Revenue has lost public confidence
Just like any other relationship in life, once the trust between two parties has been eroded it is very difficult to restore, making the association a difficult one to carry on with. This is what has happened with HMRC’s relationship with taxpayers over decades of time and was the topic of discussion at a recent lecture given to the Chartered Institute of Taxation by Judith Freedman, CBE and Professor of taxation law at Oxford University.
Amidst all the recent revelations and scathing criticism of HMRC, how can trust in HMRC be restored, particularly when a body such as the Public Accounts Committee (PAC) said it did not have enough information to be able to gauge what HMRC had done about fraud. This, despite the PAC having been presented with the National Audit Office’s (NAO) report on what HMRC had done to combat fraud!
It is fair to say, for those of us who are forced to deal with our tax authority, public confidence in HMRC is not the best and not just because of all the negative press the department has received. This isn’t just a matter of public perception but the reality is that HMRC is an increasingly faltering government body. However, as the good professor points out, a negative public perception can give rise to diminishing trust which could affect the tax taken from historically compliant taxpayers.
In the good old days, tax advisers and taxpayers alike were able to work closely with their local tax inspector but that was a time when the Inland Revenue, as it was then, was a decent government department that contained well trained staff who possessed a sound knowledge of tax. That personal contact is a large part of the problem and this is shared by Professor Freedman, “calls for transparency and fairness…. are reaching a crescendo when personal contact with HMRC is being lost.” She too believes that HMRC needs well-trained resources and the ever increasing move to force taxpayers to deal with HMRC entirely electronically is ensuring that all personal contact vanishes.
Would public trust be restored if HMRC were more transparent and open? Professor Freedman believes that on its own it is not enough as what is important is the kind of information the public is fed and its significance. She argues, “If transparency is increased but justified trust is not, then the aim behind transparency, better tax collection…. will not be served. All we will do by increasing transparency is lower tax morale and raise distrust in the general population in a downward spiral without improving tax collection or balance.“
Undoubtedly, trust of HMRC amongst the public is strained but as Freedman warned, if there only exists trust between a number of small elite groups to the exclusion of others, then this will only stoke mistrust among the masses who will quite naturally speculate about what is really going on behind the scenes. For example, there exists a perception that HMRC does cosy deals with very large business and that is not being dispelled.
Currently it is the responsibility of the PAC and NAO to review the operation of HMRC but Freedman suggested that a ”reasonably placed trust in revenue authorities ….needs certain kinds of transparency but [also] checks and balances.” She offered a number of solutions to help restore that lost confidence, including making the Revenue a ministerial department, extending the benefits of personal contact with HMRC beyond large companies and asking the NAO to consider a random selection of checks on settlements on a regular basis. This, she maintains, would be “far preferable to special inquiries by non-experts emerging periodically as a response to particular events, because only a routine check will provide the reassurance necessary.”
With HMRC on course to reducing its staffing numbers and forging ahead with Making Tax Digital the restoration of public trust in the Revenue seems an unlikely prospect which is a dangerous scenario because as Freedman warns, “A tax system cannot be operated by public opinion; it needs consent, for it is impossible for it to function without a large measure of voluntary compliance.”
Trust is a two-way process and requires both parties to know that the other is reliable. A poignant question posed by an attendee of the lecture was whether HMRC’s trust in taxpayers has decreased? With the number of campaigns and settlement opportunities HMRC has launched over recent years, I would say the answer to that question is ‘yes’ and if that is the case then it’s going to be a long and bumpy road to travel, where both eye the other with suspicion.
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