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HMRC Sets Out ‘Tailored Approach’ to Compliance

Posted on June 2, 2020

HM Revenue & Customs is “constantly learning and adapting,” according to a new briefing, which describes a recent change of approach to recovery of tax debts in light of the COVID-19 crisis.

HMRC’s aim is “for everyone to pay the tax that is legally due, no matter who they are,” according to the issue briefing published on June 1. “Our role is to help people to pay the right tax through education and well-designed systems, and to step in when tax is at risk of not being paid,” HMRC said. Separately, tax professionals have welcomed a new inquiry into the management of tax expenditures.

The briefing follows the OECD Forum on Tax Administration’s May 26 publication of a report on COVID-19 recovery period planning. That report, one of a series produced in cooperation with the Inter-American Center of Tax Administrations and the Intra-European Organisation of Tax Administrations, listed measures that tax administrations may wish to consider in planning for recovery from the pandemic. A second report published on May 26 addressed privacy, disclosure, and fraud risks related to COVID-19, while a March 21 report set out measures that tax administrations might consider to support taxpayers.

Asked whether the HMRC briefing was prompted by the Forum on Tax Administration reports, a spokesman told Tax Notes that the briefing “sets out the narrative of our compliance approach for everyone to see.” COVID-19 is mentioned because “it is a current issue which HMRC has adapted to and will continue to adapt to,” he said, adding that the approach set out “has been in place since before the OECD report, and the publishing of the briefing wasn’t prompted by anything beyond a desire to be open about our approach.”

HMRC’s response to COVID-19 is an example of a "tailored approach" to compliance issues, according to the briefing. “The outbreak has pushed many of our customers into a difficult position, which requires us to change some of our processes and policies, including the approach we take to recovering tax debts. This means we have been able to prioritize support and give legitimate businesses and individuals the breathing space they needed,” it adds.

HMRC data and evidence from around the world suggest that factors influencing whether someone pays the right tax include whether they understand their obligation, how easy it is to make payments, how difficult it is to make mistakes, whether they believe others are paying the right amount, and whether they believe there are genuine consequences for wrongdoers, the briefing says.

The briefing links to the current version of “Your Charter,” the HMRC charter that was last updated in 2016. A consultation on draft revisions to the charter, following an HMRC review that began in September 2019, will close on August 15. It is one of 10 consultations that were extended in April to allow more time for interested parties facing COVID-19 disruption to respond.

Tax Reliefs Inquiry

The Chartered Institute of Taxation has welcomed a House of Commons Public Accounts Committee inquiry into the management of tax expenditures. The committee will question HM Treasury and HMRC officials on “management of tax reliefs, the number of reliefs, and the government’s understanding of whether they represent value for money.”

Announcing the inquiry on May 27, the committee distinguished between structural tax reliefs that are integral parts of the tax system and non-structural tax reliefs or tax expenditures “where the government opts not to collect a portion of tax for social or economic objectives — like tax credits for companies’ research and development costs, or income tax relief on pension contributions.”

The committee has invited written evidence to the inquiry by June 5. It noted that the U.K. tax system has “over 300 [non-structural] reliefs, which cost the government an estimated £155 billion of foregone tax revenues in 2018-2019.”

The National Audit Office reiterated in February concerns it had expressed previously about the management of tax expenditures. But it pointed out that while aggregating the cost of tax expenditures gives a sense of their scale, “it does not reflect the amount of tax that would be generated if tax expenditures were removed because some taxpayers would change their behavior and there may be wider economic impacts.” A significant reduction in capital gains tax entrepreneurs’ relief was proposed in the March 11 budget.

“Governance of tax reliefs in the U.K. is not systematic or proportionate to their value or the risks they carry. There is a mismatch between the significant effort in government, and to an extent Parliament, that rightly goes into new tax measures, and the relative lack of attention to how effective those measures prove over time. This is particularly the case with tax expenditures,” John Cullinane, tax policy director at the CIOT, said in a June 1 release.

“Unless HMRC and the Treasury actively monitor the use and impact of tax reliefs, and act promptly to analyze increases in their costs, we cannot assume that these reliefs will be value for money,” Cullinane said.

A House of Commons public bill committee is set to begin examining the finance bill, which includes the digital services tax and the reduction in entrepreneurs’ relief, on June 4.

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