Don't ask for more information yet, get your house in order first

19 April 2016

Helen Relf

There’s been a lot of talk recently about ‘tax transparency’, but what does transparency look like? Most importantly, what are we trying to achieve? Various politicians published their tax returns, but there was no consistency in the information and all were in different formats - from summary tables to a handwritten tax return - so it’s hard to say if they provided transparency as the results were difficult to compare.

The question is what are we looking to achieve by tax transparency? Is it so individuals can see the income of their colleagues or favourite celebrities, or will it help to ensure the correct amount of tax is paid? What would viewing tax returns add that HMRC cannot already achieve? Information is already available to HMRC, and there are procedures in place for information to be supplied directly from financial institutions and employers which can be compared against tax returns. There’s an enquiry system where HMRC can challenge entries on tax returns, and financial penalties for returning incomplete or incorrect information, and, in extreme cases, criminal prosecution. What would enabling the public to view various personal details achieve that cannot be achieved under the current system? Publishing information doesn’t guarantee accuracy.

Various Scandinavian countries publish details of individual incomes, and in the case of Norway, wealth tax, which can give an indication of someone’s overall wealth. But it’s not clear what this achieves. Is there a danger that individuals seeking privacy could structure their affairs so that income is not disclosable, resulting in damage to their reputation? This could potentially have far wider implications than intended.

There’s been a lot of discussion about transparency of beneficial ownership for trust structures and sharing information with other jurisdictions, but limited companies already file their annual accounts with Companies House who make them available for a fee. Interestingly, these records aren’t kept up to date, and few are penalised for the failure to report. Publishing further information which is out of date and inaccurate would achieve very little.

Rather than focusing on making information available for public review, the focus should be on HMRC to ensure that current systems are robust and correctly implemented. Information needs to be correct and complete otherwise transparency is meaningless.

A final thought. Surely the more interesting point is what is not declared on an individual’s tax return, rather than what is?

If you would like to discuss any of these points further, please contact Helen Relf or your usual RSM contact.