Last month HMRC - the UK tax authority - published a report titled How can HMRC encourage more co-operative relationships with the wealthy and their agents? The report is based on research commissioned by HMRC to understand more about the underlying needs, motivations and concerns of wealthy individuals and their agents. Some of the ‘Key Findings’ set out in the report are reproduced below.
The primary aim of the research was to help HMRC explore how they can leverage their relationships with the wealthy and their agents to foster greater trust and transparency, to reduce the tax gap (i.e. the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid) and drive-up voluntary compliance. For the purposes of the research, HMRC defined wealthy individuals as those with an income over £200,000 per annum and/or assets of over £2 million.
Some of the ‘Key Findings’ set out in the Report
Participants in the research generally reported that they aspire to be as open and transparent with HMRC as possible. However, many perceived HMRC to adopt a ‘default position’ whereby they assume all wealthy individuals are avoiding or evading tax – even though this is not the case. Linked to this, responses suggested that many wealthy individuals (including those who reported having limited interaction with HMRC) automatically perceive HMRC to be ‘enforcers’ looking to get ‘every last penny of tax’. The research suggests that these are key social norms and perceptions that create a ‘downward spiral of mistrust’, which limits transparency.
Some participants felt these social norms and perceptions could be altered by HMRC improving their understanding of wealthy individuals and their agents by building more co-operative relationships with them. Participants felt HMRC should focus on improving the relationship with those who want to be more transparent by being more prepared to communicate in a collaborative tone that acknowledges what they do contribute in taxes, and their previous history of compliance, to make them feel more valued as taxpayers. Linked to this, participants suggested that thanking wealthy taxpayers for their contribution and educating them on where it is spent is key in terms of encouraging more to see tax as a social obligation.
Participants expressed mixed views about whether their future relationship with HMRC could be more reciprocal or co-operative. Some expressed concerns that this implied they (and their clients) were not currently fulfilling their tax obligations, even though they felt they were. A few also stated they would not trust HMRC to be able to provide certainty or act in ‘good faith’ if they were to supply additional information as part of a more reciprocal or co-operative relationship. In addition, a few did not feel a more reciprocal relationship was necessary, or indeed something that HMRC would be able to create as they felt this hinged on HMRC overcoming considerable barriers. These were perceived to include resourcing issues at HMRC and HMRC being prepared to change their fundamental culture – or what participants deemed to be their ‘default position’ which they deemed to be based on a mistrust of wealthy individuals.
Some participants who were more positive about the concept of a more reciprocal or co-operative relationship felt this could benefit both sides because it could help create more of an ‘up front’ dialogue, which could improve HMRC’s understanding of wealthy individuals and therefore reduce uncertainty in the long run by providing opportunities for the earlier settlement of enquiries (or prevent some issues turning into enquiries in the first place).
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