Adam Bernstein hosts a monthly look at one of the legislative aspects that most affect your business, how it is run and how it can be more profitable. This month, Mary Fraser analyses the merger of the Inland Revenue and Customs & Excise and how it affects your business.

The Chancellor's heavily floated plan to integrate the Inland Revenue and Customs & Excise has now been realised.

The commissioners for Revenue and Customs Bill became an Act with Royal Assent on April 7, merging the two authorities into a single new department named HM Revenue and Customs (HMRC).

The chancellor announced that the longer-term goal of the merged body was “to enable its support and compliance staff to take a ‘whole view’ of each customer, tailoring the services provided and minimising the burden of compliance by providing joined-up systems”.

The aim is that a business only needs to provide information once, when possible through a single form; integrated audits covering direct and indirect taxes; a single account through which all payments and repayments will be made; and streamlined and effective support and access to information in a way that better suits small business customers, including more effective use of information technologies and the internet.

This suggests that the effectiveness and consumer-friendliness of the collection system will be of major importance.

One of the big problems that will have to be resolved in the course of merging the two bodies will be to effectively combine the quite different cultures of the Revenue and Customs.

In this light, one of the concerns which have so far been raised relates to the fact that the enforcement powers of Customs are to be transferred to the new agency, the concern being that the more aggressive approach of Customs would become the norm. In particular, the power of arrest, currently restricted to Customs officers, is to be given to officers of the new agency.

On this note, the Act also creates a new independent prosecutions office - the Revenue and Customs Prosecutions Office - to prosecute HMRC cases in England and Wales. The present arrangements will continue to apply in Scotland and Northern Ireland. The intention is to demonstrate independence of the prosecutors, external scrutiny of criminal investigation work, improve standards and effectiveness and make the Office accountable to the attorney general, who appoints the director of revenue and customs prosecutions.

Some of Customs’ work, in particular that relating to serious crimes such as drug smuggling, is likely to be transferred to the new Serious Organised Crime Agency, which will also incorporate the functions of NCIS.

So what difference is the plan likely to make to businesses?

The major potential gain is that, after the merger, businesses will only have one agency to deal with. That in itself could prove highly beneficial. But in his pre-budget report in December 2004, the chancellor specifically raised the possibility of businesses being able to make a single tax return, with integrated audits covering both direct and indirect taxes. If nothing else this could cut down on a substantial amount of paperwork.

And as far as small firms are concerned, the government intends to set up a new unit within the new HMRC specifically to look after the needs of small businesses.

It will aim to improve “customer experience and compliance”, as well as reducing costs for taxpayers and the tax authorities alike by reducing unnecessary enquiries.

Businesses may also benefit from minimised disruption from formal investigations. The old situation was that one agency could have conducted a formal investigation of a taxpayer passing any relevant information to the other agency.

With the merging of the two agencies, the scenario where a Revenue investigation is followed by a Customs investigation will cease and the business will only have to cope with one period of disruption.

Another hopeful sign is that there is a stated intention on the part of the government to understand the needs of business and respond to them, rather than assume that HMRC knows best.

The government says that HMRC will work closely with the small business team in the treasury to ensure that policy development is fully informed by its experience of providing services to small business customers and that gained by its compliance activities.

The benefits of the merger to the business community are not, in the main, quantifiable. But if HMRC fulfils its stated intention to consult on the issues affecting small business, to learn from business and to make compliance easier for the business world, the savings stand to be enormous.

Mary Fraser

technical consultant, Association of Chartered Certified Accountants (ACCA).