Sympathy for tax dodgers?

Would they steal from Sainsbury's? (Photo credit: Wikipedia)

The Daily Mail is not my favourite newspaper, but in view of its significant readership on and off-line, it must be one “the public” likes and therefore its readership is representative of “the public's “ views.

As I write this there is more faux outrage because the BBC had decided to save licence-payers money by avoiding paying Employer's NIC on the pay of many of its staff's remuneration by engaging them as contractors. Additionally they avoided falling foul of the considerable costs which would be incurred in having these people as employees, including pension schemes and paying them off when they were sacked; this as opposed to waiting for their service company contracts to lapse. Very sensible, I would have thought.

As we know, the BBC's practice in this regard is in line with many Government departments, local authorities and the NHS. We should all be upset if those bodies didn't do their best to save taxpayers' money.

Yet somehow the couple in this story of tax-dodging crooks in the same newspaper attracts sympathy from the commenters. You will not have time to read all the comments. It is hard to read very many without getting annoyed. A couple of classics are “at least they weren't scrounging benefit from the state as well as earning money” and “victim-less crime”.

For the record I think this pair of tax dodgers deserved everything they got, but judging from the comments I am in the minority in “the public”. Apparently it is not so bad to fiddle your taxes as it is to fiddle a claim for benefit. I suppose the person who thinks robbing the State of £85,000 is a victimless crime probably believes that it is the same as shoplifting at Sainsburys. After all, no one gets hurt so it must be all right.

Except of course people do get hurt. Honest taxpayers have to pay more because some are on the fiddle. Sainsburys' shareholders (including our pension funds) lose and customers have to pay more to subsidise the losses. Where is the difference? It is stealing. In both cases it amounts to stealing from you and me.

I suppose it is too much to suppose that the politicians quoted in the BBC story would have much grasp in understanding the issues before feeling free to comment, so at the other end of the spectrum I shouldn't expect the Daily Mail readership to grasp that most of them are being robbed by these market traders outside the system.

We are all being mugged by the fiddlers. I think tax avoidance (legal) is a question of personal morality for individuals and as long as they abide by the law it is up to them. I can have a view but accept it may not be the same as theirs. Tax evasion is breaking the law and I am sure we are all agreed it is immoral. Or are we?

Taxpayers as customers and the service they receive

I, in common with most other taxpayers, resent being called a customer of HM Revenue & Customs, when there really is no choice of supplier. We are captives of the system and we cannot take our business elsewhere. This is an old saw, but if we are customers, we have to ask what we are getting in terms of service; value for what we pay is another matter, and one of a political nature.

HMRC, or at least the Inland Revenue as they were called, did once upon a time provide a service to individual taxpayers, prior to Self Assessment. Of course many people feared the tax man as they thought, even though going back a long time the majority of staff were women as now. However, with minor errors in Tax Returns or even quite major but obviously unintentional incorrect completion of Returns, one could expect a letter suggesting a correct interpretation, or very often a telephone call from the Tax Office along the lines of “Have you forgotten your bank interest? Drop us a line with the figures and we will make an adjustment.”

Now it is true to say that there was a lot wrong with the old system. There was a tradition of issuing estimated assessments every year against which the taxpayer or the adviser would appeal as a matter of routine, but this was largely a question of regulating the flow of tax payments as routinely one would offer a payment on account. It was a daft system latterly (that is prior to 1996-97) but it was a system that was many years out of date. The estimated assessment routine became more fashionable in the latter stages before Self Assessment as the Revenue realised that they had to get money in. When I started in tax, one rarely saw an assessment issued unless a Tax Return had been put in, and there was little incentive for the more laissez faire taxpayers to do so. Why put in a tax return and have to pay tax, cutting into one's holiday money for St. Trop?

So, something had to be done, and though there had been tightening up of interest charges for late payment of tax, there really needed to be a system of making people submit tax returns and fining them if they didn't, as other jurisdictions already did. I think the Revenue had looked at America's Internal Revenue Service and thought they were along the right lines.

Anyway, the major change was to make people responsible for calculating their own tax liabilities, and with the wholesale introduction of a new computer system they had an automatic checking facility and automated fines and levies of interest charges. The major triumph at the time was to start massive cost cutting (this is one thing we cannot blame the current Government for) by getting rid of more qualified staff who actually knew about tax in favour of computers and call centre staff. Not all of this happened at the same time; there has been and will continue to be for a while yet an ongoing process of closing tax offices in favour of call centres and reducing the numbers of personnel who actually understand tax issues.

As the onus is now on the “customer” to calculate his or her tax due, this means that many who originally filled in the figures and waited for an assessment now have to either employ someone to prepare the accounts and tax return or wade into the online service and hope the figures they put in are the correct ones, especially if they are based on prepared accounts.

I earn my living to quite an extent by preparing Tax Returns and accounts for people who are not confident or know they are not competent to do it themselves. Obviously I am not complaining about this, but I think it is unfortunate that the amateur has to wade through so much information to manage without help. The Tax Return Guide is helpful with the basics, but cannot educate anyone in all the tax rules that we professionals have to know, and that is fundamentally unfair. It means that the individual taxpayers largely have to pay someone else to do what the Civil Service used to do on their behalf.

It is not as though information is very easy to find on the HMRC website. Although at a tax professionals' meeting with HMRC we were told that the website was being made much easier to use, I had to use Google to find on the HMRC website what their own search facility could not: that 5.75 million tax returns were filed online for 2008-09 by the deadline of 31st January 2009. I suspect a good proportion of those filed were by agents such as my firm. There were many glitches using HMRC's own online program, such as an inability to bring forward trading or lettings losses from a previous year. There was a work-around involving writing a note to oneself for next year. I did one Return using HMRC's own software, and had I not been a professional I would have been driven to distraction and probably given up.

The point of writing this piece is not to say that we should go back to the bad old days of estimated assessments, and the confusing-for-many previous year basis of taxing trading and untaxed sources. It is just that over ten years down the line of Self Assessment there is still so much work to be done in terms of improving the system and getting an HMRC website that is fit for purpose. Yes, the information is mostly there and the site is vast, but if a tax and internet geek like me cannot whistle up the content I need in short order, what hope is there for someone who has little tax knowledge, because that person will not even know what he or she is looking for? HMRC need to look at the news websites such as the BBC and CNN to see how the categories can be drilled down better into general headings, with menus underneath, sub menus and so on, so that amateurs (and journalists trying to check the ins and outs of MPs' expenses or whatever) can find what they are looking for.

Why has it taken so long to make the system work, and how much longer is it going to take? When is the “customer” going to benefit from doing all the work on the Government's behalf? Is not the taxpayer in reality more of a part-time contractor or employee engaged by the Treasury?

Have you submitted your Tax Return yet?
On our bikes
Exemplary Consulting for Business Support
Follow me on Twitter

Tax Returns and Crimewatch

People in my business have been wrestling with a problem outside our control for the last couple of months, and that relates to Tax Returns. For a few years, now, HM Revenue & Customs (as it now is) has been encouraging everyone who files tax returns to “do it on-line”, and especially tax agents such as my firm. This will be the fourth year we have filed clients' tax returns on-line, and by last “tax season” nearly all the problems had been ironed out. Most agents use third party software to file on-line, as the Revenue's own system is very cumbersome and involves everything being entered whilst connected to the internet, and with an irritatingly short time of inactivity before one has to re-log in. Those agents involved in the last mad rush on 31^st January 2008 had little difficulty in filing on-line as their data transmissions went through even though the server for the Revenue's own filing software crashed on the vital day. So of course, we agents were reasonably happy, though we could not at that time access details such as what our clients had paid on account.

However, HMRC had commissioned a report from Lord Carter (see here) as to how things should be done in the future. There have been changes because of representations mainly by the professions involved, but as a result of this, paper personal tax returns have to be done by October this year though the last filing day for on line returns is still 31^st January next.

One curious recommendation which has stuck is that all facsimile returns have to be in the Revenue's own PDF format so that paper ones can be scanned in using OCR. One can see the point if we are posting paper returns, but actually we are supposed to transmit the details electronically, so the logic defeats me. Anyway, what has happened is that the returns have been completely redesigned to fit the paper PDF format so that the facsimile returns we agents used to send to clients for approval are no longer acceptable to HMRC (even though we used to PDF them anyway). Consequently this has meant a complete rewrite of the software by the third part providers. Well, that's their job of course, but who ends up paying for this?

Anyway, the software people have done pretty well, but guess what? HMRC's software for processing the on-line transmissions has all sorts of problems, tax returns are getting rejected for no sensible reason and time is wasted by agents on the telephone to their software support people who are swamped. One of the most stupid errors is that the tax return says that if sole traders have a turnover of less than £30,000 then they do not have to detail their expenses but just lump them in one box. However, HMRC will reject a return done on-line on this basis even though one is following the instruction to the letter.

It all seems to be change for the sake of change, or a result of that other bugbear of corporate and government-speak “modernisation”.

This bring us to Crimewatch, the June episode of which was shown on BBC1 this week. For years it was presented from a studio by experienced broadcasters and whilst a little formulaic it held interest because of the material but also because of the attention to continuity and minimal distraction. So, some bright spark at the BBC obviously decided to “modernise” it, get rid of Nick Ross probably because he was “old”, and change the compelling and considerable journalist Fiona Bruce for Kirsty Young. Not content with that they have scrapped the studio and present the programme from some sort of warehouse with scaffolding and gantries as furniture, they cut between various non-professional broadcasters who are or were police officers but don't know how to talk to a camera, and keep having different segments by these people in different parts of the warehouse. Poor Kirsty Young, an experienced broadcaster herself stumbles round this dark edifice and at times seems as bemused as many of we viewers at home. The programme could be interesting if the content were well presented, but its earnest production is not entertainment and some of us are going to switch off.

My lesson for the BBC and for HM Revenue & Customs? If it ain't broke..........