Examination of Witnesses (Questions 80
MONDAY 22 OCTOBER 2001
MONTAGU KCB, MR
(Sir Nicholas Montagu) They are very determined to
bring together all the sources of intelligence, all the sources
of information. I do not know if Mr Davies had a chance to talk
to the head of our risk, intelligence and analysis team there
but I did and he was extremely excited about the new arrangement
and what was the potential there to achieve. It all goes back
to a better understanding of taxpayers, risks, a so called leverage
(Mr Hartnett) Mr Jenkins, we have done just what you
have described. Our special compliance office, which is our prosecution
arm but also investigates cases other than for prosecution, has
in the past targeted particular areas, parts of the stockbroker
belt come to mindit tends to be at the top endhas
done just what you described and to very good effect.
81. All too often in the past what we have seen
and read about is the tax people coming in and looking at taxi
drivers who are moonlighting and earning a few extra pounds a
week, you do not seem to take the overall picture where you have
people living way beyond their means, what you would consider
to be way beyond their means, you are not targeting them. I am
glad that you are now looking at an area of approach.
(Mr Banyard) We are moving away from targeting specific
trades to trying to target specific characteristics in the business
and specific characteristics in the accounts. We are trying to
bring to bear on that things like third party information which
we are matching on our computer systems. We are trying to bring
together information that is available in the public domain, for
example the Housing Benefit payments that are mentioned in the
report, and we are trying to bring together the results of our
own intelligence projects where they do go out and can spot from
the road the apparent presence of large wealth, for example, which
is then not matched perhaps in the accounts. We try to bring all
that together and say from all of that which of our cases look
most risky and how can we target on those? It is a very broad
approach we are trying to follow.
(Sir Nicholas Montagu) At the same time it is a targeted
approach. I mentioned the leverage trials that we are carrying
out. These will target small traders, people typically with a
trading turnover of less than £15,000 because they can get
away with three line accounts. What we will be doing is identifying
a sector where we think that we need to improve compliance, benchmarking
the level of compliance across the sector, working with and including
trade associations, to provide better education, support and encouragement
because, again, that is important. We are not just in to bust
them, we are there to put them right as well, with a warning of
increased enquiry coverage to follow later. Essentially this is
enabling but backed up by regulating and we will evaluate and
bench mark when we have done an exercise of this sort.
82. Sir Nicholas, paragraph 2.8 of the report
states ". . . the Department estimated that intelligence
work led to an additional tax yield of some £21.8 million
in 1999-00 . . ." Why is it a third less than the previous
(Sir Nicholas Montagu) As Sir John notes, the figure
may understate the impact of this work as it excludes cases referred
to compliance units for action, the subsequent tax yield and the
compliance. Increasingly we are looking at intelligence in a much
more holistic sort of way. The main focus is to bring people within
the tax system, we have changed the business direction. We regard
direct yield as only part of the result. It is perfectly possible,
of course, that we might end up paying the same person tax credits
if we discover they have got an eligibility that we do not know
83. Those things that you say the figure may
under-estimate, presumably they apply to the figure for the year
1998-99 so they are comparable figures?
(Mr Banyard) Not entirely. We were moving from a system
where we ran single intelligence cases and measured the yield
from them to a system where we measured the projects which were
much more complex spread out over a number of different offices
and where it was becoming increasingly difficult to track back
the yield to the project. What we do is we measure all the yields
in the total figures which are declared in Chapter 4 and we have
decided that the more effective use of our recording is to measure
the number of people that we bring in. So the risk and analysis
teams will in future bring back from their projects the total
number of ghosts and moonlighters that were brought into the system.
The yield that they get will be captured in the yield for the
overall enquiry cases. There is no reduction in yield from the
intelligence cases, it is just that we are no longer measuring
it in that way.
84. That is quite convenient. Even if the figures
do under-estimate the impact of the work, is not £21.8 million
a tiny percentage, even on the best guesstimates, of the amount
of tax that is not collected?
(Sir Nicholas Montagu) Again, it is a very complex
issue, Mr Osborne. We have never targeted yield, I never want
to target yield. What we are after is getting the right people
paying the right tax at the right time or, indeed, claiming the
right credits at the right time. The sort of outline that Stephen
has given does reflect the fact that we are shifting our emphasis.
What I would certainly expect is that the risk, intelligence and
analysis teams will make much more effective the intelligence
that we pick up from our random enquiries, that this will translate
through into enquiries and what comes out of them. Perhaps I can
give you an example. We got third party information which showed
a building society account which was not included on an individual's
tax return. I give you this example because it is not one in Sir
John's report. We matched this from information that the individual
was running two residential care homes instead of the one declared
to us and this revealed substantial receipts missing from the
undeclared account. Undeclared income amounted to £150,000.
Now you could find this knocking into all sorts of different sorts
of yields, including, for example, undisclosed PAYE, employer
compliance. What you need to look at is what we are achieving
across the piece.
85. Obviously you are very proud, both of you,
of your intelligence gathering systems. Now on paragraph 2.11
of the report however it says "The Project Support System
is a local system and does not allow staff to share new approaches
to intelligence activity or to track cases referred from one office
to another. Staff therefore have to follow up referrals manually.
This is a slow process and staff waste time determining whether
action has been taken or any additional tax identified and collected.
Some tax offices have access to all payment details held by local
authorities . . ." It is a bit chaotic according to paragraph
(Sir Nicholas Montagu) If I may quote Hannibal Lector,
Mr Osborne, "Not any more". We always regarded the Project
Support System as a short term solution while we worked on a fully
integrated mainframe Project Support System. Our priority was
to update our main compliance IT system to support self assessment
enquiry work. What we have done now is we have set up a new database
to record the outcomes of this work on a nationally consistent
basis. Our staff no longer have to check manually with other areas
to find out the results of a project which they may have started
and which have then spread. It was never seen as anything more
86. It did not work particularly well?
(Sir Nicholas Montagu) It was limited, obviously,
for the reasons that Sir John's report notes, which I accept.
Creating area management and the risk, intelligence and analysis
teams meant that we would need to change the original system anyway
and we are making those changes in the way I have described.
87. Were you making changes before or after
Sir John came and investigated you?
(Sir Nicholas Montagu) Do you know, Stephen?
(Mr Banyard) We have limited resources and we needed
to put something in, this was not the highest priority against
the other things we had to do. We put in the Project Support System
to do the best that we could at the time. It did not do as well
as we wanted to do and we made some changes to it. I can tell
you our staff would have been asking for them long before the
Comptroller and Auditor General reported. We have been able to
put some changes in. We are looking at the Project Support System
now in the longer term to see whether, in fact, it will last us
in the future or whether we need to replace it with something
more strategic. At the moment we are still using it and it is
still useful to the RIATs in their new role.
88. I am sure your staff were asking for it
to be changed long before you actually got round to changing it.
All I really wanted to know was whether you decided to change
it before or after the National Audit Office pointed out all the
(Sir Nicholas Montagu) I think the answer to that,
Mr Osborne, must be that while I do not know, the clear inference
has to be before. Sir John's findings on this were useful as,
if I may say so, were his findings throughout the report, but
we always knew that the system had limitations because of the
structure of the IT platform on which it was released, and that
was before Sir John's report. We did not scrap it because, although
it works in a more limited way than we first thought, it is more
effective in the new structure because we know what it is that
we require from it and we are getting that.
89. Am I correct in saying that it is still
being used as Mr Banyard was saying, so staff are still wasting
(Sir Nicholas Montagu) No, that does not follow at
all. Staff are not any longer having to check manually, which
was the Comptroller and Auditor General's main criticism. It is
limited in its scope, it is limited in its purpose, but within
those limitations it works fine now.
90. Do you have access to all payment details
held by local authorities on Housing Benefit? Paragraph 21.11
states that some tax offices have access to all payment details
held by local authorities.
(Sir Nicholas Montagu) Dave, do you want to answer
(Mr Hartnett) Yes, Mr Osborne. Section 18A of the
Taxes Management Act gives us access to that when we serve a notice.
We now have access to everything.
91. To all the payment details?
(Mr Hartnett) Yes.
92. Just to clarify, do you have the right to
an individual person's payment details?
(Mr Hartnett) We have the right to serve a statutory
notice. We serve a statutory notice, we get the details.
93. "Some tax offices have access to all
payment details held by local authorities on Housing Benefit,
whereas others have access only to details of named persons."
(Mr Hartnett) Right.
94. So do you know at all which tax offices
have access to all payment details held by local authorities on
Housing Benefit, as of today?
(Mr Hartnett) I simply cannot answer for every single
95. Perhaps you would give us a note on that.
(Mr Hartnett) Of course.
96. If I could move on to bureaucracy or the
complexity of the statement of accounts which are not user friendly.
What percentage of the eight million self employed and PAYE taxpayers
subject to self assessment might have what you would call relatively
straight forward tax affairs? In other words, basically all the
tax they are paying is paid through PAYE and self assessment does
not yield any more tax?
(Sir Nicholas Montagu) I do not know that we have
the data in that form, Mr Osborne. Do we, Stephen?
(Mr Banyard) I do not think so. The aim of self assessment
is to only give a return to those people when we consider that
there is a risk that we will not capture their whole income under
deduction at source. We do not want to send returns out where
they are unnecessary.
97. You said you were working closely with tax
agents, I do not know if you have seen the letter which was sent
to this Committee by the Institute of Chartered Accountants but
I will read a bit of it to you. It says "As a general comment
self assessment has meant that taxpayers have to spend far more
time than previously in completing a tax return. Many have opted
to pay professional advisers to complete their returns, whereas
previously they felt competent to do this themselves. One might
argue that a body of tax professionals would welcome the extra
work but the reality is that it is to no one's advantage to force
those with simple tax affairs being driven into requiring professional
advice". Do you agree with that?
(Sir Nicholas Montagu) No, I would not, you will not
be surprised to hear, Mr Osborne. I do not actually have the advantage
of having seen the letter which the Institute apparently sent
the Committee. We have talked quite a lot during this hearing
about the changes that self assessment embodied. Those were changes
of policy and they were changes of policy given effect in legislation
passed by this House and the other one. Within those constraints
we try to make it as simple as we can. I am slightly surprised
to find such a negative response from the Institute, with whom
we work extremely closely in the Working Together Initiative to
improve the operation and efficiency of the tax system. If you
visit our website you will find the register of issues covered
98. What about the Chartered Institute of Taxation
who say "We do believe that the additional burdens self assessment
has placed on taxpayers and advisers has been ignored"? Do
you think it has been ignored, the additional burden?
(Sir Nicholas Montagu) No, it has not. I have given
numerous instances, perhaps the Committee will forgive me on this.
Business support teams are a classic example. A small business
is setting up, the business support team is there helping them,
telling them what they must do, keeping an eye on them, a continuing
contact. What we have tried to do is to make it as easy as possible
through business support teams, through our literature, through
our website very importantly, which has won awardsit can
be improved but it is pretty goodthrough the helplines
and, anecdotally, that is the area of our work where I get almost
universal praise. We are trying to make it as easy as possible.
If your underlying criticism is of the intrinsic complexity of
the system then I do have to come back to my response about policy
and legislation. I also ought to repeat what I said earlier, that
in both our Public Service Agreement and our Service Delivery
Agreement we have targets for reducing compliance costs.
99. Do you have any evidence of how many extra
taxpayers have had to employ accountants since self assessment
came in and what percentage of the eight million self-employed
and PAYE people who are self assessed?
(Sir Nicholas Montagu) That is not information that
we would have quite honestly.
7 Ev, Appendix 1, p29. Back