Last night, CBW’s Robert Maas delivered his somewhat controversial speech, entitled ‘Working with HMRC’ at the Hardman Lecture and dinner; ICAEW Tax Faculty’s main annual prestigious event.
Robert has many many years’ experience of working with HMRC and its predecessor bodies; the Inland Revenue and Customs & Excise, and over his long career has seen many momentous changes. One memorable change was the introduction of self-assessment, when to draw media attention to the change he famously set alight a bonfire of paper tax returns outside Chartered Accountants’ Hall! However, with the relentless pressure on HMRC to do more with less, Robert is concerned that the longstanding and successful relationship between HMRC and professional tax agents is under threat. Tax agents help make the tax system work by supporting taxpayers and improving compliance. As HMRC moves towards a digital future, these roles must be respected and supported as otherwise the UK tax system will be damaged.
In his speech, Robert sets out his vision of how HMRC and tax agents should work together to ensure a healthy and successful UK tax system, and it is as follows: My Hardman Lecture It is traditional to start by reminiscing a bit about Philip Hardman. Philip died in 1993, which is over 20 years ago. This probably means both that the number of us who knew Philip is dwindling and that many in the room today did not know him. So I ought to briefly mention that Philip was senior tax partner of Grant Thornton. He chaired the Institute’s Tax Committee from 1978 until it became the Tax Faculty’s Technical Committee in 1991 and continued to chair it until he died. Philip was dedicated to tax. Even in his last illness he insisted that Edwin Vidler, the Frank Haskew of his day, visit him in hospital every week to discuss Tax Faculty business.
I remember appearing with Philip on a Granada TV programme in the 1970s. Granada were required by their licence to make a percentage of their programmes in Liverpool so they would take people up by train to Liverpool Wednesday lunchtime, shoot the programmes on Thursday and send people back Thursday night. They took us to the Walker Art Gallery for a reception. I was standing in front of a large portrait when Philip walked past, pointed behind me and grinned. I turned around and saw that the portrait was of a Sir Martin Archer-Shee. It took me a while to work out that Philip had immediately recognised that the subject had not one but two House of Lords tax decisions to his name. Philip was a magnificent speaker.
One of my worst memories is of giving a talk on capital allowances, with Philip in the next room lecturing on, I think, family businesses. It is hard to concentrate on your talk when it is punctuated with frequent gales of laughter from next door. Philip also had an ability to demystify tax. He was a regular on David Dimbleby’s budget programme where he could immediately translate the Chancellor’s changes into what it meant for the man in the street. Philip also cared passionately about the tax system. His catchphrase, which he used when he regarded something as wholly unreasonable was, “It’s a National Disgrace”. I am sure that Philip would have shared my concerns about the deterioration in the relationship between tax agents and HMRC that I want to talk about tonight.
Last May marked my 50 years as a Chartered Accountant. Last month, I passed 50 years as a tax specialist. A lot has changed in the last 50 years. To start with we didn’t have computers when I started in tax. There was also a lot less legislation to cope with. I have recently taken delivery of the 6 volume Yellow Tax Handbook for 2015/16. Here is the 1965/66 equivalent [show Butterworths for 1965/66]. And less case law! The first 41 volumes of Tax Cases cover the 90 years from 1875 to 1965. The 50 years since then have added a further 40 volumes. The tax system was also different. The Inspector of Taxes in 1965 raised questions on virtually every set of accounts. The pace of tax life was very different.
Neither side seemed to care unduly if it took months or even years to reach agreement. There were few time limits. But most of all, the practice of tax was gentlemanly. It was two skilled professional people who trusted and respected each other applying their intellectual abilities to determine the tax effect of what the client had done. Sadly I do not think that either respect, or the technical skills that justified it, any longer exist. I think there is suspicion on both sides. I also think that the technical knowledge of tax officers has deteriorated significantly.
It is rare nowadays for officers to refer me to tax cases, or even legislation; the norm is to refer me to paragraphs of the HMRC manuals, which can be wrong, out of date and even sometimes contradictory. In 1965 both sides were quoting both legislation and case law to one another. I also think that in the 1960s and 1970s, the Inland Revenue, as it then was, believed that a taxpayer should pay the right amount of tax. Today, many agents believe that the HMRC approach is to collect as much tax as possible, regardless of whether it is properly due or not, and that the HMRC mantra of wanting to collect the right tax at the right time is simply a slogan to which little heed is paid in practice.
Many also think that penalties are designed simply to collect more money, not to change behaviour. I do not myself espouse either of those views, but I do have a fair amount of sympathy for both. Nor do I think that trust exists any more on either side. I think that many HMRC officers regard all self-employed taxpayers and small businesses as small-time tax crooks, taking it for granted that the taxpayer is cheating and seeing their role as to ferret out how they are doing so. The agent is seen at best as a nuisance, getting in the way of HMRC’s attempts to uncover the truth, and at worst as an accomplice helping the taxpayer to conceal the truth from HMRC. I think that many agents see HMRC officers as bullies, trying to maximise the tax take, uncaring about what is actually due and exploiting the disparity between HMRC’s bottomless purse which enables the officer to endlessly pursue his hunch and the taxpayer’s limited resources with which to defend himself. Both views are undoubtedly parodies of the reality, but I do think that a lot of tax is collected because conceding HMRC’s viewpoint is felt to be more cost effective for the taxpayer than continuing to pursue his right to pay only the correct amount.
I myself often suggest to taxpayers that they should pay tax that I do not believe is properly due, as my fees for winning the argument will exceed the tax in dispute. I also think that HMRC know that they are collecting a lot of tax as a result of such pragmatism rather than of the legislation. That is not good for the integrity of the tax system but it is inevitable in a system where the taxpayer has to be cost conscious but HMRC appear indifferent as to what may be cost effective. I wish HMRC officers had to complete time sheets and justify their time to the citizenry in the same way as I have to do with clients.
Over the years, a recurrent theme with HMRC has been Working with Agents. Most founder because HMRC change its mind, or changes the staff running the project. I do not myself think that HMRC have ever really thought through what Working with Agents ought to entail. The ideas they have floated in recent years seem to me largely unworkable and in discussion have usually changed significantly. In May, Tax Journal published a questions and answers article of an interview on this topic with Jim Harra, who is HMRC Director General for Business Tax and as such one of the most senior people within HMRC. I do not think that what Jim seems to want is any more achievable than earlier attempts. I wrote an article in Taxation in September explaining why. Tonight I want to expand on that article.
I also want to address another development. Last year, the Tax Faculty had a call from a sole practitioner in Liverpool who was very worried. HMRC had been to visit him and had asked him to sign a Memorandum of Understanding with them. They were coming back to look at his files. I am an Institute Support Member. That means that, unlike most members, if I come across a member whose work is awful, I don’t need to tell the ICAEW about it but can try to educate him to improve. I suggested the member invite me to the meeting in my Support Member role. HMRC had been looking at him because he was what HMRC call a High Volume Agent. He did tax returns for a large number of building industry subbies, albeit that was a fairly small part of his practice. When I went up to Liverpool, I was amazed to find how thorough the member’s work had been on what were tiny jobs with very low fees. At the meeting, HMRC accepted he was producing quality work too. I mention this because the Memorandum of Understanding asked him to agree not to include more than a small percentage of expenses in his clients’ accounts if there were no supporting vouchers. That worried me immensely.
There is a statutory obligation, ITTOIA 2005, s 25, for profits for tax purposes to be computed in accordance with GAAP. Clearly accounts cannot give a true and fair view, which is a fundamental requirement of UK GAAP, if they omit a significant amount of the expenses incurred in generating the income. Accordingly what the MOU was saying is that in preparing accounts for clients, he should ignore GAAP if there were missing vouchers. HMRC were in effect saying to him, “If your client has not kept the vouchers, ignore the law which requires the accounts to comply with GAAP and persuade your client to submit an incorrect tax return”. If Philip Hardman were still alive, I am sure that he would have called that HMRC approach a National Disgrace. But what this incident, and in particular some of the statements in HMRC’s notes of the first meeting they had with the accountant, demonstrated to me, is that there is a huge gulf between what we do and what HMRC think we do or expect us to do. If relations between the professions – by which I mean the High Street accountant and network HMRC officers – not the professional bodies whose relationship with HMRC at Head Office level is generally good – are to improve, we need to find a way to bridge, or at least narrow, that perception gap.
It must be in the National interest to try to achieve an improvement in the relationship and I intend tonight to make some suggestions as to how this may be done. Before doing so, I ought to address the elephant in the room. This is that both sides know that some agents – including a minority of ICAEW members – are producing poor work such as consistently incorrect tax computations. As a Chartered Accountant, this worries me because every single Chartered Accountant has the reputation of the ICAEW in his hands.
The ICAEW has a problem with poor work. It is virtually impossible to pick it up in reviewing a practice. Only HMRC know who produces consistently poor tax work and they seem very reluctant to give us their names. To my knowledge, we have been asking formerly, the Inland Revenue and latterly HMRC, to do this since the early 1960s. We thought we had achieved it in 2000 when we agreed a system with them under which they would give me the names of Chartered Accountants that were giving them concerns and I would try to persuade the recalcitrant member to change his ways. I am still waiting to be given the first name! I have come to the conclusion that HMRC thinks it helps them to persuade Ministers to give them more and more powers if they can say that even Chartered Accountants are unreliable, so they do not really want to help rectify the problem. I would love to be proved wrong on this! Let me now turn to Jim Harra’s proposals which have generated a fair amount of unrest and even anger amongst tax agents. I suspect that was not Jim’s intention!
There are two main issues. Firstly, Jim said that, “When an agent is managing the tax affairs of businesses, HMRC really shouldn’t have to intervene to resolve non-compliance that could have been identified and sorted out by their agent … The key thing for me … is making sure we’ve got the maximum value we can from having an agent in the relationship between HMRC and the taxpayer”. Let’s start with the relationship. I don’t see myself as being “in the relationship between HMRC and the taxpayer”. I see myself as having two separate relationships. I have a relationship with my client. This is a contractual relationship. Broadly speaking, I will sell him whatever tax service he wishes to buy. In most cases he wants me to complete his tax return from the information he provides to me (including preparing any accounts needed to do this), he wants me to protect him from what he perceives to be is the aggravation of HMRC. He wants me to tell him if he could arrange his affairs more tax efficiently, and he wants advice on the tax treatment of specific transactions. That is what I sell him. Because ethically I want to protect my firm’s reputation, I will however also question any information that the client provides to me that on the face of it does not make sense to me.
I have a completely separate relationship with HMRC. I have always assumed that is a relationship of trust between two tax professionals dealing with one another. I do not see myself as “managing” anything. Like any agent, when dealing with HMRC I am the representative of my client. As neither I nor my client has any contractual relationship with HMRC, I cannot see any basis for HMRC to want to get “the maximum value” from my informal relationship with them. My legal obligations are wholly to my client. My ethical obligations are to comply with the ethical rules of the professional bodies of which I am a member; in my case, primarily the ICAEW and the CIOT. I accept that there is tax lost through non-compliance. I also accept that this is sometimes down to carelessness by the agent or an insufficient understanding by him of the tax law. Where I want to take issue with Jim though, is with his definition of non-compliance.
Most of us have lots of cases where we reach the stage that it ceases to be cost-effective to fight HMRC’s view and reluctantly advise the client to concede. HMRC regard that as non-compliance, but it is nothing of the sort. It is pragmatism. For the purpose of HMRC statistics, does non-compliance include mistakes or only cases where penalties arise? I know that a lot of agents agree penalties where no penalty is actually due. That is not non-compliance. It is either ignorance of the law or pragmatism. I hope that the £4.5 billion of difference due to legal interpretation quoted by Jim as part of the tax gap is not regarded as non-compliance, even where at the end of the day HMRC convince the taxpayer that their view is right, because it is clearly nothing of the sort. I also do not know what Jim means when he speaks of non-compliance that could have been identified and sorted out by the agent. But I have a suspicion.
Let me go back to my accountant in Liverpool. The HMRC Officer told him that “HMRC need to be satisfied that the tax returns being prepared and filed were well founded before submission to HMRC”. I disagree. HMRC do not need to be satisfied about anything. They are required to form an opinion on the correctness of the individual’s tax return, which is a very different thing. It is the independent tax Tribunals that need to be satisfied. Nor does the accountant need to sort out anything. That is not his role. His role is to help the client to sort his information into the format required by a tax return and then to take off of the client’s shoulders the need for the day to day dealings with HMRC. Of course, if something looks wrong to the accountant he should not simply accept it, but his clients do not normally engage him to go beyond that.
Furthermore, it is impossible for me to say whether or not a tax return I submit (other than my own) is well founded. I cannot possibly know that unless I shadow my client 24/7. The Officer also said that in his experience, “clients did exaggerate the amount of expenditure said to have been incurred, and when called upon had been unable to produce any substantive evidence”. I have no idea what experience led the Officer to believe that all, or even most, clients exaggerate the amount of expenditure. In the days when I prepared tax returns, most of my clients tended to do the opposite; they forgot about some of the expenses that I knew they must have incurred. Such generalisations are dangerous. Is that bit in the Taxpayers’ Charter about each individual taxpayer being presumed to be honest regarded by HMRC Officers as a big joke? Many certainly seem to regard the bit about trying to keep your costs to a minimum as a joke, so perhaps the whole thing is thought by HMRC to be there simply to placate parliament but not to be taken seriously. And why should HMRC expect substantive evidence for, say, travel costs, which was one of the things that worried the Officer. Anyone who has ever got into a taxi will know that the receipt the driver gives you is generally not evidence of anything.
I don’t drive but even I know that cars are not designed to allow a motorist to have separate business and personal petrol tanks, so it is not possible to have substantive evidence of business mileage. The only realistic way to arrive at this is by a reasoned estimate. The Officer sort of accepted that because he said that “a contemporaneous mileage log is fundamental in relation to a claim for fuel or other expenses by a self-employed person”. Of course, it is not. If the taxpayer is a crook, any self-created record is unreliable and if he is honest, he is well able to estimate his mileage within the degree of accuracy required by UK GAAP. I don’t want to get too far into record-keeping. I spent enough time discussing this with HMRC in the consultations on business record checks. As a result of those consultations, HMRC themselves produced some excellent examples showing the sort of records that meet the statutory record-keeping test. Unfortunately with the migration of their website to YouGov, whose search engine makes even the Institute’s look good, I can no longer find where it is on their website, which makes it somewhat less helpful to taxpayers than HMRC had intended. But mileage logs certainly do not feature in their examples.
The Officer also asserted to the accountant that “a tax agent was expected to have carried out assurance work” and that HMRC had concerns about his client’s accounts because “all of them appeared to have an expense to turnover ratio in excess of 20%, yet it was clear that not all the records had been seen and were available to support the figures being reflected in the return”. I have no idea what gave him that expectation that accountants carry out assurance work when preparing tax returns. We don’t. We don’t now and we didn’t 50 years ago! Most of us consider whether the client’s figures look reasonable and complete and pick up any obvious errors. In fact that is exactly what my guy in Liverpool was doing. We don’t go beyond that. Most clients regard tax returns and accounts as a necessary evil and are only prepared to pay us for the work needed to meet their statutory obligations. That is what we do. Indeed, when it comes to accounts, many accountants highlight that the accounts are based on the information provided by the client. In those cases in particular I am puzzled how anyone within HMRC can expect any assurance work to have been done. I am equally puzzled how anyone can set an arbitrary 20% baseline for expenses without knowing anything about how the individual taxpayer operates.
When I had Robert Maas & Co I suspect that my expenses were a much higher proportion of income than most accountancy practices, but that was because I had too little income, not too much expenses. I would also point out that there is no statutory requirement on anyone to create an audit trail for HMRC and nothing in the tax legislation to suggest that any records beyond those required by statute need to be available to support figures in the accounts. I have never seen an HMRC Officer suggest that the income figure is overstated because it is not supported by invoices! Surely the law either requires evidence or it doesn’t. it cannot require evidence for some figures but not for others. In fact the statutory record keeping requirements for both income and expenditure are fairly modest. HMRC may not like this, but they need to work with the law we have, just like anyone else. I want my clients to pay the right amount of tax. I thought that was what HMRC want too. But I am increasingly wondering whether those who claim that HMRC want to collect as much tax as possible may be right.
Accordingly I think that if Jim wants to get the maximum value from agents, he first needs to sit down with agents’ representatives and understand what agents do and why. He can call me any time he wants! He also needs to understand that, if the law requires the inclusion of something, seeking to throw it out because there is no documentary evidence to support it, is a waste of everyone’s time. In return, agents ought to be prepared to recognise that there is more they could do to help HMRC at little or no cost.
But first both sides need to recognise that both HMRC Officers and tax agents are not enemies facing one another across the barricades; they are professionals doing a professional job to the best of their ability with a common objective that our clients should pay the right amount of tax; no more and no less. But that requires both sides to start by looking on one another as equals. Sadly at the moment I do not think that HMRC are prepared to take that step. HMRC seem to aspire to being loved by taxpayers. That is not going to happen! The reason that a client pays substantial fees to me is because he doesn’t want to deal with HMRC.
If HMRC want my help, they need to recognise this and not try to demand the client’s personal involvement. When I think the client needs to become involved, I will make that happen. It is as much as in my interest as in HMRC’s. HMRC do not know how close my relationship with my clients is. With some clients it is very close and I know more about his finances than HMRC would think I do. With others, it is less close. It seems to me silly not to want to utilise my knowledge when I can provide information quicker than the client can. I should also point out that I am not here to help HMRC. I’m here to help the clients who pay me. However, I like a quiet life.
Within the constraints of my contractual bargain with my client, I would like to work together with HMRC to resolve any issues arising on my client’s tax affairs as expeditiously as possible. I think that I could make their life easier without a great deal of effort on my part. But I am not prepared to work for HMRC. That would give me a huge conflict of interest. I work for my client. It is not possible to work for HMRC at the same time and give them both what they want because their needs are different. The only thing they have in common is that my clients want to pay the right amount of tax and HMRC profess to aspire to that too. I am not going to subjugate my clients’ needs to those of HMRC. Nor am I going to let HMRC bully or harass my clients – or even simply waste their time. Nor am I willing to be pushed around by HMRC. If HMRC want to get the maximum value out of their informal relationship with me, they first need to revert to the 1965 position of regarding me as an equal.
Collaboration cannot work on any other basis. If they take this step, we can find ways to work together – not ways imposed on us by HMRC – but negotiated ways that benefit everyone, HMRC, agents, taxpayers and the public interest. If HMRC are not prepared to take that reasonable approach, they cannot realistically expect me to keel over and do their bidding.
If they adopt a “We-don’t-care-about-your-experience-we-know-best” approach to dealing with me, as is frequently the case, they cannot realistically expect to get maximum value out of me. I have 50 years of experience as a tax professional; I doubt that anyone within HMRC can match that. Accordingly for someone with a lot less experience than me to suggest that their experience beats mine is hardly likely to endear them to me. And they need to realise that collaboration is a two-way street.
If HMRC want me to help them, the other side of that coin is that I will expect them to be prepared to help me too. I also think that HMRC Officers need to join the real world. They need to realise that most agents are not sitting around waiting for the next letter from HMRC. Tax compliance is a very small part of what we do. If a client wants to sell his business and needs me to review the warranties, I am not going to say, “Sorry, I have these tax returns to do”. If the client’s bank wants urgent cash flow projections, I am not going to say, “Let them bankrupt you. I have HMRC letters to answer”. HMRC also need to realise that inventing unrealistic targets wastes everyone’s time.
It is relatively easy to ask questions. Answering them often requires research, sometimes into old records that have gone into storage. Accordingly to say in every letter, “Please let me have a reply within 30 days” without thinking about what information is being asked for and how long it may take to assemble is not reasonable. And my reaction to unreasonableness is likely to be to put the letter at the bottom of the pile. Because if HMRC want to be awkward, I can be awkward too.
I don’t enjoy doing that, but I can play that game if I am forced into it. An example of the sort of thing I could readily do to help HMRC is that I would not mind automatically telling them what estimates I have used in preparing a client’s accounts. But I am not going to do this at the moment as I believe that HMRC will either disallow the estimates or automatically challenge them.
If they want my help they need to grow up first! They need to recognise that the law requires the client’s accounts to comply with UK GAAP and if some information is missing, GAAP requires the inclusion of estimates. Profit is the difference between income and the expenses of generating it, not between income and those expenses for which one holds a piece of paper. Of course HMRC are entitled to question whether my estimate is a reasonable one. However, if it is, they are not entitled to seek to substitute their judgement for mine. A bigger problem is that I do not think that HMRC really want my help. They like to talk about wanting it, but I think that what they really want is for me to do as I am told – and I am not going to do that as I do not believe that is in the best interests of my client. Indeed HMRC seem to want to do everything themselves, even though their resources could be better used in policing the tax system.
When we agreed they would report poor work to me all those years ago they were prepared to do it only if I let them try to educate my member first and they could not achieve this. They want to dictate client’s record-keeping. Now they apparently want to dictate our professional standards. I think that the ICAEW can do all these things far more effectively than HMRC and if HMRC really want a relationship with agents they should let the ICAEW and other professional bodies do such things and call them to account if they do not step up to the plate. Last year HMRC introduced something called the Single Compliance Process. I have not yet come across anyone who has been offered it.
When I first read about the proposals, I had a sense of déjà vu, because the Single Compliance Process is virtually identical to something called Faster Working. Some of you may remember that. It is something the professional bodies agreed with HMRC around 15-20 years ago. What happened to that? After about 6 months, I asked what was happening. I was told “Our staff don’t like it, so we have dropped it”. If the Inland Revenue staff did not like Faster Working, I cannot see HMRC staff liking the Single Compliance Process either. The concept of both initiatives is that if HMRC are open up-front about what is worrying them, cases will settle more quickly.
Personally I do not get excited about settling cases quickly or about time targets. There is a story that when Ronald Reagan was running for President of the United States, a journalist pointed out that when he was in Hollywood, only made B movies. Reagan is said to have responded, “When I was in Hollywood, they didn’t want movies good, they wanted them Wednesday and by God they got them Wednesday. I’m the opposite. I don’t want a client’s tax liability agreed fast; I want it agreed correctly – however long it takes to achieve that. But if HMRC want quickly, they have to accept that the starting point of both Faster Working and the Single Compliance Process was that HMRC needed to be up-front about what was worrying them. I think that the culture within HMRC makes it very difficult for them to do this. They also need to accept that if they want a meeting with my client, I need to believe that it is going to be a constructive meeting.
A lot of accountants don’t appear to realise that when HMRC say, “I need to see your client”, or “I require a meeting with your client”, what they really mean is that they think a meeting would be helpful. I generally point out to officers that if parliament had thought that they “needed” or “required” a meeting, it would have given them the power to insist on one. Accordingly they must be misunderstanding what parliament wants of them. After all, George Osborne has been very liberal with the raft of additional powers that he has given, or wants to give, to HMRC. Many of these duplicate existing powers which HMRC choose not to use, but the new power is normally in addition to, rather than in place of, the existing one.
Yet even a parliament that seems to be entirely compliant with Mr Osborne’s wishes, has stopped short of giving HMRC power to interrogate taxpayers. I sometimes think a meeting would be helpful and am happy to arrange it when I do. But I do not think it helpful for an HMRC Officer to want to interrogate my client over his book-keeping when the client does not have a clue about the subject and the person HMRC ought to be talking to is his book-keeper or accountant. I do not think it helpful to subject my client to an interrogation over the family’s shopping bills when, as in most families, his wife does the shopping and he has little or no idea what she spends money on.
I want HMRC to think about why they need the client to give up valuable time from oiling the wheels of commerce to talk to HMRC, before they ask for the meeting, so that it can be as short and as relevant as possible. A few years ago, I was advising an accountant on a case where his client owned a small chain of restaurants. The Officer wanted a meeting with the client. After a bit of an argument, we agreed that she should have a meeting with the accountant and me and at the end of it we would decide whether she still needed to meet the client. At the end of the meeting she said, “I want to know exactly what happens from the minute the customer walks into a restaurant to the minute he leaves” and the accountant clearly does not know that. I then spoke to the client who explained that he does not know it either, as it was years since he ran a restaurant on a day-to-day basis. So I persuaded him to let me take one of his restaurant managers along to HMRC.
Would you believe that when I told the Officer that the client could not answer her question but I would bring along a restaurant manager who would be able to do so, she decided that she did not need the information after all! So the meeting that she had initially fought so hard to get would have been a complete waste of everyone’s time as her reason for wanting the meeting had apparently turned out in her mind to be an invalid one. It worries me that a lot of accountants and other agents do not understand many of the limits on HMRC’s powers and the rights that parliament has given taxpayers to challenge those powers.
Many on both sides do not understand the rules about penalties and, in particular, that the client can only be penalised for something that he has done wrong; he cannot be penalised for his agent’s mistakes, or stupidities, or ignorance. I understand these limitations very well because I have written a book about them. Because I understand them, I am not afraid to challenge HMRC. I am not scared of threats of information notices. I must have appealed or asked other accountants to appeal well over 200 over the years. I can only remember 3 cases where the Tribunal had to resolve the appeals. In all the others, HMRC seem to have decided that they did not after all need the information that I had said I did not believe was relevant to their enquiry.
That is hundreds of hours of work I have saved taxpayers from having to produce information that HMRC ultimately decided would actually have been of little help to them in concluding their enquiry. Another interpretation of course might be that HMRC try to use both meetings and information notices to obtain information just in case something comes out from it to enable them to open up a new line of enquiry. I’m not going to let HMRC go on a fishing expedition into my clients’ affairs, if only because in my experience what they usually land are red herrings. But I don’t blame them for trying. That seems to be the game as it is currently played. I blame agents who let them get away with it. I also believe that HMRC should not need to use their statutory powers very often.
They do not need any powers to ask anyone a question if he is willing voluntarily to answer it. It is the agent’s fault, not HMRC’s, if the taxpayer volunteers to answer it because he believes he is compelled to answer and his agent hasn’t told him that he is volunteering. Indeed I’d go further. The relationship between HMRC and agents should not have to require HMRC to exercise their powers at all. If HMRC need information that is relevant to settling my client’s tax affairs, I will happily volunteer that information.
Where I have a problem is where the information does not seem to me to be relevant to agreeing the client’s tax position and HMRC has not bothered to explain to me why they consider it relevant; or where it is burdensome to produce what the Officer wants and I know that there is an easier and cheaper way to address the point that seems to concern him, but when I offer him that he digs his heels in and insists on using the burdensome route. It would speed up cases enormously if, when HMRC open an enquiry, they talk to the agent, tell him what their concerns are, tell him what evidence they believe will allay those concerns and agree with him whether or not that is the appropriate evidence to look for in the context of the client’s business.
If they are serious about wanting to get the tax agreed quicker, they would surely do that, as it reflects commonsense. But most HMRC Officers seem to model themselves on Perry Mason or Columbo. Let’s keep our cards tightly held to our chest, seek lots of irrelevant information to put the taxpayer off his guard and then confront him at a meeting with the facts that will damn him. If that’s the game that HMRC insist on playing, count me out. They are going to have to battle to get information out of me. Not because I want to fight, but because I’m not prepared to put my client into that situation. The last big denouement that I remember is when the Officer suddenly pulled a copy of an advert reading, “Best prices, cash paid” out of his bottom drawer and demanded “Explain that”. The client explained that in his industry everyone understands “cash paid” to mean that you will be given a cheque on the spot, not have to wait until the end of the month to be paid. I’m not here to reminisce.
The point I am trying to make is that what I do, and what I advise accountants who consult me to do, is inevitably based on my personal experience. Every time an Officer does something on one of my clients that seems to me to be silly or unreasonable, it makes me more suspicious of why other Officers are asking for things. In the same way as every Chartered Accountant has my reputation in his hands, as this relies on the Chartered Accountant brand reflecting integrity, every HMRC Officer has HMRC’s reputation for integrity in his hands.
I accept that it is not fair for me to treat Officer B with suspicion if I have had a bad experience with Officer A, but the cumulative effect of bad experiences inevitably colours my initial approach to Officer B. As I have said, I do think that there are things that HMRC can do to get maximum value out of agents. I have mentioned some of them already. I would much prefer to play a different game than the current one. I would like to collaborate with HMRC. They won’t need to use their powers if they convince me that they really need the information they are asking for. They won’t need to use their powers if they start by telling me why they are enquiring into a client’s affairs and what they are seeking to evidence, and acknowledge that my knowledge of my client and his business means that I am far better placed than them to tell them what they should be looking at and provide it for them.
I know my client’s business and what records he keeps. To me, it is self-evident that I am in a far better position to identify what evidence can most easily be provided than an HMRC Officer who does not have that knowledge. Let’s come to Jim’s second point, which was “When an agent represents a taxpayer, we will want to know what services the agent is providing. This could be a perfectly professional basic service, or it could be one which offers lots of added value … so that an agent’s client presents to us as compliant or low risk”. I don’t think I am providing a basic service to my clients; I think I am providing a Rolls Royce service, but I suspect that in Jim’s eye’s I am not.
The confusion is because Jim is looking only at the compliance bit, which is a very small part of what the client is buying from me. On that bit I am providing a quality service of what the client wants to buy. Jim thinks that if I say to clients, “Pay me more money to do extra work that is of no benefit to you but which will give HMRC more confidence in your tax return”, they will be happy to pay me. Sadly, I think he is wrong. Indeed, I am pretty sure he is wrong because when audit deregulation came in, my then firm tried to convince clients that there were benefits in continuing to have an audit done even though they were no longer forced to have it, and virtually everyone said, “No thanks!”. I am not going to do free work for HMRC. Nor, I suspect, is any other agents. That means that Jim’s vision is an illusion. Jim’s interview also contained a threat. “We will set the professional standards that we expect agents to meet to be able to transact with us.
HMRC will use the data it holds to monitor the performance of paid agents … We are working with representative bodies to agree these standards across the industry, for example, by developing the Professional Conduct in Relation to Taxation guidance.” I should start by saying that I am puzzled what data HMRC have that enables them to monitor the performance of paid agents. A year or so ago, they admitted to the ICAEW that the data they had is the wrong data to enable them to do that. It would have been a massive task to collect the data they actually need. No wonder that HMRC service standards have fallen to an abysmal level; they must have pulled 100s of HMRC staff off of other things to create such records.
The Times recently quoted Stephen Dorrell, a former Financial Secretary to the Treasury, as saying in relation to NHS consultants, “You can never inspect quality into anything. The people who are responsible for the quality of care in a consulting room are the professionals delivering that care”. The same goes for tax. The Times also carried a quote from Miles Young, the chairman of Ogilvy and Mather that “the biggest confusion is between evaluation and measurement. You can measure clicks, but you’re not evaluating them”. I think that is what HMRC are doing. They are measuring performance indicators but those indicators are procedural ones and say nothing about quality. Worse, many of them reflect the performance of an agent’s clients, not of the agent.
Secondly, I should point out that Professional Conduct in Relation to Taxation, which forms part of our ethical code, is produced solely by the professional bodies. It has existed for years and is updated regularly. There is no need for it to be developed! It has been usual to let HMRC see a draft as a matter of courtesy. Sometimes the bodies have taken HMRC comments on board and sometimes they haven’t. I would be horrified if the ICAEW were letting HMRC dictate our ethical code in relation to tax – but I am confident that is not the case. But what we really need to be concerned about is HMRC’s desire to set the standards that they expect agents to meet. I recently attended an HMRC webinar so can tell you more about this. They want to differentiate agents by reference to the value they add to tax compliance.
By adding value, they mean doing due-diligence, up-skilling the client and helping ensure compliance. By doing due diligence, I think they mean the massive amount of extra work that the Officer wanted my guy in Liverpool to do. By up-skilling the client, I think they mean they want me to force him to understand the tax system instead of relying on me. They also want agents to tell them where the client has taken the benefit of any doubt as to the interpretation of the legislation or has decided to follow the legislation in preference to HMRC guidance. HMRC want to split agents into four categories. Assured Agents, Good and Acceptable agents, Poor agents and Unacceptable agents.
They envisage that Assured Agent status will not be easy to achieve and that most agents will fall into the Good and Acceptable category. They are at an early stage of development, but I don’t like the way they are going one bit. I do know that I don’t want to be an assured agent. I don’t want to put an “HMRC assured” logo on my letterhead. I don’t want an HMRC gold star. Because I think that the price HMRC want for it is far too high. I think it undermines my independence. I think it undermines my integrity. I think it undermines my duty to my clients. I think it undermines my obligation to my profession to act in the public interest, because I think that the public interest in upholding the rule of law and collecting the tax that is legally due is greater than the public interest in collecting the tax that HMRC perceive ought to be due.
I hope that no other Chartered Accountant wants to be an assured agent. I hope that no other CIOT or ACCA member want to be an assured agent either. I have always said that I will oppose any attempt by HMRC, or anyone else for that matter, to create different grades of Chartered Accountant. I think that the fact that someone is a Chartered Accountant is itself a sufficient hallmark of integrity and professionalism. If HMRC think that an individual Chartered Accountant is failing to display such attributes, they need to tell us and we will do something about it. At this point of time, I cannot say what we will do.
When we discussed this in 2000 we all agreed that in most cases the appropriate way is not through our disciplinary processes; it is to educate the agent. 15 years ago, we intended to deal with it through our support members’ scheme. I am not sure that is still the right method, if only because that was going to rely largely on me and I am now 15 years older and tireder. Some people within the Institute think we can deal with it through practice assurance. I do no myself think that is the right solution either. But I can guarantee to HMRC that if they give us the names, we will find a way to help the member improve his work.
My other concern is that HMRC stratification upgrades the status of non-qualified agents because it puts them on a par with qualified ones. They will be able to say, “come to me because I am a lot cheaper than a Chartered Accountant and HMRC themselves believe that I am a lot better than many of them”. I know there are some good unqualified agents. I know that some have PI cover. I know that some do CPE. But a lot don’t do either. I cannot see that it can be in the public interest for HMRC, as an organ of government, to be saying to Joe Public that although the government encourages professional qualifications in other areas that impact consumers, such as financial services, qualifications do not matter when it comes to tax.
I think that the most important question Joe Public needs to ask himself when taking on an agent is what happens if something goes wrong. Does the agent have insurance, is he subject to a disciplinary process that should inhibit wrongdoing, is he required to keep his knowledge up to date? I doubt that assured agent status will require any such public protection to be in place because it seems to me to be aimed at making life easier for HMRC and, if that misleads Joe Public, tough luck on him. I also think it’s a weird concept. I don’t myself think “Come to me, the taxman thinks I’m always really helpful to him”, or “Come to me, I can be relied upon to tell HMRC when they ought to investigate you” is a good marketing tool. I prefer to be able to say, “I act for you, not for HMRC”. But then any businessman who is silly enough to choose an accountant on the basis that HMRC praise the 5% of his work that they see is probably not worth having as a client anyway.
HMRC think they need to give agents incentives to strive for assured agent status. They are considering giving them priority access to HMRC helplines and experts; dealing more promptly with their clients’ tax repayments; and shortening the enquiry window for clients of assured agents. They haven’t yet worked out their full list of incentives. So that’s another bit of the Taxpayer Charter torn up; the bit that says you can expect us to treat you even-handedly.
At the end of the HMRC webinar on agents strategy, someone asked how their stratification proposals squared with that promise in the Taxpayers Charter to treat all taxpayers equally. The speaker said that she did not see a conflict; she did not think that giving special benefits to clients of assured agents creates inequality with clients of other agents or with unrepresented taxpayers. After all, clients of agents who HMRC rate as merely good are free to move to assured agents and, indeed, HMRC hope that is what would happen. I think that neatly encapsulates HMRC’s vision.
All taxpayers are equal, but some are more equal than others. I hope that the tax profession is not going to help HMRC to turn that vision into a reality. In my view that really would be a National Disgrace.
Thank you ROBERT MAAS