Introduction
Tax coordination, monitoring, and regulation are generally regarded as one of the most important and responsible parts of financial activity. The merger of the Inland Revenue and HM Customs and Excise into the HM Revenue and Customs (HMRC) company was featured with the increased difficulties in tax monitoring and control, so the obvious and drastic mistakes became the reasons for serious penalties imposed for the incorrect tax returns. The aim of the paper is to analyze the consulting advice on the matters of taxation, support of the taxpayers, and restructuring of the taxation system in general. Therefore, the system will be aimed at making the control system stricter, and the support system more liberal for improving the effectiveness of the taxpayers’ efforts. These intentions will be focused on analyzing the consultation documents associated with tax system analysis and reformation
Overview
The entire system is based on the principle of diversification of the tax return mistakes, negligence, and deliberate wrongdoing. On the one hand, this system seems to be effective, on the other hand, it is hard to determine the origin of the ineffective tax return; therefore, this aspect should be studied in detail.
The taxation system in general is based on the key principles of risk assessment, observation of the incomes, and calculation of the necessary returns. As for the matters of taxpayer behavior, it is not regulated properly; however, the penalties and encouragements are effective enough for making people more responsible. The positive results of this system have already caused positive changes; additionally, the instances of deliberate wrongdoing can now be differentiated from mistakes or negligence. This differentiation scheme was elaborated on the basis of the proper research of the cases, as well as the thorough study of the entire taxation scheme. Therefore, the work with tax agents has been improved essentially.
The disclosure of the taxation principles to the professional bodies is closely linked with the principles of proper analysis of the consultation framework that is relevant for the tax agents. As it is stated in the Consultation Document (2009), it is fully recognized by HMRC that the official bodies that are involved in the taxation process are subjected to the internal rules and procedures for regulating the tax agents’ activities. Therefore, the key aim of the reformation is to regulate the poor performance of the taxation disclosure process. It is stated that the taxation gap that was reported had different origins, and the total sum of this gap was close to £16 billion. Therefore, the consultation measures, taken by the HMRC are mainly linked with the identification of the key reasons for the gap and making the penalty system more effective and strict.
Overview and Analysis
In general, the tax reformation process may be divided into five main stages. These are intended for the proper diversification of the efforts, and establishing a reliable consultation body. These steps are ass follows:
- Step 1: Setting the objectives of the changes, and definition of the key alternatives for defining the wrongdoers. This is helpful for creating the general frameworks of the taxation system, and system of work with tax agents. Therefore, the key directions for the improvements were established: tax avoidance regulation, regulation and monitoring of agents, mistakes and errors, disclosure, wrongdoing, and borders of power.
- Step 2: defining of the best option and framework for implementing improvement decisions. Therefore, the policy options that were included into the solution framework involves the disclosure of professional bodies, as well as the definition of the wrongdoing principles and features.
- Step 3: creating a draft for making effective changes. This is a type of pilot project, however, considering the documents provided by HMRC, this stage was missed. On the one hand, this helped to save some time, on the other hand, this did not allow to avoid some organizational mistakes associated with structuring the tax agent authorities and powers.
- Step 4: implementation stage. This also includes monitoring, nevertheless, the entire project presupposes improved monitoring of the taxation system. Therefore, the actual importance of monitoring is explained by the fact that the actions by tax agents should be controlled properly.
- Stage 5: evaluation. The system is effective enough, however, some particular improvements are needed for the disclosure to professional bodies sphere.
In the light of this fact, it should be stated that the entire framework for the tax agents’ work improvement is quite effective. Since the definition of the key aspects is performed on the basis of thorough studies, the consultation framework of the taxation system is based on the clearly defined taxation system that is aimed at covering the taxation gap by stricter means.
Achievement of the intentions by HMRC will depend on the efforts applied. On the one hand, it is stated that HMRC does not need additional powers for accomplishing the analyzed project. On the other hand, this implementation will have to be analyzed from the perspectives of properly assessed governmental assistance. Hence, as it is stated by Boweyer (2009), tax agents will be controlled by the HMRC, while efforts by he government should consider the interests of the parties, and regulate the reformation of taxation system correspondingly. These actions should involve the following aspects:
- Involvement of the corresponding authorities at each implementation stage for developing, controlling, and regulating the implementation process.
- Clear definition of the aims and principles of each stage, for making the taxation system more transparent and effective. This will create the necessary basis for controllers for they could realize the key changes of the system.
- The governmental authorities should offer consultation services for HMRC. This should involve the key principles, statistical data, as well as the legal means for imposing penalties.
- Provide the effective feedback system. Since the pilot stage of the project implementation was missed, the effective feedback will be helpful for tracing and checking mistakes, as well as for further improvement of the taxation process.
Effectiveness
Since the actual importance of the taxation system restructuring is in the covering of the taxation gap, the system should be focused on the key reasons of these gaps. In accordance with the research by Bullock (2010), these are as given below: avoidance, evasion, legal interpretation, failure to take reasonable care, criminal attacks, hidden economy, errors, non-payment. These are the key reasons that stimulated HMRC for modifying the taxation system, and changing the work principles for tax agents. This is intended for making the system more liberal for understanding and paying taxes, and stricter for those who deliberately fail to follow the taxation norms. On the one hand, the involvement of the agents into the process of correction mistakes, imposing civil sanctions, or performing criminal proceedings is quite effective for resolving the problem; however, the disclosure principles, as well as authority structuring require sufficient improvements.
The consultation measures that are required for improving the entire taxation scheme are based on the values of professional approach towards monitoring the system effectiveness, as well as assessment of the significance of the efforts taken. As it is stated in HM Government (2008, p. 14)
It is important that consultation takes place when the Government is ready to put sufficient information into the public domain to enable an effective and informed dialogue on the issues being consulted on. But equally, there is no point in consulting when everything is already settled. The consultation exercise should be scheduled as early as possible in the project plan as these factors allow.
Therefore, HMRC will have to improve the accessibility and clearness of the taxation documents for increasing the effectiveness of the monitoring process. In general, the key features of the innovations are closely linked with the values of the increased responsibility for taxpayers, as well as tax agents. Consequently, the consultation system effectiveness is based on the values of consulting capacities of the tax agents, as well as governmental authorities.
Recommendations
The key recommendations that should be given for improving the effectiveness, of the entire system are associated with the consulting efforts, as well as wit the mechanisms of covering the taxation gap. Since the LSS and CDR systems were introduced in 2007, these were intended to cease the disputes. The strategy that was adopted by HMRC is associated with improving the efforts taken by the authorities in accordance with the taxation norms. Therefore, it should be emphasized that the actual importance of the hand-in-hand consultation system may be improved by adding strategic objectives for the entire consultation practice. While consultants just aim to decrease the taxation gaps, the strategic approach will be needed for explaining the wrongdoers how they can avoid mistakes, stimulate them to reject from avoiding to pay, and arrange educational initiatives for explaining all the possible difficulties that may arise.
In general, the system is effective enough, however, it may be extended for increasing the effectiveness of the consultation measures, and for improving the monitoring initiatives that will be helpful for checking the project mistakes. On the one hand, these recommendations will contradict the pragmatic nature of the entire process, on the other hand, this will be effective for improving the pragmatism of the taxation system, as agents and consultants will have to work jointly for improving the system, and for stimulating wrongdoers to change their taxpaying patterns.
Conclusion
The effectiveness of the system originated by HMRC is not doubted, as the consultation measures, as well as the differentiation principles are intended for improving the entire taxpaying system. However, regardless of the effectiveness, and potential of the consulting system, it may be extended for offering a wider toolset for covering the taxation gap. This will involve training and educational measures, as well as the implementation of a more extended definition system. On the one hand this may require additional resource, however, these resources will be compensated by the increased effectiveness of the entire system, as well as with the larger motivation level of the tax payers.
Reference List
Boweyer, R. 2009. Modernising Powers, Deterrents and Safeguards. Working with Tax Agents: The Next Stage. HM Revenue & Customs.
Bullock, J. 2010. Can They Close the Tax Gap? TaxAdviser.
HM Government. 2008. Code of Practice on Consultation. London.