The National Audit Office has issued a report saying:
In a report to Parliament today, the National Audit Office affirms that good tax agents help their clients get their tax right. But, according to an analysis carried out by the NAO of a sample of tax returns, self-assessed income tax returns filed by customers represented by agents are more likely to have under-declarations of tax (resulting from error, failure to take reasonable care or evasion) than returns filed by non-represented taxpayers. A key reason may be that the tax affairs agents deal with are more complex. However, the analysis indicates that paying for professional help is not without risk for a taxpayer and that there might be an opportunity for HMRC to increase tax revenues by providing better support to tax agents and by better targeting of poorer ones.
Today's report suggests that a three per cent reduction in the average amount of tax under-declared by represented taxpayers could lead to over £100 million extra revenue each year.
Turn to the detail of the report and as Accountancy Age notes:
The report, compiled by the National Audit Office, estimated that a minimum of £2.6bn could be lost by the exchequer because of underpayments by people advised by a tax adviser and suggested the maximum loss could run as high as £10.5bn.
Tax advisers believe the report provides a skewed picture, damaging the reputation of the profession, because the number of rogue advisers without accountancy qualifications was not considered by the NAO.
The report looked at a sample of approximately 5,000 cases from where HM Revenue & Customs had reviewed tax returns to establish if there were under-declared liabilities.
The audit body reported 37% of self-assessed income tax returns from people who employed tax advisers had under-declared liabilities compared to 26% of returns filed by taxpayers on their own.
Am I surprised? No, not at all I’m afraid. We have a tax profession in the UK that in far too many cases is deeply antagonistic to the state, to HM Revenue & Customs and to society at large. That profession seems utterly unable to comprehend the benefits that tax provides, and instead sets out to undermine society at every opportunity. Through its promotion of tax avoidance (and yes, it does openly promote that abuse) it seeks to undermine the mandate of democratically elected governments and their mandate to deliver services the public wants. But most of all, the perverse logic of economic maximisation has been interpreted, on the basis of very little knowledge by many in the profession as equating to tax minimisation – which they do, yet again, on the basis of very little knowledge and no small amount of risk to reduce tax bills whether or not it is legally appropriate to do so, with the consequence the NAO have seen.
And I do not for one moment buy the profession’s defences that this is a) because of unqualified advisers and b) because represented people have more complicated affairs – the latter being a particularly crass claim – after all they presumably use advisers to make sure they comply despite that fact.
What is the consequence? First, note the data on this from HMRC’s tax gap, available here. This estimates the maximum error rate on all tax returns to be £6.6 billion – and the NAO say it may be £10.5 bn on tax returns from represented taxpayers alone. Yet again the evidence is clear: HM Revenue & Customs underestimate the tax gap.
Second, the desire to evade is stoked by the profession and its rhetoric. The population as a whole it less likely to under declare, with he excuse available to them that they did not know what they were doing.
Third, the profession must be dramatically under-reporting its money laundering concerns.
Fourth, the idea that the profession can in this situation increase compliance rates is, frankly, ludicrous unless - and it’s a bug unless – some more of the profession spend a little more time at Her Majesty’s pleasure, as I suspect some should. It is only time behind bars that frightens many in the profession. Everything else is just occupational risk.
So what to do? The following:
- More tax officials are needed to collect the tax that is very obviously due;
- More local tax offices are needed to restore the local knowledge base of HMRC;
- More willingness to prosecute offenders;
- More willingness to tackle advisers with a record of abuse;
- Invest by all means in better relationships with advisers who are known to be good – but be harsh on the rest.
And what can the profession do. First it can promote a Code of Conduct. See here for an example.
Second it can promote tax compliance. Tax compliance is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes. I built a whole practice on the basis of doing so.
Third it can get rid of those whose work is known to be unacceptable. Accountants are meant to report unacceptable work to their professional body when they see it and I bet almost none do. Why not? This is a complicity in silence.
Fourth – the profession can start talking about the merits of a good society – not a big one – just a good one. And they are funded by tax.