Review of the year - 2007

Taxing times for HMRC
The last 12 months have been what can only be described as an Annus Horribilis for HM Revenue & Customs.

Concerns about the effect of overstretched resources at HMRC came to a head in November when Alistair Darling announced, to gasps from the house, that more than 20 million individuals’ personal details had been lost on two unencrypted discs.

While advisers warned HMRC’s efficiency drive would further damage the already fractious relationships between them and the taxman and unions said morale was at an all-time low, the revelation still exceeded their fears.

And yet the year began well for the taxman.

With its online tax filing systems operating robustly, tax professionals drove uptake of self assessment online filing for 31 January up to nearly three million, up almost 50%.
This was despite a mass strike by the Public and Commercial Service Union on deadline day, in protest at outsourcing, privatisation and plans for another 12,500 jobs to disappear at HMRC, between now and 2011.

ICAEW tax faculty chair Paul Aplin said at the time that advisers had asked for a system with capacity and robustness which ‘HMRC had delivered’. But just weeks later he bemoaned its PAYE system, which failed to the extent that the filing deadline was extended by over a week.

Later in the year HMRC hit the headlines again over its so-called ‘tax amnesty’, which offered to deal with the mass of information it had on offshore bank account holders from the five major high street banks.

Accountancy Age found itself at the centre of the non-domicile taxation row, which erupted during the Tories’ successful party conference. Tory leader David Cameron quoted Accountancy Age (using figures from The Observer) that there were 200,000 non-doms in the UK, and the Tories would introduce a tax on them. Official figures pointed to just more than 100,000, while the Treasury made the surprising move to suggest that only 15,000 of these would pay the proposed Tory rate.

But back to the data disc debacle ­ the worst is surely still to come for HMRC.
Having already lost its chairman Paul Gray, PricewaterhouseCoopers UK chairman and senior partner Kieran Poynter is leading a review of HMRC’s systems, controls and processes that could prove costly for others.

IT chiefs await his review nervously, and if he states that the department needs more resources to function effectively it would put Darling and prime minister Gordon Brown under serious political pressure.

Poynter could even suggest the unlikely scenario that the two departments be de-merged, if he finds bringing them together has led to a collapse of processes. If this is the case, Brown will have some explaining to do.

A spirit of togetherness
It has been a big year for consolidation in practice. The one which captured the attention of the accountancy world was Grant Thornton teaming up with RSM Robson Rhodes.

Robson Rhodes had jilted previous suitor RSM McGladrey after it was unable to guarantee funding as the credit crunch started to bite its paymasters in the US.

Grant Thornton proved to be a white knight and according to Michael Cleary, CEO of the newly formed Grant Thornton UK, the merger would help to break down those market perceptions of Grant Thornton not being a firm normally associated with the blue-chip audit market.

‘We are now gearing ourselves to stimulate competition and offer stakeholders greater choice in this space, ‘ Cleary vowed.

The Big Four might not be shaking in their boots, but KPMG did take steps to establish a European powerhouse. Its UK, German and Swiss arms combined to create KPMG Europe, regardless of the Dutch firm getting cold feet and deciding not to join the party.

In the mid-tier, Mazars and Moores Rowland also went down the aisle creating a £90m firm while Smith & Williamson’s international network Nexia teamed up with the global network of Saffery Champness to create Nexia International.

In 2008, the chances of the Big Four turning into the Big Three is remote to say the least, but it will come as no surprise if there are more mergers further down the food chain- it’s just a matter of where and when...

Arctic monkey business
‘This is not a test case’, the taxman has repeatedly said about its battle against the Jones’ husband and wife business Arctic Systems.

But in the end, HM Revenue & Customs effectively proved it was such when, having lost its battle in the courts, it called on the Treasury to announce it would change tax law to reverse the decision.

Over several years HMRC fought Arctic Systems over the way it structured its salaries and dividends across the husband and wife business.

Losing unanimously in the House of Lords, government was advised by the tax profession not to make a kneejerk reaction. Hours later the Treasury said it would reverse the Lords’ decision, albeit through consultation.

An Accountancy Age freedom of information request found that the taxman had no idea what the long-running battle had cost the taxpayer, however a figure of £500,000 has been suggested as the likely sum it forked out.

Bourn ultimatum
The last few months have been less of a rollercoaster ride and more of a freefall for Sir John Bourn. One of the nation's most senior public figures, charged with making sure that government spending is kept in check, had to suffer the indignity of having his expenses gone over with a fine-tooth comb after a £336,000 expenses bill came to light in May.

Sir John was then exposed to a barrage of criticism so fierce that rumours began to circulate that his position as National Audit Office chief was under serious threat.

Sir John hung on doggedly, but when his expenses records showed he enjoyed the hospitality of companies previously under the NAO spotlight - notably BAE Systems - it appeared to be the last straw.

Ironically, the official reason he gave for resigning from the NAO in January 2008 is that a new Companies Act clause would create a conflict of interest between his NAO job and his role as chair of the Professional Oversight Board which oversees practice accountants.

Public Accounts Committee chiefs had been gearing up to haul Sir John in front of the panel to explain whether his actions had compromised the activities of the board, and he resigned days before the grilling was due to take place.

Sir John's troubles are far from over. A revamp of the Financial Reporting Council's corporate governance processes, means he and other chairs of committees will have to submit themselves for re-consideration for their posts.

The worst case scenario might see Sir John forced to step down from his POB post, but it's more likely that he will cling on. What is a cast-iron certainty is that Sir John's movements will be watched very closely next year.