I have mentioned this week that corporation tax is being turned into an honesty box tax. This is an obvious conclusion from the work in my new report 'In the Shade: The UK's Missing Economy'. But it's also the obvious inference of HMRC's massively lax regime for collecting corporation tax.
As a result of publishing the report I was told that I had actually over-stated how well that system is actually working. What I had not realised is that if a company fails to reply to an initial enquiry from HMRC as to the nature of its trade on a form that has absolutely no statutory basis and no penalty attached to it for non-submission then HMRC now assume that the company is not trading and decide as a result not to send it tax returns for five years. This seemed almost too absurd to be true until I was sent this letter as proof that this is the case:
I gather this was sent to a company less than a year old that had not filled in the form I refer to - called a CT41G. But the recipient was shocked, not least because the company is registered for PAYE and has been paying PAYE over regularly and yet HMRC apparently have no information that the company is trading. Nor does it hide its location for PAYE and corporation tax at different addresses: the registered office is the place of business. The result is that despite HMRC having evidence in its own systems that this company is very clearly trading HMRC corporation tax division has no idea that this is the case and as a result has no intention of asking for a corporation tax return. The situation could not be more absurd than that.
One comes to three inevitable conclusions:
The first is that HMRC information systems are dire and in need of massive investment, including in people to use them.
Second, to solve the problem of not getting corporation tax returns HMRC is now intent on not issuing them.
Third, HMRC does not want to fulfil its statutory obligation to collect tax from those who owe it.
At this point the time to replace the senior management of HMRC with those who are dedicated to collecting tax has arrived. Which political parties will commit to doing so, I wonder? I will not be holding my breath.
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Thanks for making this public, Richard, and to the person who supplied it. Hard evidence of the extent to which HMRC has become a dysfunctional organisation supports the view that some of us have expressed via your blog over some years now, that only root and branch reform of HMRC – and then significant investment in it – can reestablish it as an organisation that is fit for the purpose that it was established to carry out and that most of the citizens of the UK assume it still does (when clearly it does not).
Beyond the points you make above, I’d add another. My opinion would be that a combination of the various performance measurement/management systems within HMRC allied to the continuing reduction in staff will be one of the drivers of the approach to tax collection (and its supporting activities) that the letter above, and your recent blogs, highlight. In essence, processes and procedures are “reengineered” to enable staff and management to hit targets (which may also require periodic respecification) despite ongoing reductions in resources which constantly create environments that undermine peoples’ ability to do so.
Of course, the need to take such action is itself the result of higher level government policy, which effectively means that the primary objective of HMRC senior management has become downsizing the organisation while creating and maintaining the illusion that it’s still fit for purpose. HMRC are not, of course, alone in having to take this approach, central as it is to the government’s overarching objective of creating the weightless state. However, when we add into that mix a strata of management who we might reliably assume have an ideological inclination to low tax/no tax regimes then we’ve truly created an organisation with a compromised and corrupted purpose.
Ivan
I wholeheartedly agree
Best
Richard
Is this an example of ‘self-serving perverse incentives’; unbelievable. I’ve had to read it three times and the implications seem worse each time. Alarmingly, Ivan Horrock’s points seem to neatly encapsulate what happens in so many areas where a culture of targets dominate.
This is of particular interest to me – our company has yet to begin financial trading, although was registered 18 month ago; we have been repeatedly asked to produce our information, despite informing them on several occasions we are not yet active!
A case of the right hand not knowing etc??
Weird!
Agree with the view that HMRC need more resource to do their job properly. The poor systems and lack of sufficient heads to do the job properly is evident through the terribly low levels of morale.
I don’t particularly share your views on many things, being on the corporate taxpayer side of the fence, but one thing I do agree on is that we won’t restore public confidence in the tax system without a tax authority that is, and is seen to be, effective in collecting the taxes that are due. This should be a priority before worrying about what clever tweaks the OECD et al come up with to try and improve the system (by introducing yet more complex rules…)
Thank you
You need not stop at Corporation Tax, it runs across the whole gambit of taxes.
But just one political point for fairness,the reduction in resources was started
in a big way by the previous Labour Government it’s not the Coalition’s baby.
The Coalition have improved Tax policy consultation in some ways,they listen on minor matters, but then ride roughshod over major matters! To take an example HMRC will ask for technical responses to their (i.e the Treasury’s) tax policy initiatives giving the shortest possible time to respond, and at times when they know we in the profession will be otherwise engaged.
“HMRC takes tax fraud extremely seriously and anyone deliberately choosing to evade the taxes they owe should expect not only a heavy fine, but possibly a criminal prosecution as well.”
http://www.constructionenquirer.com/2014/05/23/cheshire-building-boss-jailed-for-tax-fraud/
¨The taxman is turning the spotlight on umbrella companies as the clampdown on false self employment in construction continues¨
http://www.constructionenquirer.com/2014/05/23/hmrc-to-turn-spotlight-on-umbrella-companies/
Not a good time to be a little man/company….
These are the cover for the general inaction
Not too absurd to be true, Richard. The original poster told the truth!
Indeed!