Complexity is an ugly derivative of the tax system. There is even an argument to be made that it goes to the heart of the taxing provisions given that, fundamentally, the majority of items upon which we levy tax are artificial. For instance, the income which we eventually tax is not visible or tangible, but rather the result of a mathematical calculation. If we were to imagine the revenue that one receives for their job as a river which travels parallel to another river which reflects the costs and reliefs which were incurred in obtaining the revenue, then what we tax is the imagery stream calculated as the difference between the two.
Today’s leaked email to the Telegraph serves to highlight the pervasiveness of complexity and its impact upon ordinary taxpayers (see: here and here). This email reveals the difficulty which HMRC has had in administering the tax code. Four months ago, HMRC admitted to miscalculating the tax due from more than five million people in the 12 months up to April 2014. In response, HMRC sent out tax demands to those who had underpaid and repayment checks to those who had overpaid. It has now been realised that “thousands” of mistakes were made in this response, such that many may have been prematurely excited at the prospect of repayment and others unduly worried about tax demands. Of this episode, Elaine Clark of the Cheapaccounting tax practice has said: “This is extraordinary, a disaster, and heads need to roll at HMRC.”
Unfortunately these mistakes arising out of the clout of tax complexity are not victimless. Whilst sophisticated, well-advised taxpayers are somewhat sheltered from the shrapnel, the unrepresented, lower-paid and vulnerable are ultimately disproportionately affected. This arises by virtue of the fact that, as HMRC has stated, the problems have been caused by an increase in the number of people in employment that has come with the recovering economy. It is suggested also that a key driver, and closely related to HMRC’s point, is that lower-paid workers are taking several (newly available) jobs at any given time and may have failed to inform HMRC of this fact, resulting in too many tax credits being given.
At a conference at the Bingham Centre for the Rule of Law, Jane Shillaker of TaxAid spoke of the need to ensure that our tax system is “both designed and administered with the needs of the lower paid and vulnerable in mind”. This latest episode surely serves to illuminate the paramountcy of this request.