Bill Jamieson: Squeezing the taxpayer harder

Published on Wednesday 8 September 2010 13:18

Always try to look on the bright side of life - even when dealing with HM Revenue & Customs. You could be lucky. That brown envelope fluttering through the letter box could bring news of a tax overpayment and a cheque on the way.

But many, I suspect, will pause before rushing to open this mail. It could turn out to be a demand for a back tax payment averaging 1,428. That is more than treble the average figure in those tax rebate letters. And those back tax demands are being sent to 1.4 million people.

So let me see if I have this right. In the middle of an intensifying squeeze on household incomes, with tax increases already effected and more to come, the Revenue has found an extra 2 billion to raise by way of summary letters? This may be trivial in bankrupt Britain. And the government is desperate for every penny it can get. But an out-of-the-blue demand for 1,428 will be a big knockback for many of those 1.4 million unlucky households, particularly those now in retirement struggling to get by with derisory rates of interest on their pension savings.

This is to make good Revenue errors in previous years. But did these errors not arise subsequent to the introduction of a spanking new computer system to enhance the service and efficiency of the Revenue - one for which the taxpayer was billed 389 million? And since 2005 has not the queue of unresolved tax problems climbed, from seven million to 18.2 million by April of this year?

Sorry to be a bore, but I must press further. Can we be sure that the "average" 1,428 demand - and doesn't the word "average" just make your flesh creep - that is being made of 1.4 million people is the end of the matter? What of the 9.3 million employment records that an HMRC review recently identified as "potentially at risk of error" in tax codings? Can we really be sure no further demands will come hurtling out of the blue?

What is the legal standing of the Revenue in this affair? Are these letters watertight? For it seems there may be grounds - loophole would be an ill-advised word in any letter to the Revenue - for these demands to be set aside. Those facing a demand could have resort to a tax rule called "A19: Extra Statutory Concession" to get the money written off, on the grounds that the Revenue failed to make proper and timely use of the facts sent in by taxpayers.Now, would I not be right in thinking that the Revenue would judge such appeals on their merits, particularly in view of the fact that it is acting on tax assessments submitted some two years ago and when the Revenue's acceptance without indication of problem or query was taken in good faith? If so, why has an HMRC spokesman already declared this week that "our experience suggests that this will only be available in a small minority of cases"? Should there not be independent arbitration?

Two other points - mere bubbles in the cosmos, I know, but here goes. Let's set aside notions of contrition or even apology: it's the Revenue for Heaven's sake. But when exactly can we expect a full and transparent explanation of what has gone wrong on such a scale? And what precisely are the limits to the Revenue's powers to whack the consequences of its own cock-ups and errors on taxpayers?

I must declare an interest. I am a taxpayer whose previous full, and as yet unquestioned, assessments are now spinning in that great HMRC tombola and which may well be plucked out for the Black Spot. I have, like many taxpayers, a tax code that changes from year to year (at times from month to month) and whose movements are unfathomable. And I have shrunk from daring to question these codings and their mysterious movements - let alone to set in motion the clanking machinery of formal appeal - for fear of triggering months of incomprehensible letters and at the end the possibility of being plucked out of the Revenue's demonic carousel for punishment a second time.

In raising these matters I am struck by the muted response of the political class. That vast battery of guns that instantaneously erupts at the first sign of injustice. The opposition, the unions, the government watchdogs and those public interest quangos - People's Champions all - have remained largely silent. There are some honourable exceptions to this rule, but not many. So I single out for special praise the SNP Westminster spokesman Stewart Hosie MP who has tabled questions in the Commons. "It is extraordinary," he said yesterday, "that the government had failed to offer any assurances or explanation. Millions of taxpayers face the prospect of an unexpected tax bill through no fault of their own, and yet we have not had answers to the most basic of questions. We must have clarity on the full extent of these errors, and assurances that taxpayers who face demands, particularly those whose financial circumstances have deteriorated, will not be hounded or face hardship through no fault of their own."

All this may be seen as just another example of how a government-induced re-organisation and hundreds of millions of pounds on a top-drawer IT system has taken a problem and made it bigger.On this occasion it is the HMRC, whose failings can seemingly be billed to its involuntary, hapless and frightened "customers" with barely a murmur.

However, the problem, I suspect, is not wholly due to "IT systems failure" but to a culture of Revenue omnipotence long enjoyed during the Gordon Brown chancellorship. HMRC seemed almost permanently encamped in the Treasury as successive budgets plugged this loophole and that and brought a relentless rain of additions and complications to an already complex tax system. Now, when the complications have exceeded its capacity to manage, it passes the buck to us - literally.

The capacity of taxpayers to absorb ever greater demands imposed on them is little short of astonishing. Remember that this comes on top of recent tax increases, the rise in National Insurance, the pending rise in VAT and a likely end to the council tax freeze. We are, in tax terms, a compliant and law-abiding people. But the danger for the Revenue is that it may soon be hitting - if it is not already - the law of diminishing returns. The greater the demands for tax, the greater the pressure on cash-strapped households to find ways round the system. The informal economy grows.

It would not do for the Revenue to count on further resort to its demented tombola. It is seldom the big income tax rise in itself that sparks a breakdown in compliance, but the unexpected extra impost that proves the last straw.

A Revenue system so prone to error, and which continues to assume an inexhaustible capacity for tax, is truly on dangerous ground.