Recent announcements from the new coalition government have emerged that expenditure of £900m is due to be spent over the next 4 years to tackle tax avoidance and evasion in the hope of raising an extra £7bn each year by 2014/15.

How this money will be spent is still unclear, but part of it is going to be allocated towards the establishment of dedicated teams investigating offshore tax schemes and organised crime.

This is all happening at a time when HMRC are being forced to find up to 25% in efficiencies from its budgets as part of the recent comprehensive spending review so it will be interesting to see how this £900m is going to be spent.

Hopefully, some of this will go into an improvement in the systems that are fundamentally at fault for many of the tax problems that have come to light.

Recent figures in connection with self assessment tax returns have suggested that almost 30% of returns have underdeclared liabilities, 11% of which were for more than £1,000 each.

The suggestion behind the article was that many of the problems at HMRC are due to successive government’s reluctance over many years to adequately fund a sophisticated IT infrastructure to ensure the systems in place minimise error and generally work correctly.

With the likelihood of a significant reduction in the headcount at HMRC over the coming months and years, and with morale at an all time low, one has to wonder how the creaking IT systems currently in place are going to be able to deal with the many problems that have surfaced recently.

Recent statistics have revealed that HMRC employ something in the region of 78,000 people whereas the US Internal Revenue Service which deals with a population almost 5 times the size of the UK only employs about 100,000.

In France, the equivalent tax body employs a staggering 125,000 people although the French record of bureaucracy and its civil service are well known.

No doubt the Chancellor’s latest spending review will see the numbers employed by HMRC fall in the coming months, but at what price?

According to a recent article in the Telegraph, two more areas of bungling by the taxman are coming to light which could ruin thousands of peoples Christmas.

Apparently, accountants have reported that many of their clients are being asked to repay refunded tax payments from HMRC due to errors in the way online applications for refunds were dealt with.

Richard Mannion of Accountants Smith & Williamson has identified the two problems relating to tax repayments being asked to be repaid and additionally that online requests sent by tax payers under the self assessment system which apparently appear to be lost by HMRC’s computer system.

Specifically, it would appear that the tax authorities did not include employee benefits shown on forms P11D in carrying out the 2009/10 tax calculation which resulted in an underestimation of tax liabilities.

More worryingly, the question of lost online requests apparently relates to a six week period between October 1 and November 15 when apparently such requests by tax payers to HMRC have gone missing and not been acted upon by HMRC.

None of this of course does anything to inspire confidence in HMRC’s computer systems and with the end of the filing period fast approaching, thousands of people are abandoning HMRC’s online filing system and looking for other alternatives.

A recent survey by the Institute of Chartered Accountants of its members have found a high level of concern in the accountancy profession that service standards at HMRC are severely in decline.

Part of this seems to be the pressure on HMRC from central government to reduce costs and improve efficiency as budgets have been cut.  However, other reasons may be as simple as the fact that they seem unwilling or unable to embrace new technology.  As a prime example, HMRC simply do not really use email for communication purposes.

Add to that, there is a general feeling that the quality of support staff at HMRC is very poor so that many enquiries can’t be solved at the first attempt and that the level of  technical knowledge of HMRC staff was rarely or never sufficient.

None of this should come as much of a surprise to any of us as for months, the press have been full of stories about the low level of morale at HMRC and of course the system and other malfunctions that have led to so many errors in the tax affairs of so many people.

The question is what is going to be done to improve it as nothing seems to be really being addressed in that respect and in fact the initial response from HMRC was a complete state of denial.

HMRC are still very concerned about the tendency of many tax payers to file their tax return at the last minute.

Statistics show that more than 50% of all Tax Returns are submitted in January and this places an almost impossible burden of work on HMRC in that last month.

Various professionals have been discussing how this could be improved and HMRC officials apparently have also, off the record, expressed their views on a possible solution.

One interesting idea, apparently borrowed from the DVLA, is to offer tax payers who file between April and November, each month, the chance to be entered into a draw for a wait for it “free car”.

 Whilst at first sight in these times of austerity, this may sound horrendous, in fact there is some logic to all this and there probably will be sufficient cost savings from enough people filing early, to make it pay for itself.

Well it probably only took about 10 minutes, but accountants have already worked out numerous ways that higher rate tax payers can avoid the new child benefit rules and still receive the money.

Of course, the new rules haven’t yet been introduced in full, but nevertheless, some simple steps taken by higher rate tax payers are already being mentioned on various forums.  Such ideas range from donating that money to charity to ensure your income is below the higher rate to paying more into your pension.  Both seem to work.

For people who run their own business, the flexibility to manipulate their income will also work and couples running a business together have great scope to ensure they don’t fall foul of the new rules.

The new child benefit announcements probably make sense in the bigger picture to ensure that only deserving cases receive the benefit, but as with all of these things, the devil is in the detail and its implementation will probably mean that it will be easy to circumvent the rules.

HMRC have been writing to accountants and other agents who file on behalf of clients to encourage online filing of self assessment tax returns.  In particular, they have been targeting those who still file paper tax returns.

In their communication, they identified benefits of the service as:-

• An instant acknowledgement as soon as HMRC receive your tax return.
  • Tax worked out automatically as you complete the form so you know what you owe or are owed right away.
  • Online tax returns are processed faster than paper returns and any money you are owed by HMRC is repaid to you more quickly than if you file on paper.

Obviously, HMRC would like people to use their own system, but we say whether you choose to use an accountant or other professional or use online services such as Tax Returns Made Simple.com, you should think carefully before using HMRC’s own system.

A recent Panorama report on the BBC suggested that as many as one in three tax payers are paying the wrong tax because of fundamental flaws in HMRC systems.

Apart from the obvious reason that their systems are in such disarray as has been very widely reported, their systems just won’t provide you with the insight, tools and other tips to save tax that you would get from an independent party.

We are pleased to hear that HMRC are encouraging the filing of income tax returns online, but be warned, think very carefully about using the HMRC system.

We know that HMRC are under pressure and in fact are under fire from every direction.  It is therefore quite interesting that they have announced turnaround times from 1 November for dealing with certain documents including  8 weeks for self employment registration.  You have to ask yourself why it takes so long to turn around such a simple process and more importantly, why the whole thing couldn’t be done online.

At a time when money seems to be pouring into certain areas, surely the systems and processes of HMRC could be improved.  With new bodies such as the Office of Tax Simplification being appointed, it must make sense to have a good look at some of the systems and processes used internally by HMRC as well as trying to simplify the overall tax system.

With more than 25 years experience in the accountancy profession, we know more than most the reality of dealing with hundreds and hundreds of tax returns.  People deliver their papers by post or in boxes and then some weeks or months later, the tax return comes through.

At Tax Returns Made Simple, we are proud of our guaranteed 7 day turnaround and challenge other professionals to offer such a level of service standard.  In fact, if you check our terms and conditions, we are actually prepared to re-pay half the fee if we don’t meet this 7 day standard.

Now that’s what we call service.