The new UK government's approach to tax policy aims to address longstanding issues of tax evasion, avoidance, and the overall efficiency of the tax collection system. Central to these efforts are the proposed policies focusing on reducing the tax gap, boosting compliance activities, and investing in technological advancements.
In Rebecca Benneyworth Tax Update July 2024, Rebecca delves into the core elements of these initiatives, highlighting key strategies, planned actions, and the role of technology in transforming the tax system.
Reducing the Tax Gap
The tax gap—the difference between the amount of tax that should be paid and what is actually collected—remains a critical concern for the UK government. To address this, several measures have been introduced, including:
- Enhancing Compliance Activities:
- One of the foremost strategies to mitigate the tax gap is intensifying compliance activities. The government plans to recruit an additional 5000 staff focused on compliance tasks. These new hires will be strategically allocated to target areas with the highest exposure to tax discrepancies, particularly small company corporation tax and associated companies. Efforts will involve close scrutiny of these entities to ensure accurate tax filings and payments.
- Specific attention will also be directed towards offshore trusts and other offshore structures, with the government committing to publish an offshore tax gap estimate. This initiative aims to provide a clearer picture of the extent of tax avoidance and evasion activities beyond the nation's borders.
2. Strengthening Legal Measures:
- The new policies advocate for making necessary legal changes to bolster compliance and act as a deterrent against tax evasion. By hardening evasion rules and cracking down on avoidance schemes, the government aims to foster a more robust and law-abiding tax environment.
Investment in Technological Transformation
An essential component of the government's tax policy is the investment in technology to modernize the HMRC (Her Majesty's Revenue and Customs) and improve the tax system. Technology serves as a cornerstone for several proposed reforms:
1. Digital Transformation:
- The government's plan emphasizes the importance of digitizing the tax system. This includes upgrading legacy systems and implementing new digital solutions to streamline tax processes. The introduction of Making Tax Digital (MTD) is a significant step towards achieving this objective.
- Digitization encompasses the pre-population of tax data, allowing for more accurate and efficient tax filings. It also aims to enhance customer experience by reducing errors and minimizing the time taxpayers and agents spend dealing with HMRC inquiries.
2. Enhanced Customer Service:
- Alongside digitization, improving customer service stands as a pivotal aim. Currently, taxpayers often face long wait times and interact with staff who may lack the sufficient expertise to address complex queries. The government plans to revamp the customer service framework by providing targeted training to HMRC staff. This training is expected to ensure that employees can handle sophisticated tax issues competently, thus reducing frustration and inefficiencies experienced by taxpayers.
Concerns and Oversight
While the proposed policies promise significant improvements, several concerns need to be addressed to ensure effective implementation:
1. Training and Expertise:
- There is a prevailing skepticism regarding the adequacy of training for the new compliance staff. Historically, HMRC has faced criticism for hiring personnel who merely follow scripts without a deep understanding of tax intricacies. This raises questions about whether the new recruits will be adequately trained to manage complex tax matters.
- The government might consider hiring experienced professionals such as chartered tax advisors and chartered accountants. These experts can then mentor junior staff, bridging the knowledge gap and expediting the training process.
2. Oversight of Compliance Activities:
- With the addition of new compliance officers, it becomes crucial to oversee their activities to ensure accuracy and fairness. Previous internal reviews have pointed out significant error rates, with 20% of compliance yields being incorrect and some taxpayers being overcharged. This highlights the necessity for stringent quality control measures and perhaps external audits to maintain integrity in compliance checks.
3. Resource Allocation:
- Efficient resource allocation is vital to maximizing compliance yield. By utilizing data analysis to identify potential problem areas, HMRC can focus its efforts on high-risk sectors. This data-driven approach is expected to optimize the effectiveness of compliance activities.
Future Outlook
The government's ambitious plans for tax reform, coupled with a strong emphasis on digital transformation, signal a progressive shift in the UK's tax landscape. These measures aim to create a more transparent, efficient, and user-friendly tax system. However, the success of these initiatives will largely depend on addressing the concerns related to training, expertise, and oversight.
The upcoming years will be critical in observing how these policies unfold and impact tax compliance and collection. The government's commitment to modernizing HMRC and tightening tax regulations offers a promising path forward, albeit one that requires careful execution and continuous evaluation. Ensuring that technology and human resources are effectively integrated will be key to achieving the desired outcomes of a more compliant and fair tax system.
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The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.
