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HMRC budget cuts will hit the compliant and the vulnerable, experts warn

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Optimistic targets driving HMRC efforts to tackle fraud and error, evasion and avoidance may put unrepresented taxpayers and claimants unaware of their rights at a disadvantage, according to campaigners. A leading tax body warned that compliant taxpayers and agents may become preferred targets for HMRC investigators.

The CIOT’s Low Incomes Tax Reform Group warned that cuts in frontline support could be expected following last week’s spending review statement. The cuts can have ‘a dramatic effect’ on the most vulnerable customers, LITRG said before yesterday's announcement of a Commons Treasury Committee investigation into the operation of HMRC.

‘We could see the end of home visits by HMRC, enquiry centres, hard copy leaflets, and high profile educational campaigns,’ it said.

HMRC will streamline internal processes, the Treasury said last week. ‘Savings will be maximised from IT and other procurement contracts and administration costs will be reduced by a third with reductions in the size of corporate services and back office support functions.’

LITRG anticipated reduced staff training and increased centralisation of computerised functions. ‘We can also see that thousands of job losses are implicit in the figures. We expect these job losses to be at the “helping the public” end of the spectrum rather than the “chasing the cheats” roles,’ it said.

‘More debt collection is to be passed to the private sector which operates on a commission basis. Not calculated to protect the most vulnerable customers.’

‘Hard-headed approach’
The ICAEW Tax Faculty said it understands that HMRC’s staff numbers will be reduced by about 10,000 posts. ‘Although the brunt will be borne by back office support, it looks like front-line staff will also be in the firing line. At the end of this process HMRC will end up with a full-time equivalent staff of 60,000, down from the current figure of nearly 70,000,’ it said.

‘Staff numbers will therefore fall by about a further 14% on top of the 28% fall that has happened over the last spending review period.

‘It is difficult to escape the conclusion that although HMRC has been through a tough five years, it is not likely to get any better over the next five. The worry is that service standards will fall further.’

The Faculty warned that a change towards a ‘hard-headed approach’ to dealing with those involved in tax fraud and tax avoidance ‘could yet prove to have unintended and unwelcome consequences for the vast majority of ordinarily compliant taxpayers and advisers’.

There was a danger, it said, that measures to tackle fraud would be used inappropriately. ‘Pursuing fraudsters will be hard, and it will inevitably be much easier to target taxpayers and their agents who are in the system but who have made mistakes or errors.’