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It is now almost two years since the referendum vote which decided that Britain should leave the European Union but the specific terms of the departure are, of course, still to be determined.
Much of the debate about what shape the diplomatic divorce should take have focused on BoJo, borders, business and Barnier – the interaction between personalities, neighbouring states and commercial organisations which more readily prompt both news headlines and parliamentary exchanges.
It is worth pointing out, however, that while Brexit is generating uncertainty and extra work, it does not necessarily mean complete change.
Take HMRC, for example.
Its CEO, Jon Thompson, has estimated that ‘divorce’ from the EU will add 15 per cent to their workload.
Furthermore, having received a £78 million share of the Government’s £250 million warchest to ready itself for the eventuality of exit, he has warned that he will require another £450 million and 5,000 more staff should the “most extreme” scenario of a ‘no deal’ Brexit come to pass.
In addition, Mr Thompson has possibly seen himself removed from David Davis’ Christmas card list after telling parliament that a new customs system – the Customs Declaration Service (CDS), which is needed to ensure that trade with our international partners remains fluid and effective – may not be ready for a full roll-out by January next year as previously anticipated, even though a phased launch is still scheduled for August.
HMRC is currently part of a Europe-wide tax recovery network established by something called the Mutual Assistance Recovery Directive (MARD).
The Directive was issued with the intention of improving co-operation and communication between member states, allowing them to recover taxes or duties with the help of EU partner countries.
I have recently written an article for Taxation magazine [Issue Dated 8 March 2018] about the intriguing contents of the first of a series of official reports outlining the progress of MARD which are due to be published every five years.
It emerged with little fanfare in the run-up to Christmas and the 11-pages would not have made pleasant reading for HMRC top brass, even if it featured lots of interesting details.
They include how even though information is supposed to be sought from partner authorities specifically for the recovery of tax, the increase in such requests far outstrips the rate at which taxes are recouped.
That could be interpreted as evidence of jurisdictions engaging in a fishing expedition to establish a much broader knowledge of taxpayers who happen to be living outside their national boundaries.
Although the sums recovered using MARD have increased, some 16 participating states – Britain included – find themselves firmly in the EU’s bad books.
In 2016, HMRC was only able to recover just two per cent of the total sums which it was asked to help claw back – a far worse performance than the likes of Finland and the Netherlands.
As a result, the errant countries have been asked “as a priority” to explain why they have underperformed. At the time of writing, the EU has confirmed that this “analysis process” has not take place. The exact fashion in which HMRC obligations to MARD will be scrutinised has also not been finalised.
No reasons or excuses for any of the countries, including the UK, who have fallen short of expectations have so far been advanced. Although one significant factor in Britain’s case could be Brexit.
Yet even if overtaken by the outcome of the referendum, HMRC may not be in a position to ignore this sensitivity.
MARD has been directly transposed into UK law through primary domestic legislation so by default will remain in force after Brexit. Although it would of course be possible for the UK to cease participation by legislating to remove the relevant domestic legislation.
The legislation demands that European states dedicate sufficient resources to adequately meet recovery assistance requests. We do not know whether and to what extent this may become part of the detailed Brexit negotiations. In the meantime for HMRC, the pressure to perform its MARD duties is not likely to slacken off any time soon.
It may also mean that individual taxpayers (or their accountants/agents) may continue to see an increase in correspondence and payment demands from HMRC on behalf of other EU Revenue authorities.
Enterprise Tax Consultants can assist in dealing with these matters. Please contact us for a no-obligation initial consultation with one of our chartered tax advisers.