Tax enquiries need 'wholesale review'
The current system for tax investigations is 'inefficient and often counterproductive' according to two major tax bodies.
In a joint response to Revenue and Customs' (HMRC) consultation paper, 'Working towards a new relationship: a consultation on priorities for reducing the administrative burden of the tax system on small business', the Chartered Institute of Taxation and the Association of Taxation Technicians also severely criticised the way HMRC communicates with businesses and their advisers.
They suggested that priority is given to three key areas: flexible payment arrangements, communication with HMRC, and inspections and enquiries.
Among the key recommendations are:
Flexible payment arrangements
The first recommendation is that considerable resources are put into developing a system under which a small business can have a single account with HMRC. Money could be paid into that account at any time, and payments could be made out of that account for tax when and if it falls due.
The submission says: "As far as the business is concerned it makes very little difference what the tax is actually called: it is all money going out of the business into the government's hands. Which particular tax the money is allocated to is a matter of HMRC's accounting. Provided that the total amount paid by the business in a year is correct, then allocations between taxes should not be a concern of the business.
It suggests that such a payment system would have to have two fundamental features: that interest payments were made in both directions and that the statements produced by the system would have to be comprehensible.
Communication with HMRC
The tax bodies believe that it is absolutely imperative that HMRC undertake, as a priority, a thorough review of the way that they communicate with, and provide information to, businesses.
The submission acknowledges the work which has already been done on improving the HMRC website and the amount of information it contains. However, it cautions against seeing the internet as the way of solving the communications problem as many small businesses will be infrequent visitors to the website, and will not therefore be familiar with the navigation methods, while even experienced practitioners often have to spend longer than they would wish trying to find something which they 'know is there somewhere'.
It also advises that the information on a website can only be generic while a taxpayer's particular problem will not actually be addressed there.
The submission is highly critical of the general communications by the Revenue and the Helplines in particular.
It said: "There is an almost universal belief among our members: that it is much harder than it once was to speak to anybody within HMRC who actually can deal with their client's particular issue.
"When it is possible to speak to somebody it is rare that a proper reply to a question can be obtained. Helpline staff are almost invariably courteous and clearly want to be helpful, but the fact is that in most cases they are simply not properly trained to do the job.
"If the particular question which is being asked appears on their screens they can give the appropriate answer, but otherwise they are unable to be helpful. The level of frustration that this causes should not be underestimated. We are, after all, talking about taxpayers who are trying to comply with their obligations. Taxpayers who are attempting not to comply with their obligations are not going to be using Helplines.
"A lot of people look back to the days when you could ring your local tax office and speak to somebody who was familiar with your affairs, who could consult the file and, more often than not, deal with the enquiry. Now we have no doubt that there is an element of rose-tinted nostalgia here and that things did not always work so smoothly 20 years ago, but the fact does remain that the current system is widely seen as inadequate both for the adviser and (especially) the small business that is trying to manage without an adviser."
The report complains that HMRC seems to be happy to allow staff with no tax experience and only a few days' training to man Helplines.
Its second key recommendation would be to put a major investment into training staff whose job it is to deal with direct queries from small businesses and their agents.
Inspections and enquiries
The third area for attention is the way in which enquiries into small businesses are conducted. The tax bodies believe that the current system is wholly unsatisfactory.
The report said: "No business wants to face an enquiry, but all businesses accept that enquiries are inevitable. The problem therefore is not, in the main, with the fact of an enquiry itself, but in the manner in which those enquiries are conducted.
"Time and time again we receive reports from members about enquiries which have lasted an inordinate amount of time, and which have in the end produced very little or nothing in the way of additional tax. All too often the client has to pay more in professional fees than he does in tax."
It suggests that an Inspector opening an enquiry ought to be obliged to undertake a proper tax risk assessment, based on the taxpayer's records, and would have to report to the taxpayer within a specified period on whether or not there were proper grounds for continuing the enquiry. If risks were not identified (and these would be real risks in relation to that business, not generic risks for that category of business), then there should be a mechanism for closing the enquiry.
It says: "All too often we hear reports of enquiries drifting along getting nowhere. Often it seems to us that Inspectors keep enquiries open in the hope that 'something will turn up'.
"This is a waste of everybody's valuable time. Therefore our third recommendation is that the opportunity is taken for a wholesale review of the procedures under which enquiries into small businesses are conducted. Based on our experience, we believe that the current system is inefficient and often counterproductive."