This article was first published in the April 2019 UK edition of Accounting and Business magazine.

Reputational risk is big in the corporate world. And rightly so. Ignore that risk and all will be lost. But you tend not to think of that same process when it comes to, for example, organisations like HMRC, the nation’s tax gatherer.

Earlier in the year RSM summed up HMRC’s problem. ‘Reputation is as fragile as public perception is fickle,’ it noted. ‘HMRC, accustomed to calling taxpayers its “customers”, may find its brand is as susceptible to being damaged as the household name companies and individuals who have received so much adverse tax publicity over the last 20 years.’

It is easy to see that risk growing. ‘HMRC’, says George Bull, senior tax partner at RSM, ‘expects everyone it deals with to do everything right, first time, on time. That is fundamental to their approach. And there is a full range of penalties for those who do not comply.’

But that is only one side of the bargain. ‘The tax system’, says Bull, ‘has to command respect. That respect is easily lost and taxpayers feel let down if the tax authority gets itself into a muddle. And that is what we have been seeing over the last few years’.

It is easy for HMRC to feel content. Over 90% of tax is collected without any intervention. The risk is all down to how it looks to the taxpayer. If it doesn’t look fair then it won’t be followed: the disaster of the poll tax almost 30 years ago reminds us of that. And we are in the midst of more unease among small businesses over VAT and HMRC’s ‘Making Tax Digital’ initiative, MTD. As one seasoned observer put it to me: ‘HMRC has really been abysmal about MTD’. And, Bull says, ‘There is brand damage’.

All VAT-registered businesses had to have their VAT systems digitalised by the start of April. Small businesses are not good at this. Teresa Graham, chair of the Administrative Burdens Advisory Board, a government body that acts as a ‘critical friend’ to small business in its dealings with HMRC, notes that its recent survey found ‘far too many businesses hadn’t heard of MTD’. But they have to. ‘It is only when small businesses are about to fall off a cliff that they realise that they need to do something,’ she says. A system of ‘soft landings’ has been arranged for the first year ‘but we will have a messy, pretty chaotic year’, says Bull.

A question of trust

It is when ‘ordinary’ people seem to have been mistreated by HMRC that the public notices. A heavy-handed approach to the loan charge on ‘disguised remuneration’ that might have been appropriate to wealthy footballers and their tax arrangements backfired when HMRC realised many ordinary people were caught in the net. People weeping on personal finance programmes on the radio is bad for trust in HMRC – as, indeed, is its treatment of the homeless. ‘For HMRC to expect a homeless person to keep HMRC up to date with their address is ridiculous and just needs to be stated to show its absurdity,’ said a tribunal judge the other day. Just as absurd were the taxpayers who rang the HMRC helpline the day after the Brexit referendum to say that presumably they no longer needed to pay any of their VAT.

But HMRC’s troubles are not all self-inflicted. They are caught between the politicians, the Treasury and the public. ‘They are starved of resources’, says Graham. ‘They are in this triangle of: “You’ve got to save money. You’ve got to become more efficient. You’ve got to provide a better customer experience”.’ And then along comes MTD. ‘There was a sense of ministerial fiat,’ says Bull. ‘”Let there be MTD”, and lo, it will be. But it doesn’t work like that.’

‘It is a massive transformational project,’ says Graham. ‘Lots of things have conspired to make it ever more difficult.’ And one of those is perhaps HMRC seeing it all from the wrong end of the telescope. The future is pretty obviously one where digital systems enable tax to become almost automatic and real-time with annual adjustments. ‘The message should have been: MTD will be good for your business,’ says Graham. ‘If you are not digitally engaged what kind of business are you?’ Instead, there is muddle and uncertainty. ‘We all need an HMRC doing its job properly and gaining the respect it deserves,’ Bull concludes. ‘But it is hard to see that at the moment.’

Robert Bruce is an accountancy commentator and journalist.