Posted by Christie Malry on February 18, 2015 at 9:48 am
Imagine two taxpayers. One is a small business. Perhaps an entrepreneur and her husband. The business’s tax affairs are challenged by HMRC and she must go to court to fight her case. After a lengthy case, which is appealed, she wins.
The other is a large multinational. This business’s tax affairs are challenged by HMRC and the multinational must go to court to fight its case. After a lengthy case, which is appealed, it wins.
How would these cases be reported in the media? The SME case would be the tale of a plucky entrepreneur who has had to take time away from her business (and family) to fight an unfair challenge from a faceless government inspector. Whereas the multinational case would be the story of how big business dodges its tax responsibilities and, by employing its vastly superior resources, hoodwinked the tax authorities.
Of course, these are gross simplifications. But it seems - to me, at least - that the idea that HMRC is tough on small business but gives big business an easy ride is a selection bias problem. Everyone knows a family member or friend or friend-of-a-friend who has been taken through the wringer by HMRC. Whereas not everyone knows a tax director at a FTSE-100 company. That means we tend to judge HMRC’s interface with SMEs by its process whereas we judge the interface with multinational business by its results.
HMRC is an organisation that takes money off you. Invariably, it will focus on those areas where it thinks you haven’t paid as much as you should. So any interaction with it is unlikely to be pleasant. Judging HMRC by process will invariably create a negative impression of HMRC, which looks like it behaves badly in its dealings with ordinary people.
Assessing HMRC by its results creates a no-win situation. Either HMRC loses, which makes it look soft on big business. Or it wins, which merely reinforces the idea that big businesses are dirty tax dodgers. Whatever the outcome, tax campaigners can chalk it up as another piece of ‘evidence’ that big business and HMRC are unethical.
A better approach would be to recognise that both the SME and big business narratives are inadequate. We need to assess HMRC by its overall service standards, and business by its overall behaviour, not merely by the narrow parameters of tax investigation process or outcomes. Anything less might produce good stories but inevitably leads to terrible policy.