The Daily Telegraph reports today that HMRC currently has 20,000 Tax Tribunal cases on its books, and that internal estimates are that it will take 38 years (yes you read that correctly) to clear the backlog. Justice delayed is justice denied?
Among the reasons cited are savage cuts in HMRC staff numbers, low staff morale (one suspects these two reasons are not entirely unconnected) and senior personnel close to retirement. In this context it becomes much easier to understand why Dave Hartnett controversially sought to negotiate settlements of large cases with various high profile taxpayers, as HMRC will clearly have to do that if the Tribunal case backlog is to be brought down to a manageable level.
Five big issues arise from this. Firstly, how does the government expect HMRC to deliver the tax revenue required to finance theUK’s public spending if it reduces staffing levels so far that the department cannot do its job? It seems to me to be basic business sense that you do not drastically cut the department responsible for bringing in the vast majority of the revenue. Is it on the government’s agenda to so hamstring HMRC that it can make a case for privatisation? If it is, that will be a dark day indeed for the taxpayers and tax agents of this country, and the end of a long and honourable tradition of high quality and impartial administration of the tax system.
Secondly, how many taxpayers are going to get away with paying less tax than they rightly should because HMRC is desperate to cut deals to reduce the Tribunal backlog? On the basis that we have to give our clients best advice, should we be advising them to hold out even in the most hopeless of circumstances, in the hope that HMRC will offer a settlement to get them out of their hair?
Thirdly, with all of the current focus on tax avoidance and the advent of the General Anti-Abuse Rule, is HMRC properly resourced in the short term to block abusive tax avoidance schemes on a timely basis, and in the longer term to properly apply the GAAR to all of the schemes to which it is relevant? It seems likely that, at least in its early days, the GAAR will give rise to a rash of Tribunal claims as tax advisers seek to test the boundaries of the new regime. Is it going to be possible to have those claims heard in any sensible timeframe?
Fourthly, as mentioned above, it has been said that justice delayed is justice denied. The potential time lag for Tribunal cases being heard is terrifyingly long, with the potential for most of the parties concerned to be dead by the time the case comes before the Tribunal. This is horribly reminiscen6t of the endless case of Jarndyce v Jarndyce in the Pickwick Papers, but that was Dickens being satirical and this is horribly real.
Finally, where does this leave HMRC in its fight against the greater evil in the tax system, tax evasion? Whatever you think of the perpetrators of and participants in artificial tax avoidance schemes, they are at least operating within the letter if not the spirit of the law. What about hunting down those who simply choose to pot out of the tax system altogether and bringing them to justice? Does HMRC have any chance of long-term success in that endeavour in its current state?
Quite why the Government thinks that HMRC can continually do more with less in the face of all the mounting evidence completely defeats me. At the Chartered Institute of Taxation Residential Conference in September 2011, Sue Walton, the Director of HMRC Central Policy, stood before an audience of Chartered Taxation Practitioners and with a straight face presented the attached ‘virtuous triangle’ as the objectives of HMRC in the context of the government spending review. Anyone who thinks that HMRC is delivering this triangle, or is in any kind of state to deliver it in future, is either a fool or a charlatan.
Maximise Revenue Flows
Improve the Customer Create Sustainable
Experience Cost Reductions
Maximise revenue flows? What happened to ‘collect the right amount of tax’?
It is to my mind the biggest indictment of this government and its predecessor, which started the process, that it has overseen, nay encouraged and connived at, the bringing to its knees of a great civil service organisation, with a proud history of even-handedness, tax expertise and honesty. Given the importance of that organisation in providing the funds to oil the wheels of government, what on earth are Ministers thinking about in allowing HMRC to deteriorate to its current sorry state? At the very time that the legislative framework is at long last coming into place to stop abusive tax avoidance, the government is busy dismantling the only organisation in a position to make sure the legislation is enforced. You really could not make it up!