Tag Archive | "National Audit Office"

Tax Evasion: It’s All Greek To You AND The Taxman

Today’s article was going to be all about the differences between the UK and US tax systems. Set against the backdrop of the Greek tragedy, it may have given contractors and freelancers some hope that HMRC (and the IRS) are getting some things right.

Why write an article that uplifts the spirits when those accused of exorcising any hope are so clearly guilty?

Well, that’s just the point. With so much of the buzz around the Exchequer about how it’s going to screw limited company contractors for the deficit in taxes, self-employed people need that lift.

The research started well enough. A pleasant read on Bankrate.com explained that tax evasion is not limited by international boundaries. In the Med/Aegaen, the sport of dodging the taxman may have become “Greece’s national pastime”, and indeed be the reason that the country’s economy is the lame man of Europe.

But the fact is, everyone’s having a go.

The Global Threat of Tax Evasion and Avoidance

Tax avoidance in the US is between 83-85%, the additional 2% coming after a friendly nudge from the IRS. Bang, that was one of my points nailed.

I then found another friendly article on Sollertia, this one providing an overview of the differences between HMRC and the IRS. Yes, that’s what I needed. It points out the differences of our tax systems, but something struck me as odd.

The Bankrate.com article suggests that Americans don’t want the IRS to transform from an ambivalent overseer to a tax enforcement agency. The Sollertia article then suggested that the US method of collecting taxes is even more complex than that imposed by HMRC.

A conflict of opinions? Or a different attitude to taxation?

Could a more relaxed attitude to taxes encourage taxpayers to be more forthcoming?

Heaven knows, trying to crack down on tax caused Harry Theoharis to quit the role he assumed in Greek parliament before he’d been in it a year and a half. Death threats and warnings from those in government to ease up on the wealthy would do that to you, I guess.

Well, God bless everyone in the Land of the Free, where pundits forecast 50% of workers to be self-employed by 2020. They must have undying faith in their government that their taxes are going towards just causes.

Until this week, there was a similar forecast for self-employment in the UK labour market: half of the workforce to be their own bosses by 2020. But ONS figures published on Friday saw a huge drop of 131,000 self-employees year-on-year. Perhaps Britizens don’t have the blind faith engendered by our US cousins.

The tax gap – is it really unfathomable?

Looking to end my confusion, I turned to the one man I know who’d give me a no-bull answer on the difference in the tax gaps across the Atlantic: Richard Murphy.

As if it was written in the stars, his most recent publication (and he writes 3-4 blog posts per day) was bang on the money. Entitled The National Audit Office, the tax gap, HMRC and ‘other estimates’, it promised to fill in the missing blanks for my article here.

The problem is, it seems that HMRC has so many holes in its own calculations, any estimates the NAO can give are ‘wishy-washy’ at best.

You must go and read Richard’s article to see the extent of the problem. The more worrying thing for contractors is this: when justifying the amount HMRC is going to take from you, they have no real benchmark.

They don’t know the deficit they need to make up in the tax gap. They don’t even know if their estimates are close, despite the IMF encouraging them to take America’s lead in how they work out how much they are due.

The Exchequer believes it needs protecting from £430M of tax avoidance from disguised employees masquerading as limited company contractors and freelancers. To me and you, that may seem like a drop in the ocean.

For the taxman? Trying to work out how much evasion is happening here in Blighty is a ship that’s already sailed…

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What do accountants for contractors think about online self-assessment filing?

The National Audit Office has praised HMRC for persuading people to file their tax returns online, but says it is not clear whether the system provides value for money.

The NAO says that more than 11.5 million people a year now use online filing. However, some users have complained about access to HMRC’s website at busy times and the Low Incomes Tax Reform Group is calling on the Revenue to offer other alternatives to people who do not have Internet access.

Online filing has reduced processing costs, as well as postal, stationery and storage costs. Cumulative savings by the end of this financial year are expected to be £220 million and the drive to persuade people to file online is on time and within budget.

However, the NAO says HMRC is not able to draw a comparison between the costs of paper and online filing. It is therefore impossible to conclude that the benefits of online filing are being maximised and the system has been successful in delivering value for money.

Robin Williamson from the LITRG said that it should not be made mandatory to use the Internet to conduct dealings with HMRC and robust, well-advertised options must be made available to people who cannot transact online.

It’s both reasonable and sensible to encourage businesses to use digital channels to communicate with the Revenue but the government department should not forget that some individuals do not have access to the Internet or the capability to cope with online filing, he added.

Some professional organisations have also questioned whether it is cost effective to file corporation tax and VAT returns online.

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Will UK Uncut launch High Court legal action against HMRC?

Accountants for contractors might be interested to learn that last Friday, UK Uncut, the anti-austerity action group, threatened to take legal action over the deal HMRC came to with Goldman Sachs over the investment bank’s unpaid National Insurance contributions.

After recently calling for the resignation of Dave Hartnett, the permanent secretary for tax, the group has now said it is considering applying to the High Court for a ruling on the NI deal. UK Uncut says HMRC acted unlawfully by departing from the procedures set down for governance.

Goldman Sachs, along with a number of other companies, set up employee benefit trusts to provide loans to their employees. The loans do not need to be repaid, but in 2005 the courts ruled that National Insurance had to be paid on these loans. 21 companies settled up, but Goldman Sachs challenged the ruling. The bank was told that interest would be levied on the overdue amount while the dispute continued.

At the end of last year, Hartnett made a deal with the bank that meant it was not liable for the interest. According to Amyas Morse, the head of the National Audit Office, the loss of revenue cost the Treasury as much as £8 million. Hartnett defended his actions by saying HMRC had mistakenly believed it would not be able to recoup the full balance.

UK Uncut has posted a blog saying that if the mistake was genuine, it can be put right and Goldman Sachs should settle the bill. The Group says it expects to see this happen within a couple of weeks or it will take the matter to court. Dave Hartnett acted unlawfully when he made the handshake agreement because he didn’t follow the procedures laid down by HMRC, the blog concluded.

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Civil Service wastes millions on ineffectual training

The National Audit Office recently published a report stating that £275 million worth of taxpayers’ money was wasted by the Civil Service last year on ineffectual training courses.

The NAO estimates that hundreds of millions of pounds are wasted every year as the Civil Service puts employees on expensive courses that don’t work. Less than 50% of the public sector employees questioned thought that the training they had received in the last year helped them do their work better.

Kevin Beales, the MD of the North-East based Test Factory, said these figures were probably just the tip of the iceberg of a UK culture of poor staff development. Organisations in both sectors know they need to offer staff regular opportunities for personal development if they are to get the best out of them, but they give little thought to what the needs of their staff actually are.

In order to provide suitable training, employers, including accountants for contractors, should analyse staff training needs so that they can make an informed decision on appropriate training. Employees should also be given the opportunity to identify areas where they feel they could improve leading to personalised training plans to aid their development.

Research from the CIPD suggests that workplace coaching drive business success and helps employers manage change effectively. Dr John McGurk, said companies should ne maximising the value they get from their employees and this can be best achieved by aligning coaching to business objectives.

The CIPD’s adviser for learning and talent went on to explain that about 80% of UK businesses use coaching to improve staff performance levels and maximise their employees’ potential.

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Sunday tax help lines to stop operating

Contractor accountants might want to let their clients know that HMRC’s Sunday hotlines are set to close down as from the end of November.

The Revenue says that contact centre staff who work on Sundays will be redeployed at peak periods which should bring down waiting times and provide a more efficient service for everybody. HMRC also plans to change the opening times of its contact centres during the week to ensure peak periods are well staffed.

The majority of lines will be open from 8am to 8pm, Monday to Friday and from 9am to 4pm on Saturdays.

A recent survey carried out in Scotland highlighted some of the problems encountered by people trying to communicate with the Revenue. Members of the Institute of Chartered Accountants were asked about their experiences and results showed that 43% of HMRC’s systemic errors and shortcomings were due to poor communications. This is a big increase from the 13% reported 18 months ago.

The director of tax at the Institute, Derek Allen, said there has been a drastic deterioration in facilities for contacting the Revenue over the last year. He pointed out that phone calls to the help desks go unanswered and letters sent could lie for months before they get opened.

Allen also remarked that many of the staff do not appear to have adequate training to help them carry out their allotted role and so technical questions relating to tax matters are passed from pillar to post. He believes urgent action should be taken to simplify the tax system.

Other concerns raised by the survey included problems with online filing and long delays before tax repayments are received.

Earlier this month, the National Audit Office published a new report ‘Engaging with Tax Agents’. It suggests that systems could be improved if HMRC and tax agents worked more closely together. In the light of the number of complaints against them, the Revenue may want to consider taking that advice on board.

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NAO report Engaging with Tax Agents provokes disapproval

The Chartered Institute of Taxation responded last week to the National Audit Office’s report ‘Engaging with Tax Agents’.

The report sets out ways the Revenue can work with tax agents to overhaul the tax system. Anthony Thomas, the deputy president of the CIoT, said the paper was helpful but believes the NAO could have missed a golden opportunity.

One recommendation that does meet with approval is that HMRC could reduce costs if it let agents do more self-service on-line. This would reduce the inevitable delays that always occur when using the postal system.

However, Mr Thomas pointed out that the report did not contain an analysis of who is making over-declarations of tax, and why the errors are happening. The CIoT has been working with the Revenue for several years on just these issues and he feels the report should have reflected this. The paper also relies on data that is 5 years old and does not deal with the error rate within HMRC.

The CIoT is pleased that the report acknowledges the work of tax agents and says that without them the level of tax under-declarations would probably be a lot higher. At the end of the day, tax agents save the government money by assisting clients with their tax returns and doing tasks that would otherwise need to be done by the Revenue.

Meanwhile, tax agents are angry that although their work is acknowledged in the report, it also claims that people are more likely to under-declare their taxes if they receive advice from an agent.

The NAO claimed that 37% of self-assessment tax returns from people who consulted tax advisers had under-declared liabilities compared to just over 1 in 4 of the returns filed by taxpayers on their own.

The NAO report concluded that if the average amount of under-declared tax was reduced by 3%, the government would benefit by an additional £100m each year.

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Audit Commission to go, but is that a sensible move?

The Audit Commission is to be scrapped, Eric Pickles, the communities minister, announced last Friday.

The commission employs about 2,000 people to monitor the performance and accounts of public sector bodies. The government claims that shutting it down will save around £50m a year.

This move is likely to benefit the private sector as councils and other public sector bodies will be able to tap into the open market and appoint their own external auditors. By outsourcing audit expertise, the government hopes to cut back on the centrally imposed bureaucracy and costly auditing, thus saving money for council tax payers.

The National Audit Office is to set up a new auditing framework to ensure public sector bodies are still subjected to robust auditing.

Pickles said that the Audit Commission is no longer a watchdog looking after the interests of the taxpayer; rather it has become a creature of Whitehall. This new plan goes together with proposals to create an army of local people who will hold local bodies to account when it comes to spending tax and delivering value for money services.

The Audit Commission, probably understandably, is less than optimistic that this new approach will work. Michael O’Higgins, the Commission’s chairman said the department had more than fulfilled its aims since it was set up by Michael Heseltine and the Tory government in 1983.

The ACCA believes the move will prove costly and lead to inconsistencies in local government reporting. The head of public sector at the ACCA, Gillian Fawcett, pointed out that although a lot of the Audit Commission’s work is currently contracted out; the commission ensures that reporting is consistent.

Whilst this move will undoubtedly benefit some private sector accountants and contractor accountants, the general feeling on the street is that the work will go to the larger accounting firms rather than smaller local businesses.

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