Is reducing the cost of tax administration the right goal?

Andrew Hubbard, tax consultant at RSM, said:

‘It is inevitable that complying with tax obligations will place some administrative burdens on business. Nobody seriously doubts that. After all the only alternative would be being shadowed by a team of people from HMRC 24/7 who would make all of the decisions about how much tax to pay. Despite this, nobody welcomes the burden of tax administration. With this in mind, HMRC made a public commitment in its 2015 five year plan to reduce the annual cost of tax administration to businesses by £400m before 2019-20, which equates to an annual net saving of £100m. In its recent annual report it has disclosed that by March 2016 it had achieved net savings of only £28m and that there was now a risk that the savings will not be achieved.

‘In practice it has proved remarkable difficult to create real savings to businesses. There have been some savings but all too often a new tax measure will impose additional burden. Indeed simply keeping track of all of the changes can be a burden in itself. In addition, measuring the cost of administrative burdens is notoriously difficult due to this complexity as the Treasury Select Committee discovered when it started to look at Making Tax Digital. It was faced with a HMRC figure of an average cost to business of £280 compared with an industry body’s figure of £2,770 – highlighting two very different calculations to the same issue.

‘There is a question over whether the pursuit of a reduction in administrative burdens within the tax system should be an end in itself. After all if you offered a business a new relief worth £1,000 but claiming it would impose an additional £20 cost - it is doubtful that many would say that they would not accept that burden. The real question is surely not the cost of the administrative burdens themselves but whether they are proportionate to what they are aimed at achieving. A tax system which simply required you to pay, say, 30 per cent of all business receipts to HMRC in tax would be very simple to operate and would certainly smash HMRC’s£400m tax administration reduction target. But that would be a real case of the tail wagging the dog.’