HMRC and the Treasury should spend more effort on supporting compliant taxpayers with more considered tax policy and functioning tax legislation, and less on punishing those who have exploited loopholes that they helped create.
According to the most recently released figures from HMRC, the taxman has now retrieved more than £2bn in disputed tax from tax avoiders through its Accelerated Payments Notices (APN) scheme.
It’s all very well the Treasury blowing its own trumpet and broadcasting what a good job it has done. It might do even better by ensuring such opportunities are no longer available to less compliant taxpayers.
To understand motives behind tax avoidance – and possibly to squeeze just a little bit more publicity out of the topic - HMRC has released a report into engagement in tax avoidance schemes (TAS). The taxman claims the findings will help to design policies and interventions to reduce TAS involvement in future - but why tackle the symptom when you can tackle the cause?
Coincidentally, the Office of Tax Simplification also released its small company taxation review recently. Whilst it doesn’t touch upon tax avoidance – the large majority of small business such as contractors being fully compliant – it does make several recommendations for legislative amendments to simplify the tax system for contractors and small businesses.
Some have merit, others less so. But what we would urge the government not to do is rush into the implementation of any recommendations as a ‘quick fix’. The current state of the tax system is a perfect example of HMRC’s ‘sticking plaster’ approach.
We’re constantly struggling to stay up-to-date with legislative changes. It seems no sooner has the government identified a problem than it has tweaked legislation to treat it. The result is that these changes are often ill-thought out and create more problems than they solve.
We end up with two outcomes. The first; one of the largest tax codes in the world that no one expert has a complete knowledge of. The second; a massively overcomplicated tax system with exemptions and allowances that any half-decent tax adviser can turn into a cash flow advantage for their clients.
Which brings us back to the TAS users. What’s worth noting is, in its report, HMRC categorises its survey respondents as ‘unaware’, ‘justifiers’ or ‘deliberates’.
Most contractors would fall into the ‘justifiers’ category. Those who were aware of their scheme as being ‘on the edge of tax law’, and who were partially influenced by society’s moral and political attitudes towards tax avoidance.
‘Deliberates’, on the other hand, wittingly went into TAS and reported to be strongly influenced by their own moral attitude that avoidance by big businesses justified their decisions.
And you could easily forgive them for seeing an element of double standards. Especially after HMRC’s £130m ‘sweetheart deal’ with Google, a company with a net worth of almost £400bn. The deal – which Labour claims amounted to a 3% tax rate – was hailed by the Chancellor as a “major success”.
There seems to be one rule for ordinary taxpayers, such as contractors, and another for larger corporations. Who’s to say that this hasn’t led otherwise risk-averse contractors into TAS? If HMRC was more consistent on how it applies legislation, taxpayers would be less inclined to find ways around it.
Either way, the fact remains that a more considered tax policy and better-written tax legislation would help to reduce this problem. More so, it would free up HMRC to focus more on supporting compliant taxpayers and helping them to pay the correct amount of tax.