to do so every year unless and until Lord Carter tells me that I can no longer do so. I cannot see any benefit to me in filing online. It takes me much longer to key in items than to write them out, so it is actually likely to be a lot quicker for me to complete the returns manually. I appreciate that online filing is far more convenient to HMRC but why should I care, particularly as they haven’t been very helpful to me. If when I had applied for the Authorisation PIN the computer had displayed a message, “You know this only copes with the simplest returns; it won’t even cope with people who own shares in Santander”, I would not have bothered to go any further. By not doing so they have wasted a good hour of my time, so why should I come about saving theirs?.

Robert W Maas

JOURNAL 36

SQUEEZING UNTIL THE PIPS SQUEAK?

A recent article in The Times said that by 2008 HMRC have been told to raise an extra £11 billion from improved compliance and enquiry procedures. As the total yield from direct tax is only about £126 billion this suggests either that the government believes that a staggering 8% of total tax revenues are lost by reason of mistakes (as opposed, I imagine, to fraud, most of which could not be identified by improved compliance and enquiry processes) or that the role of HMRC has changed from its traditional philosophy of seeking to collect “the right amount of tax at the right time” to seeking to collect as much as possible irrespective of whether it is legally or morally due. My impression is that it is the latter, but more of that anon.

The article went on to explain that HMRC staff have been told that the more money they raise from taxpayers the bigger bonus they will receive. I am not privy to the inner workings of HMRC but can virtually guarantee that this latter claim is nonsense. Firstly, I cannot see the staff unions agreeing to a system from which only a small proportion of staff could benefit or in which the ability of staff to benefit depends on how management decides to allocate jobs to individual people. Secondly it would be political suicide for any government to agree to the adoption of such a system as this would give a strong impression that the government were out to milk citizens for as much as it could get irrespective of the rule of law, and the citizenry would undoubtedly express their contempt for such a policy at the next General Election. Thirdly, if citizens lose confidence in the perception that HMRC seek only to collect the correct amount of tax, such loss of confidence would undoubtedly lead to a massive increase in tax evasion as people would see little point in complying with the law in circumstances where the State itself is not prepared to do so.

I understand that the Times article was repeated elsewhere in the press. I would not expect a newspaper to print a story that it believed to be so far fetched as to have not a scintilla of credibility. Which brings me back to whether HMRC are any longer trying to collect only the right amount of tax? This probably depends on how one defines “The right amount of tax”. Is it the amount that Parliament has laid down or is it an amount based on whatever figure an HMRC officer may pluck out of the air? Most people with little knowledge of tax would dismiss the latter alternative as a possibility. However the tax system, unlike most other areas of law, is not based on the principle that a person is innocent unless and until proved guilty, but rather on the somewhat odd concept that what he owes is whatever figure an HMRC officer may pluck out of the air unless and until he proves that the officer’s figure is wrong! This is a slight exaggeration. The officer cannot pluck a figure wholly out of the air; if he carries out an enquiry into the return he is required to “state his conclusions” from the enquiry, but this would seem to enable him simply to say “I conclude that the taxpayer had not evidenced everything to my satisfaction and I therefore conclude that his real profits are £X” (being the figure he has plucked out of the air). If he wants to make an assessment after the enquiry window is closed he has to form an opinion that income that ought to be assessed has not been assessed, and then form an opinion of what that amount is – but again this seems to enable him to pluck any figure that he wants out of the air.

I do not believe that, as a generality, HMRC pluck figures out of the air. However they do seem to me to be increasingly taking the view that people who receive cash in the course of their business and for whatever reason choose not to use an electronic till, as they are perfectly entitled to do, must have something to hide and that accordingly their accounts must be unreliable. I think this a very worrying trend. It is not for HMRC to determine what sort of records a person should maintain. Indeed it is very important that it is not for HMRC to do so, as my experience is that some HMRC officers expect people to keep the sort of records that went out of fashion in the 1950s and which nowadays no business person in his right mind would incur the very heavy costs of maintaining.

It is in this context that pressure from the government on HMRC to raise extra taxation from improved compliance and enquiry processes is extremely worrying. It is very easy for an HMRC officer to enquire into a small business, add on an amount of extra tax that the business does not owe in accordance with the intentions of parliament, and say to the taxpayer, “Either pay up or disprove my guess”. HMRC say that the taxpayer is protected because he has a right of appeal to independent appeal Commissioners. However this is somewhat disingenuous. The appeal Commissioners can only reach a decision on the basis of evidence and even then must uphold the HMRC guess unless they are satisfied that the evidence indicates that it is more probable that the HMRC’s figure is wrong than that it is right.

The problems of the HMRC approach to cash transactions also seems to me to be aggravated by the fact that HMRC families presumably operate to different standards to other people. I imagine that each week they ensure that their children give a receipt for their pocket money and would not dream of lending money to an adult relative without ensuring that a legally binding agreement is drawn up first. At least that is how I imagine that HMRC parents run their families, because HMRC officers with whom I deal seem most surprised and unbelievably suspicious when I tell them that a client has received money in cash from a parent and cannot produce the documentary evidence that they expect to accompany such gifts.

Pressure on HMRC to produce greater amounts of tax, where the real incentive on officers to do so is simply the ability to raise assessments that they know that the taxpayer cannot disprove, is far more worrying to my mind than paying officers commission on what they collect (which I hasten to add I do not believe that HMRC will ever do).

I would myself like to see “improved” compliance and enquiry processes” from HMRC, as I imagine would all other tax practitioners. It is depressing that, despite adverse reports from the Public Accounts Committee, no Treasury Minister has ever accepted that the level of mistakes by HMRC staff is unacceptably high. It is equally depressing that no Treasury Minister has ever admitted that the level of technical knowledge of many of those HMRC staff that interface with taxpayers is unacceptably low. I suspect that all tax practitioners would confirm the accuracy of those two statements. This is not intended as a criticism of HMRC staff; it is a criticism of HMRC staffing and training policies, both of which are of course dependent on the resources that the government are prepared to make available to HMRC.

Slashing 25,000 HMRC jobs, as the government have done, may make for good political soundbites. It does not make for a good tax system. It is wholly unrealistic for the Nation to ask HMRC to collect the right amount of tax without giving them the resources to do so. That is what is really worrying. A government that slashes resources to an utterly unviable level but at the same time demands that HMRC produce increased tax revenue can surely not expect it to achieve this within the constraints of collecting only the exact amount of the tax imposts that parliament has thought appropriate.

Robert W Maas