Evidence submitted by CPAA (tre0137)

Introduction

The Certified Public Accountants Association, ‘the Association’ is pleased to provide its response to HM Revenue and Customs’ (HMRC) consultation ‘Making Tax Digital reforms affecting businesses’.

The Certified Public Accountants Association is a niche professional accountancy body. The Association currently represents and regulates over nine-hundred accountants engaged in public practice. Tracing its origins back to 1989 the Association focuses its activities upon micro-accountancy practice. More information on the Association can be found on our website (http://www.acpa.org.uk/).      

Observations

We have observed a growing trend in recent years for HMRC investigations to be triggered by deviation of returned trading figures from a national statistical norm, with little consideration being given to regional variations at the point of selection of cases for investigation. This can be attributed in part to centralisation of HMRC’s resources leading to a lack of local knowledge, and also to shortcomings in the training of investigating officers.

We have found that HMRC officers are generally polite and courteous, but sometimes lacking in business sense or experience (for instance, assuming that a restaurant’s daily takings at the height of the tourist season in a seaside resort town would be maintained for a whole year).

The following matter is often overlooked, and has particular relevance to smaller businesses. The agent has a duty of care towards his client, and sometimes in the course of an investigation negotiations will reach a point of apparent stalemate, with the investigating officer insisting upon some addition to the returned profit and being somewhat intransigent. At this point the agent may recommend to the client that it will be cheaper (and less stressful) to accept the adjustment rather than incur further professional costs, this being in the taxpayer’s best interests overall. This “win” for HMRC forms part of the statistics used for risk assessment and case selection, and can distort the data.

We are aware of a change in HMRC attitudes over the past (say) ten years whereby the emphasis has shifted from determining the “correct” tax liability in an investigation case then putting in place practicable measures to collect that liability, towards maximising the additional duty (plus penalties and interest) and then seeking to obtain settlement as quickly as possible without regard to the consequences as they affect the taxpayer. We recognise that HMRC itself is working under straitened financial circumstances and that revenues must be protected, but we believe that HMRC still has obligations towards the taxpayer, and that flexibility should be part of this.

We have observed that in a number of investigations there is a protracted exchange of correspondence between HMRC and the agent as the investigating officer issues successive requests for information, often with a short time allowed for response. In many cases this could be avoided or reduced by a face-to-face meeting. Having said this, we are also aware of investigating officers insisting on meetings when the agent or taxpayer does not wish to meet.

The experience of some of our members, who have been in practice for long enough to remember the days of truly local tax offices and locally-based Inspectors, shows a gradual decline over an extended period of time of technical accounting knowledge among investigating officers in such matters as e.g. accruals accounting, valuation of work in progress, and apportionment of mixed expenses. This has been replaced by a reliance on HMRC’s guidance manuals (which in many cases are incomplete or ambiguous) and treating such guidance as a statement of the relevant law.

This leads us to believe that the scope and quality of HMRC’s training have declined; we would welcome a training regime whereby investigating officers are made conversant with accounting principles and business economics, as well as being trained in tax law and procedures.

The CPAA’s membership includes a significant number of small practices, which in turn serve very small businesses (sole traders, small partnerships, private clients). The costs of an investigation, both in terms of time and professional fees, can be disproportionately high for such taxpayers when compared to larger businesses. We understand that it is now HMRC policy to concentrate its resources on full, rather than aspect, investigations which by their nature place greater demands on the taxpayer’s resources. We suggest that this policy be reviewed, with the aim of making better use of HMRC’s resources and reducing the pressures on smaller taxpayers and their agents. A specific cause for HMRC’s concern can often be resolved by a telephone call to the agent to clarify matters without the need for a full investigation.

May 2018

Certified Public Accountants Association

Unit F, Lostock Office Park,

Lynstock Way,

Bolton,

Greater Manchester,

BL6 4SG

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