Are we being swindled by the taxman?
Tax collectors have never been popular. But a series of blunders by Her Majesty's Revenue & Customs (HMRC), together with revelations about the favourable deals large corporations have made with Britain's tax authority, have sunk its reputation to an all-time low with ordinary taxpayers.
So what has gone wrong at HMRC? Are things as inefficient as they seem? And what chance do the little people stand against the mighty taxman? There will always be those who resent the tax they must pay, but HMRC has given the taxpaying public myriad reasons to complain in recent times.
Poor customer service has seen people struggling to get through to its call centres, while taxpayers who make contact by post frequently say their letters go unacknowledged for weeks or even months. Some complain that they have received no response at all. And why are so many people clamouring to reach the hated taxman?
Recently, millions of taxpayers have received aggressive demands for extra tax, some as a result of a miscalculation by the tax authority itself. Others have received unclear tax bills that insist money is owing but fail to explain why. And some taxpayers have simply been issued with the wrong tax code.
"The leadership at HMRC has been appalling for years. The intellectual quality is just not there," says one former tax inspector, who wishes to remain anonymous. "Budget cuts have meant that it is driving down cost, but that drives down quality. Errors have become more commonplace."
Ironically, several of HMRC's most recent upsets have resulted from the introduction of new computer systems designed to make processes more effi cient. "Now that everything is computerised, when a mistake is made, it's a big one – and instant," the former tax inspector adds.
Late last year, HMRC admitted that its new IT system had uncovered widespread errors on UK tax bills. About six million people have since been told they will be reimbursed for overpayments made through the pay-as-you-earn (PAYE) system between 2003 and 2008.
A further 1.2 million taxpayers, including around 150,000 pensioners, have been landed with an additional tax bill of £600 each for tax owed for the past tax year. In total, HMRC needs to claw back about £720 million, either by adjusting people's tax codes gradually or by taking the sum owed as a one-off payment.
Last year, the merging of 12 regional computer systems into one sent tax coding into chaos. Some people's personal income tax allowances were removed, while some individuals were wrongly pushed into higher tax brackets. In some cases, the numeral '1' erroneously placed in front of salary figures inflated taxable income by thousands of pounds.
The litany of errors seems never-ending. Four years ago, HMRC mislaid two CDs containing the personal details of 25 million people registered to receive child benefit. The unprecedented scale of the data loss caused uproar and resulted in the resignation of HMRC's then chairman, Paul Gray.
Subsequent investigations by a management consultancy and the Independent Police Complaints Commission (IPCC) concluded that the fault lay in serious flaws in HMRC's management structure, poor communication and low morale. The IPCC report termed the HMRC's internal processes "woefully inadequate". The government promised reform, but many of the same problems persist.
Critics believe the root cause of many of the blunders is a lack of leadership and a disengaged workforce. Mike Fleming, director of taxation services for Straughans Chartered Accountants, understands the complex world of taxation well, having previously worked for the Inland Revenue, as the tax authority was then called, for almost 20 years.
He says: "Everyone needs to feel they are doing a worthwhile job, but morale is at rock bottom in HMRC. Staff are poorly paid, are under permanent scrutiny and receive constant criticism. Changes made haven't been effective and are often politically motivated. If you want to know if an organisation is doing well, measure its staff sickness levels. HMRC's are high."
HMRC's latest staff survey reveals that just 18% of employees believe HMRC is run well. Only a quarter of staff think senior managers' actions are consistent with HMRC's values. A mere 13% of workers feel changes made by senior management are for the better.
Another study by accountant UHY Hacker Young recently found that just 18% of tax staff felt motivated to help the Revenue meet its objectives.
How to check your tax code
- Look at other information on the coding notice to see if that is correct. Has it got your name, national insurance number and address right? Is the name of your employer accurate?
- If you have only one employer and are under 65, you are entitled to the personal tax allowance of £8,105 for 2012/13. If you are eligible for this, but that figure is not shown, something may be wrong.
- Your tax code is made of several numbers and a letter. A box on the coding notice explains what the letters mean. If you multiply the figure given by 10, you should get, within £9, the amount of income you are entitled to earn before you are required to pay tax. See hmrc.gov.uk/incometax/tax-codes.htm for more information.
Things have got so bad that a group of rebel tax employees are believed to have set up a whistle-blowing group to expose abuse of expenses and benefits by senior management. This band of disgruntled workers calls itself Dissent and it claims to have anonymous representatives in every tax offi ce in the UK.
Some experts blame the merger between the Inland Revenue and Her Majesty's Customs and Excise in 2005 to form HMRC and a resulting culture clash, from which, some say, the organisation has never recovered.
Frank Haskew, head of the tax faculty for the Institute of Chartered Accountants for England and Wales, says: "Serious problems started when HMRC was formed and budget and staff numbers were chopped. The merger with Customs and Excise never settled down, and now HMRC has weak management, a vacuum at the top and staff who have no idea who's in charge.
What's desperately needed is some strong, heavy-hitting tax experience, but most of that has gone to the private sector."
Cosy with the corporates
Senior HMRC figures came in for serious criticism in November 2010 over the approach HMRC takes when handling big business, which stands in sharp contrast to the line taken with ordinary individuals.
The tax authority's top lawyer, Anthony Inglese, and Dave Hartnett, permanent secretary for tax at HMRC, were both lambasted by MPs at a public accounts committee hearing and accused of arranging 'sweetheart' deals that let large corporates such as Vodafone and Goldman Sachs avoid millions of pounds of tax, while offering no such leeway to smaller businesses and individual taxpayers.
Investment bank Goldman Sachs was let off a £10 million tax bill, while mobile phone giant Vodafone is believed to have had as much as £8 billion in tax waived.
In 2008, the Trades Union Congress (TUC) calculated that corporate tax avoidance cost the British public £12 billion a year - a conservative estimate, by many accounts, given that HMRC brought in £447 billion in tax receipts last year.
The same TUC study suggested that wealthy individuals avoid a further £13 billion in tax by employing smart tax advisers to exploit loopholes in HMRC rules. Smaller businesses complain that HMRC often makes them feel like tax cheats and near criminals for minor oversights or problems caused by tax office errors.
Henry Ejdelbaum, managing director at business accountants AIMS Partnership, says: "In general terms, HMRC tries to be helpful, but it can be aggressive with smaller companies. Some responsibility for this lies with the business owner, as they have to overcome their fear of speaking to HMRC direct or their unwillingness to incur the cost of advisers.
But failure to communicate only makes things worse.
"However, HMRC has an army of staff that comes down hard on a firm if it believes the company is concealing something or being uncooperative. There is a real 'balance of arms' mismatch between HMRC and the unrepresented taxpayers."
Robin Williamson, technical director of the Low Incomes Tax Reform Group, an initiative backed by the Chartered Institute of Taxation, believes HMRC wants to improve its performance, but with further budget cuts due, it is fighting a losing battle.
He adds: "HMRC is unforgiving of taxpayer error, but if HMRC makes a mistake, the consequences are generally borne by the taxpayer.
With HMRC not dealing with post in a timely fashion, enquiry centres closing, delays in answering the phone common and those who do get though likely to get wrong or incomplete answers, it seems the dice are loaded against the taxpayer."
A HMRC spokesperson says: "More than 80% of those who are taxed through PAYE pay exactly the right tax first time. We very much regret that some taxpayers will have paid less or more than the law requires."
Used by an employer or pension provider to calculate the amount of tax to deduct from pay or pension. A tax code is usually made up of several numbers followed by a letter. If you replace the letter in your tax code with ‘9’ you will get the total amount of income you can earn in a year before paying tax, for example 747L would mean a person could earn up to £7,479 before paying tax. The wrong tax code could mean a person ends up paying too much or too little tax.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.