As Zoe Williams in the Guardian has noted:
The tax office has finally disclosed how many people were hit by glitches in a new computer system, first noticed in January — 100,000 people paid too much. Some were in the wrong tax band; some had their personal allowance removed; some had even had a "1" inserted at the start of their salary, inflating their taxable income by £100k. I nearly called that hilarious, but I imagine it's pretty unfunny if it's your income, and it's not even that funny when it isn't.
The problem here is not the new computer system (though how government-run computer systems always misfire on such a scale is pretty spectacular), but a systemic tolerance of mistakes on a massive scale across HM Revenue and Customs. The money lost by the Treasury in evasion, avoidance and outstanding debts — the "tax gap" — is put at £40bn a year. There is compelling evidence, laid out by the chartered accountant Richard Murphy that this is an underestimate, and the true figure is more like £120bn a year. Part of me thinks that if HMRC could just sit tight on its own incompetence, the overpayers and the underpayers would balance one another out. It might not be fair, but at least the Treasury wouldn't go bust.
Well, that part of me is the stupid part. The figures don't cancel one another out. The system is flagrantly geared towards the exigencies of the rich, never successfully wringing them for what they owe. Meanwhile, low earners might be squeezed for more than they owe.
And as she notes:
Murphy summarises the classic situation of the overpayer: "It's largely by those on low income, there is very little chance that overpayment is taking place on a large scale by those on a high income. The PAYE system is incredibly effective for people who have one job and are in stable employment, in other words, the postwar settlement. But there are large numbers of people who have to put together a few jobs to support themselves.
"Their personal allowance is set against one income, everywhere else they'll have tax deducted at source. They should send in a tax return but nobody asks them to do it. There are insufficient resources to check each person, to make sure that they are paying the right amount; and to be candid, it is not that straightforward, filling out a tax return."
Pensioners are also big losers from the complexity of this system — for instance, you may have a state pension, a small private pension, a part-time job at B&Q, and be in receipt of benefits — some of which are taxable, some of which aren't. But unless you fill in a tax return, there is almost no possibility that you will be paying the right amount of tax.
And the means of resolving this? As Zoe Williams points out there are three: first, make service to ordinary people a priority. The corporate sector has it now. Second, restore staffing levels. Third, keep local tax offices.
It’s not rocket science. It is possible. And it could resolve the problems of government finance. And yet it is ignored.
Why? What is the policy reason for ignoring tax abuse? There has to be one. It can’t be accident.
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“And the means of resolving this?”
A system based on a sole flat income tax rate, or even better on indirect taxes only.
Easy.
@Ted G
Oh for heaven’s sake
As I have shown convincingly flat tax is the ultimate opportunity for international tax abuse
But that’s what you promote, isn’t it?
Search ACCA flat tax for the evidence
I very much doubt there is a policy reason for this Richard. Indeed, if there was such a policy it would be relatively easy to convince politicians and civil servants of the benefits of changing the policy.
The underlying issue has more to do with the constant tinkering at the edges and attempts by successive Chancellors (certainly the last two) to secure headlines by making ad-hoc, disorganised and ill-thought through tax changes. The time and effort focused on all of this has removed any incentive for anyone in Government to consider fundamental changes to the tax system.
Pressure to do so frequently comes from ICAEW and CIOT. The best recent example concerns the taxation of small businesses. I’ve lost track of how many meetings have been attended, papers drafted and explanations provided to help educate policy wonks in the Treasury and their political masters.
Having invested all that time and effort on a key tax issues that (the previous) Government had expressed continued interest in, who’s going to invest time in trying to secure fundamental changes to the PAYE system? I certainly wouldn’t volunteer my time on such an exercise given the almost complete lack of progress on the last big issue.
@Mark Lee
I have some sympathy with what you say. I too endorse simple taxation – when it is possible. See http://www.taxresearch.org.uk/Documents/Foundations.pdf
But, as I note there, it is one of many objectives – not a paramount one
That said, I share your frustrations regarding consultations – I have been involved in one which is in abeyance now. One good answer, of course, is not to have them: as one senior QC said to me, all they seem to be is an opportunity for tax avoiders to object to all change.
And I think this is key: your claim that fault is the responsibility of the government is wrong. Just look at the unseemly fuss and mass of legislation required to transition the profession from cash basis accounting for tax – which was a wholly unacceptable accounting method.
Note too that at least 40% of all legislation is anti-avoidance.
This is largely the profession’s fault and the remedy is in their hands – but they refuse to do anything
In this case I think the analysis you offer misses the point. The point is that only £100 million of tax was recovered from evasion in the last stats – the rest corrected submitted tax returns. OK, much of that may well have been evasion – but tackling the shadow economy is not on the agenda. Which is, I suggest, why the methods used to measure it are deliberately (sorry – big accusation but one I mean) wrong.
The tax gap is being ignored deliberately, I suggest
And that has to change
Best
Richard