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Engaging with tax agents
ACCA has read with concern and disappointment the recent report Engaging with Tax Agents by the National Audit Office. The accompanying press release focuses on a single issue, the incidence of underdeclaration of tax in returns filed by represented taxpayers. Not only is the tone of the finding unhelpful, and its basis doubtful, but it diverts attention from the far more constructive recommendations contained with in the body of the report.
We are concerned also at some of the apparent shortcomings in the underlying data, research and methodology. The report falls short of the standards required of a key piece of government funded research.
The first finding of the report is that HMRC recognises the importance of tax agents and has taken steps to improve its interactions with them. Whether the steps have been successful or not (in recent months as all sides acknowledge there has been a declined in HMRC’s performance) HMRC openly acknowledge that without the support and goodwill of tax agents the system would collapse altogether and ACCA remain committed to the ideal of a good working relationship between HMRC and agents.
The second finding is that there is scope to improve tax compliance through tax agents. In itself this is a natural progression from finding one, but the evidence adduced in support is neither timely, complete nor fully analysed. Good compliance involves getting tax right, neither over nor under paying. The HMRC data, collected from closed enquiries, records only underpayments. It does not identify the number of tax payers, represented or not, who erroneously pay too much tax. Moreover, the data relied upon dates (at its most recent) from the 2004-05 tax year for income tax, and 2003-04 for corporation tax. The income tax sample is small (5,000 returns out of around 10,000,000) and the report focuses almost entirely on data from one year, although information was available for 2002/03 and 2003/04. The data does not record whether the agent filing the return was professionally qualified. It does not record (or at least, the analysis does not identify) whether any underpayments arose as a result of error, mistake or evasion, nor does it attempt to define those three terms. The executive summary quotes a figure for tax underdeclared as a percentage of total for 2004/05, yet the main report says this information is unavailable. The sample size for corporation tax is so small that the one difference between represented and unrepresented corporation tax payers has to be disregarded as 'not statistically significant'.
The research does point to some areas which are worthy of further research – why does it appear that represented tax payers are more likely to underdeclare? Are they more or less likely to overdeclare? Does it make a difference if the agent is qualified to what sort of underdeclaration is made, and the value of it? Once HMRC knows the answers to these questions, it will be in a position to address them and help agents improve their clients’ compliance. Until then, publishing the half completed research as a basis for conclusions does a disservice both to tax payers and their agents.
The NAO figures tell us that 35-40% of the tax due from the unrepresented sample was owed (and underdeclared) by just 26% of them. Taking an extreme example, even if each of them originally declared just £10, the average value of a correct or overdeclared return was £730, and of an underdeclared return £1,350. The evidence clearly indicates that the underdeclarations in the unrepresented population are primarily attributable to those with the largest bills. This is not the message that the NAO chose to highlight. It is admittedly no more conclusive than any other finding based on this evidence, but should at least be given equal prominence.
The third NAO finding is that HMRC could reduce its costs of dealing with represented taxpayers, specifically by saving money through a reduction in the quantity of inbound post and telephone calls it receives from agents. To add more value to this otherwise self-evident statement, NAO has tried to analyse what issues agents contact HMRC for, and how these could be dealt with more efficiently. The work is a useful start, although the small size and timing of the samples they worked on might perhaps prove the value of further research rather than standing alone as the basis for conclusions. But what is worrying is the attempt to put a value on the time spent by HMRC dealing with agent communications. ACCA has been unable to identify the link between the estimated costs from the October 2009 report Dealing with the tax obligations of older people and the figures quoted in this report. The Detailed Methodology tells us that the unit costs from the October report were uprated for average earnings index, but the October figures of £6.62 per letter and £3.59 per telephone call applied to 'around 2 million items of post [and] around £1m telephone calls comes to just £16.8m. This report estimates the cost of queries at £26m, a short fall of £9.2m which ACCA does not believe can be explained by 12 months of inflation and 200,000 emails. ACCA does not believe the £26m to necessarily be wrong; indeed, agent queries are likely to cost more to deal with than average taxpayer contacts, but does believe that there should be more clarity about the methods used.
Finally, the report has found that HMRC is developing a new strategy for dealing with tax agents. This is not so much a “finding” as simply a statement of fact, but as the report notes it will involve investment in new systems and approaches and 'buy-in from the tax agent community'. This last point is crucial, and both HMRC and agents recognise that for their working relationship to improve there needs to be goodwill and effort on both sides. This makes the divisive and controversial tone of the earlier 'findings' on the probity and competence of tax agents all the more concerning.
ACCA are one of [six] professional bodies to have written jointly to the National Audit Office setting out their concerns about this report. You can find a copy of that open letter here:
The report itself, as well as the Detailed Methodology and the press release can be found at http://www.nao.org.uk/publications/1011/tax_agents.aspx
If you have any comments or evidence to submit on this report, please email ACCA at supportingpractitioners@ACCA.global.com