By Adam Harper News Accounting bodies write to Chancellor over creaking HMRC 1 Mar 2023 A public letter from ten organisations says resourcing HMRC must be a top priority in the budget This week AAT is leading a clarion call to Jeremy Hunt to address what is an increasingly serious issue around the funding of HMRC. Following months of conversations with other professional bodies, and reflecting on direct feedback we have received from members, we are sending an open letter to the Chancellor. Signed by the leaders of ten accounting and taxation bodies, the letter makes it clear that unless government makes a serious effort to find extra funding, HMRC simply cannot deliver on its central remit: to collect the right level of tax revenue to support the country’s economic aspirations. AAT: Securing future relevance We have a new strategic plan to secure a bold and ambitious future for accounting technicians. Read more in our digital guide. Read the plan Accounting bodies join forces The letter is supported by ICAEW, ACCA, CIMA, CIOT, ICAS, CIPP, ATT, ICB, STEP as well as AAT, which together represent hundreds of thousands of professional accountants and tax practitioners supporting UK businesses. We make a strong case that service levels are falling to dangerous levels: ‘Businesses claiming repayments and reliefs are frequently waiting upwards of six months, straining cashflow,’ the letter says. ‘Time spent waiting on phone lines and sending chasing letters creates additional compliance costs that our members typically bear rather than pass on to their frustrated clients, but it is also an added cost for HMRC and ultimately, taxpayers.’ Impact on public services There is also a huge impact on UK plc – and especially our hard-pressed public services – as we point out in the letter: ‘£42 billion in taxes have not been collected – more than double the amount pre-pandemic and the equivalent of paying the annual wages of three quarters of staff in the NHS.’ And while it’s clear there are many serious structural reasons for this, it would be wrong to ignore the impact of smaller businesses in improving tax compliance and collection. Individually, the amounts taken from small businesses may be small, but they add up to a significant total. And the picture of compliance in this sector is a worrying one. The annual Measuring Tax Gaps report shows that £5 of every £10 in the tax gap can be traced to smaller businesses – a stark illustration of the impact of the sector on the UK’s tax take. Unregulated accountants Both HMRC and small businesses need the support of efficient, competent accounting professionals to support them. Do businesses really want to be on the phone to HMRC for hours unnecessarily because of incomplete returns? And does HMRC really want mistakes and under payment of tax? Yet, as our letter notes: “More than £9 billion of the tax gap is comprised of taxpayer error or failure to take reasonable care, and a third of tax agents do not belong to professional bodies. Responsible businesses should always ensure that their accountants and tax agents are members of a professional body which has strong codes of ethics and practice.” This once again highlights the need for all accountants to be accountable, as AAT has stressed continually with its Accountable campaign. But still we are waiting for regulation to protect both the public and the exchequer. HMRC presses for greater digitisation HMRC’s shortcomings were aired widely at its recent stakeholders’ conference, an event which brings together senior leaders at the Revenue with those on the front line. HMRC didn’t hide from its difficulties. But it did suggest it wants to more help from businesses to support efficiency, namely by adopting digital working as soon as possible. Making Tax Digital has been delayed until 2026 to help businesses, but HMRC clearly wants to see progress before the mandatory deadline. How would it look, the argument runs, for HMRC to ask the Chancellor for more money to support businesses that could be digital, but choose not to be? Digitisation can’t be a condition We have been supportive of the government’s aims with digitisation, and have fed into consultations at every step of the way. That’s for two reasons: firstly, we recognise that the general direction of travel is already set towards digital; and second, we must recognise that funding a broken system simply bakes inefficiency into the system. But while greater digital adoption is desirable, it can’t be made a precondition for dealing with HMRC’s own performance. The Chancellor must surely see that refusing to fix a system that is near breaking point because other organisations are not efficient would make little sense. The Chancellor can now be in no doubt as to what the expectations of the accounting and tax profession are. On March 15 he has the chance to truly demonstrate his understanding of the issue and his commitment to tackling it. Adam Harper is AAT's Director of Professional Standards & Policy..