Written evidence submitted by Dr Edidiong Offiong Bassey (CTS0001)

Introduction

As a lecturer and researcher in taxation, I present this response to the call for evidence on the cost of the tax system as published by the Public Accounts Committee. My aim is to contribute to the growing evidence base on this subject (see NAO 2025[1] recent report) by focusing on how tax administrations can play a role in boosting economic growth—a priority outlined by the Labour government and the Chancellor. Discussions on taxation often focus on revenue levels or behavioural responses, with less attention paid to the administration of taxation itself, an area where I have research expertise.

This submission examines ways to reduce the cost of the tax system from both HMRC’s and taxpayers’ perspectives. While various approaches can be explored, I will focus on two areas in which I have expertise and engagement with academic literature:

• Regulation of Tax Intermediaries
• Digitization and Promotion of E-Invoicing & E-Fiscal Devices
• The Future of HMRC Digital Strategy

Regulation of Tax Intermediaries

In recent years, increasing scrutiny has been placed on the tax advisory market, particularly following tax leaks such as Lux Leaks, the Panama Papers, and the Paradise Papers. These events highlighted the role tax advisers play in facilitating aggressive tax planning and avoidance, prompting the introduction of regulations such as Mandatory Disclosure Rules (DAC6), Public Interest Disclosures, and the HMRC Code for tax agents. These regulations have led to increased compliance costs for companies seeking tax advice.

However, publicly available data does not provide a clear correlation between tax intermediary regulation and overall improved compliance. As HMRC (2020)[2] notes

the vast majority of major accountancy, legal and banking firms and others who are members of the professional bodies no longer design or sell mass-marketed avoidance schemes. This leaves a smaller pool of promoters who are mainly unregulated, unlike other providers of financial services and advice.

This has left a smaller pool of promoters, who are predominantly unregulated and operate outside established professional bodies—unlike other financial service providers.

While intermediary regulations have been implemented, their direct impact on tax compliance remains uncertain as noted by Mulligan et al. (2022), particularly given that alternative drivers—such as reputational risks and taxpayer-targeted regulations—may also be influencing behaviour. There is also evidence of a shift toward more conservative tax planning, with fewer off-the-shelf tax avoidance schemes being marketed.

Weaknesses of the Current Regulatory Framework

The tax advisory marketplace faces persistent challenges, particularly regarding market access rules. Given that many promoters of tax avoidance schemes are specialist advisers who operate outside professional bodies, it may be counterproductive to further tighten regulations for law-abiding intermediaries without addressing entry into the tax advisory market. Over-regulation risks increasing costs without necessarily reducing tax fraud.

Additionally, there is a chronic lack of data on the direct effectiveness of existing regulations in combating tax fraud. Mission creep has also become a concern, particularly regarding disclosure requirements. While originally intended to provide early signals to tax authorities about tax planning activities, these requirements now play an expanded role in curbing undesirable tax behaviour, often at high compliance costs. Before introducing new regulations, an Impact Evaluation Assessment should be conducted to assess the effectiveness and proportionality of existing measures.

Digitization and Promotion of E-Invoicing & E-Fiscal Devices

Digitization presents a significant opportunity to streamline tax administration, reduce compliance costs, and improve tax collection efficiency as noted by Bassey et al. (2022). However, there has been limited promotion of electronic invoicing and electronic fiscal devices which have seen positive results efforts. This is particularly crucial given that most of tax evasion that exists is largely among small businesses where increasing reporting requirements might not be helpful for economic growth

Benefits of Expanding E-Invoicing and E-Fiscal Device Adoption

• Closing the Tax Gap: Real-time transaction reporting through e-invoicing and e-fiscal devices can significantly reduce underreporting and tax fraud.
• Reducing Administrative Burden: Entrepreneurs and small businesses could benefit from simplified tax compliance, as HMRC would have real-time access to transaction data, eliminating the need for extensive manual record-keeping.
• Enhancing Compliance and Efficiency: Wider adoption could be encouraged through targeted incentives or regulatory mandates to increase digital tax reporting uptake among SMEs and professionals beyond the retail sector.

Future of HMRC’s Digital Strategy

HMRC’s digital transformation efforts have faced notable challenges, with its platforms often receiving criticism for inefficiency and complexity as noted by Closs-Davies et al. (2024). To ensure long-term success, HMRC must consider:

1. Synergy Between Corporate Accounting Systems and HMRC Databases:
• A seamless integration of company records with HMRC systems could reduce the need for extensive tax filings and auditing, limiting these requirements to high-risk businesses.
2. Upskilling HMRC Staff:
• Ensuring that HMRC personnel are equipped with the necessary skills to manage a digital-first tax administration.
• Training staff to navigate AI-driven compliance tools and digital platforms effectively.

3. AI Security and Regulation of Emerging Tax Tech Providers:
• As AI-driven tax solutions emerge, regulatory frameworks must prevent unregulated AI-based tax avoidance schemes.
• HMRC should proactively engage in discussions on AI security to prevent fraudulent tax technology providers from misleading taxpayers.

Conclusion

A well-regulated, digitized, and forward-thinking tax system can reduce compliance costs, enhance tax collection efficiency, and contribute to economic growth.

This submission recommends that the Public Accounts Committee:

• Support external regulatory Impact Assessment of current tax intermediary regulations before introducing additional compliance measures. While there are internal evaluations[3], external research, particularly from academia will help ensure a more robust evidence base.
• Expand the promotion of e-invoicing and e-fiscal devices beyond the retail sector to close the tax gap and simplify compliance.
• Improve synergy between corporate records and HMRC systems, invest in staff upskilling, and develop AI security measures to safeguard digital tax administration.

By addressing these areas, HMRC can better position itself for the future while ensuring that the tax system remains both effective and growth friendly.

References:

Bassey, E., Mulligan, E., & Ojo, A. (2022). A conceptual framework for digital tax administration - systematic review. Government Information Quarterly, 39(4), 101754.

Closs-Davies, S., Burkinshaw, L., & Frecknall-Hughes, J. (2024). Is the HMRC charter fit for purpose? Experiences of tax practitioners and vulnerable citizens. British Tax Review, 2024(2), 304-326.

HMRC, 2020, Call for evidence p. 20. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/873540/Call_for_evidence__raising_standards_in_the_tax_advice_market.pdf.

Mulligan, E., Bassey, E., De Widt, D., Greggi, M., Kiesewetter, D., & Oats, L. (2022). Regulation of intermediaries, including tax advisers, in the EU/Member States and best practices from inside and outside the EU.

February 2025