Return of the tax muggles
April 26, 2013It’s like there’s this vast complicated otherworld existing alongside our own. In the otherworld – let’s call it Taxworld, for the sake of argument – in Taxworld there are people who understand the mysteries of tax, who speak its language and share its assumptions. Then there are the muggles, the rest of us, who live in the mundane world and don’t ever see the bizarre world of tax living alongside and parallel to our own, except when it thrusts itself into our attention in, say, a mysterious piece of code on a payslip or a scary brown envelope on the mat.
Me? I suppose I’m a Squib: I know the Taxworld is there, and I know some of its funny little ways, but I’m on the side of the muggles, mostly.
So here comes the head muggle, “Tax Prat of the Year” Margaret Hodge and her merry band, issuing their PAC report into Tax avoidance: the role of large accountancy firms
Their conclusions?
- The UK tax system is too complex and a more radical approach to simplification is needed
- There is no clarity over where firms draw the line between acceptable tax planning and aggressive tax avoidance
- It is inappropriate for individuals from firms to advise on tax law and then devise ways to avoid the tax
- Tax laws are out of date and need revising.
- Greater transparancy over companies’ tax affairs would increase the pressure on multinationals to pay a fair share of tax in the countries where they operate.
- HMRC is not able to defend the public interest effectively when its resources are more limited than those enjoyed by the big four firms.
The headlines, of course, are all about conclusion 3: is it appropriate for accountancy firms to loan out their staff to the Treasury and HMRC and then have them go back and work on the same legislation from the other side of the picture?
This is a red rag to a bull, so far as the accountancy and tax professions are concerned. They think of themselves as professionals, and that they are more like the barrister who can give objective advice to a party to a court case whether the person is innocent or guilty. They certainly do not recognise themselves in the “poacher turned gamekeeper” that PAC perceives.
To me the meat of the argument is in conclusion 6, but then I’m a retired tax inspector so I would say that, wouldn’t I? But HMRC has lost 10,000 staff and many of its qualified and experienced staff are in their fifties and are leaving at an alarming rate – and there is very little “backfill” of people who have been through training and being seasoned by experience to fill those gaps.
Accountancy Live also reports that “hard working tax accountants” pay has risen by 10% in a year to an average of £79,670. Which must be nice, because their HMRC equivalents have been frozen since 2011 at between £46,983 and £74,209.
So if HMRC is under-resourced, understaffed and underpaid, how are they to proceed except by borrowing staff from people who know about the subject under discussion? Would it be more reasonable to take staff seconded from, say, a steel manufacturer or a supermarket?
To me, this is one giant red herring. The responsibility for the existence of tax legislation and for the quality of that legislation lies with the people who make it, with Parliament. Since the coalition came to power it has had a clear set of priorities for the tax system, set out at article 29 on page 30 of The Coalition: our programme for government:
The Government believes that the tax system needs to be reformed to make it more competitive, simpler, greener and fairer. We need to take action to ensure that the tax framework better reflects the values of this Government.
Part of that framework was set out in Tax policy making: a new approach which led to the invention of the TIIN – the Tax Information and Impact Note. So each Budget they publish their proposals, consult on them, and then bring the legislation to Parliament along with a TIIN which tells you what the legislation does and why, how much it will raise and how much it will cost, and who will be affected.
Does Parliament ever look at them?
Do MPs ever challenge the legislation, and if they do, are any changes ever made?
Meanwhile the big glaring elephant in the room is the commitment to a tax system which is “more competitive, simpler, greener and fairer”. In Taxworld, a “competitive” tax rate is a lower tax rate – a rate which competes for business with other tax jurisdictions. Yes, it’s official coalition policy that, in the great multinational tax race, the UK should do its best to win the race to the bottom.
tiintax 
I agree, it’s point 6 that’s the kicker; a properly resourced HMRC could handle all the first 5 points.
But I am intrigued that you suggest we let MPs write tax law – with one or two honourable exceptions (Nigel Mills has been very active around this FB [disclosure; I did once work for the same firm as him]) MPs know even less about tax law in practice than HMRC and Treasury officials. So who should they get to advise them..?
FWIW, TIINs aren’t always prepared, even when they should be. Clause 23 of this FB, Intermediaries, puts the final nail of the coffin for sole practitioner auditors, confirming absolutely that 50% of all audit practices in the UK should be paid under PAYE and account for employee NICs on their audit fees. [Hint: this will place them at a huge cost disadvantage to larger firms, whose tax burden will be lower] But there’s no TIIN, because they didn’t think there’d be enough impact to merit one, or words to that effect.
I’m wasn’t suggesting MPs should write their own laws, on tax or anything else. But I think they DO have a job to do, which is to scrutinise the laws that the government tries to make. And one of the ways they could do that is to look at the explanations that come with the law and say “hang on, that’s just stupid…” It’s the scrutiny that seems to me to be lacking.
The big question with scrutiny is who is to do the scrutinising. You need people who are up to speed with the matters being legislated about, which for tax law means either HMRC/Treasury officials, or tax advisors. The problem is that they each have conflicts of interest: the former probably wrote the stuff in the first place, and the latter are, we are told, not supposed to know about tax reliefs in case they seek to use them.
What might work would be some sort of bicameral thing: HMRC draft something, a joint committee from CIOT/ICAEW/ICAS etc amend it and it goes back to HMRC, etc. That is, beef up the current consultation method by allowing people outside HMRc to actively change things, rather than allowing HMRC to pick and choose among (or ignore) comments to suit themselves.
What would really help that process perhaps be some Parliamentary debate about what the law should do up front, before the detail is decided on. When parliament has said “We want X”, then and only then do HMRC and the other professionals work out a way of achieving it. Then Parliament can pass the detail when both sides come back and agree that it seems to do what was intended.
It’s always struck me as absurd that you have to go through the detail of an Act to work out what the intention is: if I gave detailed advice to a client without an executive summary, and left it to them to work out that section 6.3.4 was the crucial one, I’d not get much repeat work.
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