Tax & admin · 24 July 2017

HMRC fails to convince small business on tax fairness and efficiency

Her Majesty's Revenue And Customs
The confidence of small business owners on the issue of tax fairness remained low in 2016

Only a third of small UK business owners believe HMRC applies penalties and sanctions equally on those breaking the law, as new survey findings from its official review body revealed significant doubts on tax fairness.

In an annual appraisal undertaken by the Charter Committee, a sub-committee of the HMRC Board working to assess the tax office’s performance against its own customer obligations, owners of small firms were asked to evaluate their experiences dealing with HMRC.

In response to HMRC’s commitment to tackle those who bend or break tax responsibilities, two-thids of small business owners disagreed that HMRC applied penalties and sanctions fairly. On that question, the tax office failed to make any improvements from responses collected in 2015.

Despite a two per cent increase on the previous year’s survey, fewer than half of respondents agreed HMRC effectively ensured all individuals paid the correct amount of tax.

In 2015, 80 per cent of small business owners agreed HMRC treated all customers fairly. The latest survey showed that the tax office dropped two percentage points on this statement.

The efficiency of HMRC was also called into question by owners of small firms. Only a third agreed the tax office operated efficiently without wasting money. Again, no improvement was made on the previous year.

Aside from issues of tax fairness, HMRC nonetheless performed well in areas of professionalism, honesty and approachability. Over eight in ten respondents agreed HMRC acted professionally and believed they were treated honestly when dealing with tax queries.

HMRC also improved in areas of preventing system errors, by one per cent, and providing helpful information.

In a foreword to the report, Joanna Baldwin, Charter Committee chair, said HMRC’s complaints handling process remained the starting point to improving services.

“HMRC’s ambitious transformation programme is aimed at modernising and improving the department’s services,” Baldwin added.

“As the department undergoes this change, the committee will pay particular attention to how HMRC explores and applies appropriate customer service performance measures to its work. The committee will look into how HMRC uses customer feedback to provide both better services and support to customers in meeting their obligations.”

Rising tensions between HMRC and entrepreneurs

The relationship between the tax office and Britain’s small business community has faced strains throughout the last year.

Vocal opposition to Making Tax Digital saw significant reforms to government plans to digitise the tax system. Previously set for a full introduction in April 2018, pressure from organisations such as the Federation of Small Businesses (FSB) has seen the timetable pushed back until at least 2020, with 3m of the smallest firms lifted out of the plans altogether.

Meanwhile, in March 2017, HMRC was accused of treating small business owners as an “easy target” in the effort to reduce the corporation tax gap. As a proportion of total UK corporation tax revenue, the share collected from small firms increased from 9.2 per cent in 2013/14 to 9.5 per cent in 2014/15, while the share from large businesses remained far lower.

Commenting on HMRC’s approach to closing the corporation tax gap, UHY Hacker Young tax partner, Roy Maugham, said small business owners were likely to be targeted by HMRC as many lacked the resources or knowledge to challenge investigators.

“Whilst larger companies such as Google or Amazon have the resources to deal with a tax enquiry, smaller businesses could be put under significant financial stress if under investigation by HMRC,” he said in a statement.

Ahead of the general election in June 2017, HMRC’s policy making powers were disputed by the the Association of Independent Professionals and the Self-Employed (IPSE). IPSE stated HMRC’s role in developing taxation policy was “inappropriate”, and should be controlled strictly by the Treasury.

New Making Tax Digital timetable lifts three million small firms out of transition

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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