Posted: 24. June 2019 by: Rupert Tennant

Problems Facing HMRC

HMRC is the key government agency for collecting taxes. It’s the agency individuals, and the business owners need to interact with the most when they pay their taxes or report on them. It’s also an essential institution for funding all of the public sector services; people depend on so much.

HMRC is therefore facing a lot of different challenges that will come up because the public sector is changing and businesses are changing, and HMRC will need to keep up and remain professional and dedicated to its duties and responsibilities.

Digitalization

One of the biggest projects the government is undertaking at this point is the digitalization of its work. HMRC is playing a big role in it because they want to make the whole process easier and better organized. It takes time to make this change, and the change itself will be troubling, but once it’s done, the technology should help everyone work less.

It’s stated with making VAT digital, but it will soon spread to all forms of taxation.  The goal is of the taxpayer to have a more transparent process and to have to spend less time on accounting and form filling.

Modernization

Modernization goes beyond simply digitalization of the taxation process. It should modernize HMRC as a whole, making it more accessible to businesses. This will firstly start with PAYE, which is a scheme for paying taxes made on a salary which is how most people in the UK are paid and taxed.

The modernization process will be beneficial for both HMRC and the individual taxpayers, but it’s the transition that’s causing a problem. Businesses will take time to adapt to new technology and to find the software that’s suited to their needs and approved by HMRC.

Regional centres

HMRC is also changing in terms of geography. There’s now only one centre from which HMRC works, and the goal is for it to start and cultivate regional centres instead. This will be the course of action for the next couple of years. The plan is to build 13 states of the art centres overall.

At this point, there are 64.000 employees working for HMRC, and they are spread across 170 office. The new system will also make it easier for HMRC to find best employees around the country. There will be six transitional sites used to accommodate the change.

International business

UK taxpayers are more connected to businesses abroad than ever before. The UK always had businesses working on a global scale, but now that’s the case for many small businesses, sole traders and ordinary families working a middle-class job in the UK. That will affect HMRC as well.

This means HMRC will need to work more on making worker exemptions easier to understand. This will also make it harder to avoid taxes by going abroad. It’s also something to consider when it comes to international investing, which will also be more prominent in the years to come.

Brexit

As is the case with any other policy in the UK, the taxation will also change due to Brexit. The UK has a tax agreement with the EU making it easier to tax the income made in both the EU and the UK or not to tax the same person twice on the same income.

This will become more complicated and less organized with Brexit, at least at first. It’s still unclear how the details of Brexit will unfold so the confusion might be the first thing to happen. However, how things will evolve from there is difficult to predict.

Tax avoidance

Tax avoidance is one of the biggest problems HMRC faces. It’s not only the problem for the budget, but it is that too. The bigger issue comes from the fact that every time someone avoids taxation, they question the validity of the whole system and everyone who follows the rules feels cheated.

The main change in policy will be to be stricter not only on those who didn’t pay their taxes but on the accountants that have made it possible for them to avoid taxes in the first place. This should discourage those who try to avoid.

Conclusion

HMRC is changing together with the rest of the business and financial world. It’s changed by globalization and by technology just like the companies are. A big part of it will be changing the whole process so that it’s digital from the record-keeping to actually paying taxes.

It will also become more decentralized by opening regional centres across the country. At the same time, HMRC will start being stricter with those who avoid paying taxes and those who help them do it. In the end, Brexit itself feel change tax policy just like all other policies in the UK.

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