Speech by Anthony Thomas, President of the Chartered Institute of Taxation, to the CIOT Cambridge Conference, Saturday 14 April 2012
It will not have gone unnoticed that the tax profession has been the focus of political and media attention. Much of it is ill-informed, ill-conceived, ill-thought out, and often deliberately misleading: made by people who are more interested in getting a memorable soundbite or sensational newspaper headlines.
Comments such as “there are few more worthless specimens of humanity than tax accountants and tax lawyers” or statements which deliberately confuse tax evasion with tax avoidance do nothing to improve understanding of the way in which our tax system functions. When will politicians and senior Revenue officials state clearly that tax evasion is illegal, tax avoidance is not! The views expressed simply muddy waters, are unhelpful and regrettable. They do not move the debate on and nor do they encourage our profession to engage with the tax authorities in helping better shape an already dysfunctional tax system creaking at the seams.
We are at the forefront of demystifying the ever growing complex tax legislation for the benefit of everyone; the many unrepresented citizens, the low income taxpayers and the growing vulnerable sectors of society. Our members do not act just for the wealthy; they represent a miniscule percentage of our clients: most of our time and efforts are directed toward ordinary taxpayers assisting them to get to grips with a hugely complex and bewildering system.
When subjected to unwarranted attack it is sometimes helpful to go back and examine first principles and the institute motto is a good starting place: “In Regem Civemque Justitia”, which broadly translates into “Justice between Citizen and State”.
The two supporters of owls on either side of the institute shield signify the wisdom of tax officials and tax advisors respectively – they stand on an even balance to indicate the aim of both sides for justice and impartiality.
In an ever growing complex tax and business world most tax advisers do an excellent job. There are very, very few who discredit the profession either by illegal activity or practising at the margin: I suspect that it is roughly the same number as rogue Revenue officials. To suggest otherwise is misleading and mischievous. Bad behaviour is rare but must be stamped upon. For many years we have encouraged HMRC to tell us about it if we are to help eradicate it for the benefit of society.
We also recognise there are many excellent people working in HMRC. They too are working for a better tax system. Most strive to do an excellent job and this is extraordinarily difficult in a world of continued external critical attack, severe budget cuts, shrinking staff numbers, expanding workloads and low morale. Their job becomes harder as does ours but in our professional dealings with HMRC our aims are for both sides to seek to achieve justice and impartiality. It is not about a subservient or superior relationship but one that is based on mutual trust and respect. It is not about a “cosy” or the perceived “special relationship” but one of a “healthy tension” existing between us.
In our tax system there needs to be greater simplicity and clarity so people understand how much tax they should be paying and why.
This is not easy given for example the multiplicity of tax rates and allowances, tax statements which confuse, tax codes that are more often wrong than right. Bolt on to these concern about the array of statutory instruments, press releases, statements of practice, guidance notes and toolkits and the combined impact is one of adding to rather than reducing the complexity. To this must be added the ever-increasing volume of case law.
Taxpayers have a right to be able to understand how much they are paying and how it is calculated.
There should also be greater certainty in tax so that business and individuals can plan ahead with confidence.
Our institute will be working closely with HMRC on shaping the GAAR in accordance with Parliament’s intention. This is not going to be easy and the road ahead will be difficult. I fear that the public may soon discover that a GAAR is not the silver bullet which will eradicate all forms of tax avoidance.
And then there is retrospective legislation which in my view impairs the perceived integrity and objectivity of HMRC and is not a sensible way to proceed. Any laws, particularly tax laws, should be certain and by definition retrospection breeds uncertainty.
It is essential to have a fair balance between the powers of the tax collectors and the rights of all taxpayers – both represented and unrepresented.
Powers must always be exercised in a way that is fair and the rules of natural justice have traditionally been held to demand two things:
1) That the mind of the decision maker should not be tainted by bias or personal interest (must not be a judge in his own cause) and
2) That anyone who is liable to have an adverse decision made against them should have a right to be heard by an independent body.
I mention powers in particular with the new legislation for tax agents on “dishonest conduct” in mind, and as I have mentioned many times before this legislation is worryingly wide and HMRC do not need such extensive powers; for reasons that one can only speculate on they have refrained from making use of the extensive powers which they already posses. Couple this with the proposed Tax Agent Strategy and safeguards will be critical. The line in the sand for the tax profession proceeding with this very high risk project is independent oversight. HMRC cannot be permitted to act as prosecutor, jury, judge and executioner. Like any other regulatory authority they must be subject to readily accessible oversight and avenues of appeal.
Neither politicians nor HMRC have yet understood the importance of trust in ensuring that our tax system continues to function effectively. Ever increasing powers for HMRC has a significant impact on that trust. Their modernisation programme has been used for giving them more powers, most notably to control and gain access to data, sometimes with the appearance of minimal safeguards for taxpayers and their business. The current small group of new powers contained in the Finance Bill is a case in point. The provisions may be broadly sensible but there seems to be a lack of concern about the administrative burdens and significant costs imposed by data gathering powers generally: arguably they amount to yet another stealth tax.
Over the past 18 months parliamentary committees and the media have battered HMRC and this must have been very uncomfortable. Criticisms that taxpayers are referred to as customers but not treated like customers, continued failure to answer telephones or deal with post that remains unanswered for months are but a few of the concerns regularly highlighted to me. Neither HMRC nor their political masters seem to appreciate the harm that has been done to the standing, reputation and public perception of HMRC by allowing these shortcomings to develop in the first place, followed by denial and a failure to take rapid remedial action.
The Treasury Select Committee challenge to the profession and HMRC to work together to address some of these key areas was welcomed and although it is early days the initial signs of progress are there. There is a willingness to deal openly with some very sensitive areas on both sides and the HMRC champion for this work is their Chairman Mike Clasper. I am hopeful of further progress over the coming months but any attempt to downgrade the project to some lower levels within HMRC would be a grave error of judgment and could do immense further harm. More importantly for all of us such a downgrading will almost certainly result in failure for the entire project and this would be a lost opportunity.
I will conclude with a few words on Lin Homer the new CEO for HMRC. She is the first to admit that tax is not her area of expertise. She is a lawyer with some tax knowledge. Lin is not looking for a cosy relationship; she supports the view that it is essential to restore trust and conscious that this is not going to be easy. She agrees that a “healthy tension” between us is best for progress, and is certainly no pushover. There is one major plus for us and the tax profession in her appointment: she is willing and open and wanting to engage with the tax community. Lin seems outward facing, someone prepared to be challenged and hear our views, some of which are unlikely to be welcome.
For our part I welcome Lin to HMRC; the institute and other professional bodies look forward to working with her to correct the errors of the past and in helping to shape a tax authority fit for the 21st century.