Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 220 - 239)



  220. In extreme cases. There are some situations where people are working without paying tax and so on in fairly substantial amounts. Is it possible to give us a note of the scale of cases you take to prosecution?
  (Mr Hartnett) We can certainly let you have a note but we are a selective prosecution authority so we will not prosecute every case irrespective of size.[15]

  221. I want a feel for the level at which you decide to actually prosecute. We spoke about the Benefits Agency and co-ordination of information and mention has been made of Housing Benefits. Are there any other sources of information held by the system that it would be helpful for you to have access to which you presently do not?
  (Sir Nicholas Montagu) I think that puts me in a slightly difficult situation, Mr Davidson. At one level obviously the widest possible selection of data that could be relevant, and it could be an enormous range of data—

  222. Could you give me particular examples?
  (Sir Nicholas Montagu) A wide range of information about people's financial circumstances but, again, I have to give the boring answer.

  223. Okay.
  (Sir Nicholas Montagu) Let me get it on to the record. The extent to which our powers to exchange information are extended is a matter for Parliament because we can only do so by legislated gateways.

  224. I do understand that but were Parliament to give you additional powers and give you power to pick one of three, what would your first choice be?
  (Sir Nicholas Montagu) I do not think I am going to answer that one, Mr Davidson.

  225. Can I ask about interest payments, dividends and the like which many people on PAYE will be forced to declare. Are you satisfied that you have sufficient information supplied from the providers of those payments to clarify whether or not tax is due?
  (Sir Nicholas Montagu) Yes, we are.

  226. That is presumably for UK based providers of dividend income and so on. What about people in the Isle of Man, Guernsey, Jersey and the like?
  (Sir Nicholas Montagu) I should make clear that when I said "yes" I was talking about bank and building society interest, I was not talking about dividend information.

  227. So the dividend information you are not happy with?
  (Mr Hartnett) Perhaps I can help, Mr Davidson. We do, with the co-operation and collaboration of a number of companies, test dividend information and we have not in the past found that a significant source of non-compliance at all.

  228. That is helpful. I want to use the example of the restaurants that is on page 11 that is quite helpful. Like one of my colleagues I found it very surprising that there were only 41 cases and the amount collected from each was only about £54,000 because presumably there must have been issues here of evading profit, the PAYE to be collected on staff involved, issues of VAT to be collected. I find it very surprising that the amount there is so small. Could you clarify why that is and also clarify the scale of penalties that is involved in circumstances like this?
  (Sir Nicholas Montagu) I have to say, Mr Davidson, I think an extra yield of £700,000, expected to rise by a further £1.3 million, strikes me as quite large.[16] It is true obviously that not all our enquiries are going to end with a large tax yield. Take, for example, example seven on that same page, this was a worthwhile investigation.

  229. I want to stick with this, if I can, please.
  (Sir Nicholas Montagu) I do not regard this as a low yield.

  230. Forty-one restaurants throughout the whole of the United Kingdom is a very small number to be inspected. I can see your staff behind shaking their heads so presumably that is wrong. The figure of £54,000 per head seems to me to be a small amount. Can you clarify what range of penalties there are in these circumstances of the restauranteurs?
  (Mr Hartnett) The penalty will be up to 100 per cent of the tax evaded and, of course, there is an interest charge as well.

  231. As well as the tax evaded?
  (Mr Hartnett) Yes.

  232. So there will be tax evaded and an interest charge of 100 per cent.
  (Sir Nicholas Montagu) Up to 100 per cent.

  233. Why do you not take 100 per cent?
  (Sir Nicholas Montagu) Because we mitigate penalties—this is a familiar theme that I have explored with the Committee—for things like disclosure, co-operation, gravity. We have more interest in getting it right and getting people on to the right track for the future.

  234. In terms of the amounts of tax evaded by restaurants, presumably they will only put their hands up to what they are pretty certain you can prove anyway, so there is no certainty on your part that you have got them for the full amount that they are defrauding the system?
  (Mr Hartnett) I think the answer to that, Mr Davidson, is if it is a cash business no-one could ever be certain but our investigators are persistent and determined, always courteous of course, and seek to get as close to the truth as they actually can.

  235. Can you clarify how many restaurant cases there are across the United Kingdom in pursuit?
  (Sir Nicholas Montagu) We do not have that information.

  236. And the average amount of tax collected.
  (Sir Nicholas Montagu) I do not think we would have information in that form.

  237. These are cases where there are special investigations of restaurants and you cannot tell me.
  (Sir Nicholas Montagu) I am corrected. I thought we did not have it in that form but we have and we can certainly let the Committee have a note on that.[17]

  238. Can I just clarify the question of drug dealing that was mentioned earlier on and the issue of unexplained sources of income. There are a number of individuals in my constituency and round about who have unexplained sources of income which everybody knows is coming from drug dealing. Can you just clarify for me whether or not these are people that you would be able to pursue for non-payment of tax?
  (Mr Hartnett) The answer to that, Mr Davidson, is it depends whether there is an activity taking place that is within the scope of the tax. What we would look for is where the money has come from, whether it is trade, employment, whether it is investment, a chargeable gain.

  239. A trade in drugs then, people going up, taking it, putting money in and going away with it?
  (Mr Hartnett) It is very rare for anyone to say to us "I trade in drugs".

15   Ev, Appendix 1, p29. Back

16   Note by witness: These cases (C&AG Report HC56) were part of a particular project and not the number of restaurants looked at nationally. Ev, Appendix 1, p30 and also Q 237. Back

17   Ev, Appendix 1, p30. Back

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