THE top rank of HMRC is changing. Edward Troup has taken up his new post as tax assurance commissioner, responsible for advising Treasury ministers on shaping UK tax policy. He has considerable tax experience, both in the public and private sectors. But the job has never been more challenging.
The UK faces pressure to improve its fiscal position. As a result, there’ll be few opportunities to implement tax reforms to allow much-needed rate reductions, and simplifications that are not matched by the withdrawal of other reliefs. And taxation has never been so high profile. Complex issues are too often compressed into misleading sound bites.
If I were Troup, top of my agenda would be establishing the right language for government departments and ministers to use when discussing what is meant by tax avoidance and abuse. Tax abuse will become better understood, as general anti-abuse rule (GAAR) proposals are enacted in 2013. The same can’t, unfortunately, be said about avoidance.
What counts as tax avoidance often depends upon personal and political perspectives. There’ll inevitably be a grey line between legislation that provides necessary tax reliefs, and the need to collect the revenues that Parliament thinks should be paid. On top of this, in an increasingly complex business world, nearly everyone wants tax legislation to be as simple as it can be.
Ministers should also expect Troup to recommend a framework that sets out clear language underpinning the difference between tax avoidance, which HMRC will seek to prevent, and tax planning, which businesses must be allowed to undertake to build the attractiveness of the UK to investors.
Drawing the line in the wrong place will drive away the business activities needed to generate the tax revenues required to finance broader-based tax cuts. There is a risk that less business-friendly HMRC officials will seek to treat most tax planning as tax avoidance, and most tax avoidance as tax abuse. It is imperative that Troup cascades the message through HMRC that neither he nor the Treasury ministers will allow this to happen.
This top priority does not mean, however, that there is only one issue to be addressed. Other concerns will likely include the proposed taxation of child benefit. This will collect significant revenue but may provoke hostility towards HMRC from the media and wider public.
Troup will also face demands for improvements in speed and efficiency. He must address the perception that HMRC fails to respond to taxpayers promptly, and fix the backlog of tax cases due to be heard by the tax tribunals. On top of this, there is a need to improve the quality of the technical guidance provided through HMRC’s website. It’s a sorry state of affairs that users find it so complex that the majority now resort to Google for answers.
Finally, and perhaps most importantly, Troup must play a key role in identifying for ministers any potential Budget 2013 proposals which are likely to lead to embarrassing U-turns next Spring.
Stephen Herring is a senior tax partner at BDO LLP.