Large business tax affairs are complex and as a result often require more interaction with HMRC than for other taxpayers. But, when business and HMRC work well together it ensures the right amount of tax is paid at the right time. That is better for business and for the public who rely on the services that are funded by business tax revenue. In recent years, however, a growing number of businesses are reporting a steady breakdown in their relationships with HMRC. One business told me that HMRC are adding 'picky' points to discussions on larger matters which do not help to move things forward and it sometimes feels like the 'old school' approach. In times where there is so much uncertainty around, this is not helpful.
Unprecedented amounts of new and complex legislation, resourcing challenges, tightened public finances and other factors have prompted a change in culture and capability at HMRC. The co-operative compliance relationship model which has governed large business interaction with HMRC since 2006 is starting to falter. Many now say that collaborative working has become a one-way street, where firms submit information and receive little back. One business reported that HMRC response times are poor, often measured in years. Meanwhile, a taxpayer is expected to respond to complicated issues within weeks which is clearly a very imbalanced approach.
A well-oiled machinery at HMRC is vital for our economy too. Large businesses make large investment decisions on a regular basis and part of that decision making process will involve understanding the tax consequences. Tax certainty and the speed with which they can get that certainty are part of what determines how quickly businesses can make those investment decisions. The UK has always been known for its competitive and well administered tax system and it would be a real shame to lose it.
There are some practical and, importantly, not costly things HMRC could do to improve the situation. To start with, businesses should be genuinely encouraged to be open with HMRC and such positive behaviour should be rewarded. It has to be a two-way street, however, and HMRC must be open about their decision-making and reasons behind those decisions. And it feels like it’s time to move on from the assumption that all businesses are actively trying to avoid paying the right amount of tax. How about the public finally gets to hear about any positive ‘achievements’ by business and HMRC, such as how many issues are agreed before a tax return is filed (rather than number of interventions). Some simple tweaks which could mean a lot in boosting confidence in the UK’s tax administration.
The CBI's new report - In need of a reset - sets out three clear recommendations to improve the UK tax system to restore trust and make it simpler for businesses to navigate:
- HMRC should use the Business Risk Review pilot to ensure the right incentives are in place for firms to be transparent and work collaboratively with HMRC.
- The dedicated Customer Compliance Manager regime should be an opportunity for honest business relationships.
- The publication of annual metrics on HMRC’s co-operative compliance performance would increase awareness of the benefits it brings.