Who’d be a tax collector, inspector, accountant or a member of any of the professions that make a big organisation like HMRC tick? Never a popular profession – until apparently we were all in it together, and then it turned out we weren’t. Tax avoidance and the blurred grey (or perhaps vanilla) lines between that and evasion suddenly brought the work of HMRC to the forefront of political and water cooler debate.
Suddenly paying the right amount of tax was seen as part of civic duty and a number of high profile people – usually celebrity types – fell foul of popular sentiment, or at least how popular sentiment is viewed through the prism of the media. Politicians from the prime minister to Her Majesty’s Loyal Opposition and even a newly emboldened Public Accounts Committee were on the case.
Then, as debate progressed, it became apparent that this is not as simple as some would like to make out. While, of course, there is a moral issue here about contributing to a functioning civic society and doing so in proportion to your wealth, tax is inherently complicated. No more so than with large multinational corporations or wealthy individuals who have the means to employ clever people to try to minimise their “exposure”, who usually earn multiples of the salary paid to tax professionals working for the government.
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Amid the recent furore around HSBC’s Swiss practices and Lord Fink’s comments that “everyone does tax avoidance”, Tony Wallace, the president of FDA’s HMRC section and a tax professional himself, told the BBC that “people pay tax in this country largely because the majority of the population believe in the goodness and fundamental rightness of paying tax”. He also condemned “the corrosive message that paying tax is no longer a good thing for society”.
The tax gap, as defined by the government, actually covers a variety of sins. In 2012/13 it was estimated at £34bn by HMRC and includes outright evasion, but also avoidance (legal but dodgy to you and me), the hidden economy (cash in hand) and also areas like legal interpretation and error. And this is not simply about big corporates: the largest single group in the tax gap by value are small and medium-sized enterprises. See, I told you this was starting to get complicated.
Justifiable moral outrage quickly seeks someone to blame in the hands of a politician or tabloid, and so the finger points at HMRC and asks why it isn’t simply doing its job better, or pursuing avoidance more aggressively.
The government – you know, those people who actually make the laws on taxation – has to some degree recognised that more can be done. There was some additional investment in compliance work for HMRC and this has proved a success. FDA’s research suggests that appropriately targeted investment in skilled tax professionals can return a yield at a ratio of £25 for every £1 invested. Simples.
As ever, the answer as to why any corporation or individual appears not to have been pursued aggressively is likely to be complicated. HMRC is simply not resourced to pursue every prosecution. While some may prefer conspiracy theories, like any other government department, HMRC has to prioritise, particularly when budgets are being cut so aggressively. The legal framework needs to keep pace with the evaders and the avoidance industry. For those who like to keep it simple, Denis Healy once said, “the difference between tax avoidance and tax evasion is the thickness of a prison wall”.
All the parties like to throw their hands up in horror at tax avoidance, but they are lobbied hard not to appear anti-industry, to be red tape-lite, to and encourage entrepreneurialism (whatever that is). It’s simpler and more politically convenient at times to point at big anonymous corporations rather than small companies or the self-employed.
Tony Wallace also used the word “corrosive” in his interview, speaking about the impact on our members in HMRC when, once again, they feel that they are the politicians’ punchbag. Short on resource and even shorter on comparative pay, HMRC is being asked to deliver with one – and sometimes both – hands tied behind its back.
The answer, as I’ve hinted at several times, is complicated. The Labour Party has announced a review into HMRC if it is in power post-election. Whether that will provide the answer, we can only wait and see. The announcement felt like a reaction to events when what we need is a thought-through, longer-term strategy.
You can’t just pick senior tax professionals out of the trees at will: they are grown over many years, to stretch the metaphor. Picking out of trees is what the private sector does, so to grow them, HMRC needs certainty over resource. The civil service will never compete with big accountancy on pay, but too often that has excused any attempt to address the huge disparities that exist. And finally, government needs the courage to provide the political leadership and backing to HMRC if it genuinely wants to see a more aggressive approach to investigations and prosecutions. Complicated, but not impossible – and what we’ll be pushing for from whoever wins the next election.