Tax Doesn’t Have to be Taxing; But it is…

Low corporate tax knowledge is making the tax system inefficient, says new ACCA research

Her Majesty’s Revenue and Customs (HMRC) spends a lot of time telling us that ‘tax doesn’t have to be taxing’.

However, a three-year research project carried out for ACCA (the Association of Chartered Certified Accountants) by the Universities of Nottingham and Southampton – called The Management of Tax Knowledge – shows that there is a serious lack of understanding of the tax system amongst those in the corporate world responsible for making tax-decisions for their company.

“There is little point in a tax code if key decision-makers aren’t sure how it works”,

said ACCA’s Head of Taxation, Chas Roy-Chowdhury.

“Tax knowledge and its sharing amongst key stakeholders must be improved to make the tax system more efficient and to ensure that businesses are paying the right amount of tax.”

The Management of Tax Knowledge shows that even when companies have retained the services of an accountancy firm to help them with tax decisions, the information provided to the advisory accountancy firm is neither in the appropriate format, nor is it delivered in a timely fashion.

The research also identified potential problems in the relationship between HMRC and businesses. As the ultimate source of much tax knowledge, it is vital that HMRC communicates effectively with its stakeholders. However, while the majority of respondents to ACCA’s surveys and interviews said they had a ‘good’ relationship with HMRC, only around 25% said they felt they had sufficient opportunities to share tax knowledge with the taxman.

“HMRC needs to consider ways of raising levels of tax knowledge”

added Mr Roy-Chowdhury.

“More effective use of the internet may help reduce some of the lack of communication, but at the very least, HMRC needs to improve its feedback capacities. This would ensure that any problems companies are having with tax law, particularly its interpretation, are identified quickly. Meanwhile, businesses should consider the benefits of investing more in developing internal tax experts.”

The research also suggests that a means of providing anonymous feedback to the taxman should be considered to encourage an in-depth discussion of issues.

Mr Roy-Chowdhury continued:

“The other key provider of tax knowledge to businesses is accountancy firms. Considering the majority of small businesses use their accountant as their primary source of business advice, it could be useful for the HMRC to improve further its relationships with accountancy bodies or similar professional institutions in order to improve the dissemination of tax knowledge, as well as improving how it offers feedback.”

For more information on ACCA’s research and taxation programmes, head to our Twitter pages: @ACCAResearch or @ACCATaxation.

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