Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 200 - 217)




  200. The fact that the Revenue are not prepared to be specific about the nature of their enquiry or the fact that they are not prepared to go to the appeal, does that mean necessarily that they are engaged on a fishing expedition?
  (Mr Maas) No, it does not.

  201. Could there be other explanations?
  (Mr Maas) There could well be other explanations. I hope that it is because I convince them they do not need the information.
  (Ms Monteith) There could be the possibility, also, that they actually do not think that there is anything particularly wrong with a taxpayer's affairs. They do ask enquiries on occasion for reasons of quotas, they have to open so many enquiries to fulfil their own obligations.

Mr Beard

  202. On a statistical basis?
  (Ms Monteith) Yes. Of course that does cost people to comply with them.

  203. Yes.
  (Ms Monteith) Also I think we have not really focused on the effects on the individual of getting an enquiry letter. If you look at the letter that is sent out, although it is much better than the original letter it is still quite frightening for the little old lady who receives an enquiry letter which makes her assume that she has done something terribly wrong on a Saturday morning and she then has to wait until Monday before she can do anything about it.
  (Mr Maas) Just to be fair, could I make clear that the Revenue are about to embark on experiments with these little enquiries of actually telling the taxpayer so it is something they are conscious of.


  204. It ought to be possible, ought it not, to tell the taxpayer the broad area that is the element of mystery?
  (Mr Maas) There is a dilemma because if what the Inland Revenue want to ask about is something very simple, then it makes sense to tell the taxpayer. If what the Revenue want to ask about is "Can I have this page and a half of information" then an awful lot of taxpayers will get very frightened to receive that. Initially it was agreed between the professions and the Revenue that they would not tell the taxpayer anything other than it was an open enquiry. However, they are now reviewing that and it has been accepted that it is important to distinguish between serious enquiries where you could frighten a taxpayer and tiny little enquiries where it makes much more sense to say to taxpayers "This is what it is all about".

  205. I can see a situation where you might have a fairly specific enquiry where a set of documents which should be there were not there and needed to be tracked down or whatever.
  (Mr Maas) Yes.

  206. A situation in which you would not necessarily have to alarm the taxpayer by saying "We are having a general enquiry into your whole tax".
  (Mr Maas) That is right. They are now distinguishing those two types of cases.

  207. They are. Right.
  (Mr Maas) Yes.

Mr Beard

  208. You could see a situation, also, where they do not explain the problem because they just fear it is just giving someone an opportunity to concoct some cock and bull story to excuse what they have been up to.
  (Mr Maas) I hear what you say. At the end of the day what story you concoct is pointless unless the facts support it and that an enquiry is going to look at what actually happened in the year of the underlying records. You cannot change those facts by knowing what is worrying the inspector a year later.

  Chairman: Right. Can we turn finally to corporation tax. I do not know which of you wants to field that but Mr Plaskitt has some questions to ask you.

Mr Plaskitt

  209. You may have heard Heather Self, who was giving evidence just before you, from the Chartered Institute of Taxation say that in their view it is working very smoothly, is that your view as well?
  (Mr Maas) Yes, because it was built on to pay and file which has been there since 1992. I would reiterate what Heather said, the major problem area is quarterly payments on account.

  210. In your submission to us you have talked about the Revenue challenging accounting principles. You have cited that as a problem.
  (Mr Maas) Yes.

  211. Do you want to give us some examples of that?
  (Mr Maas) I have a case in the office at the moment, for example, where I sent in some accounts and the Inspector wrote back and said "Your accounting policies do not take account of SSAP 2, FRS 15 or IAS 3" and I wrote back and said "Tell me why you do not think that it takes account of SSAP 2 and the other two are not relevant, tell me why they are relevant". I got a letter back saying "Well, I do not really know, I was told to say this by somebody else, I will have to go back to him and ask him why". What is happening is the Revenue have made a very sensible decision to employ accountants, to employ qualified accountants and put them into local tax offices to help inspectors to understand accounts. I think some of the accountants are flexing their muscles and saying "Why do you not challenge this because if you challenge this accounting policy you might be able to get more tax". There are two points to make. Firstly, when they challenge they tend not to say "We think you have got the wrong accounting policy because", they simply say "Why are you adopting this accounting policy". What the law actually says, and head office accept it, is that the taxpayer can adopt whatever accounting policy he likes as long as it is a validly accepted policy. So the Revenue do not have power to say "Well, I would rather use this policy rather than that one", they only have power to say "The policy you have adopted is not actually a generally accepted one, it is not one that other accountants use".

  212. Are you suggesting they are acting ultra vires?
  (Mr Maas) I am not suggesting they are acting ultra vires, I am saying that they are going about some of these accounting issues a bit like a bull in a china shop.
  (Ms Monteith) I think it is a case of there is a new source of knowledge within the Inland Revenue which we agree with, we think it is a good idea to have accountants there. My own experience recently was over the question of a life of an asset, how long could a life of this particular large piece of machinery be expected to last? Talking to a tax person at the Revenue produced a rather confused and drawn out correspondence. When they brought in their accountant it became much easier to talk on the same level and to bring about a quicker agreement. There are cases where it is a good idea to get straight on to talk to the accountant. In Robert's case obviously Chinese whispers had created confusion and that was why they had this correspondence which wasted Robert's time and wasted the Inspector's time. If there is an accounting issue it needs to be dealt with by the appropriate person as quickly as possible. I think underlying all of this, both the corporate tax and income tax, is simplicity. We need simplification of our tax system. For corporate taxes, we are discussing that at the moment, if you look at the number of different definitions of groups, there are loads. Look at the different definitions of small and medium sized companies, sometimes it is Companies Act legislation, sometimes it is Taxes Act, now we have EU definitions being brought in and euros being used. There are just so many different definitions. Every year we get a new Finance Act and a new set gets introduced. It is very, very complicated and we have to self assess within all of that.

  213. I thought the observation you were making was that the complexity here is to do with rules of accounting rather than changes in the tax system itself.
  (Ms Monteith) Rules of accounting on top of an already complex tax system.
  (Mr Maas) To challenge the accounting rules, which are basically challenging timing differences, "have you recognised enough profit this year or should some of it fall into next year", to build that on top of an already very complex tax system just aggravates the problems.

  214. On the accounting side, what would you like to see done to overcome these problems?
  (Mr Maas) I would like to see the Revenue think why they want to challenge a policy not just to leap in and say "We would not have done it this way". I would like them to say "We see you have done this, why do you think this is a generally accepted accounting policy?" What you have to realise—I would hate to think this is me riding a hobby horse, it is not, it is something that we get letters from Members on—very many accountants feel fairly upset when they get a letter from the Inspector of Taxes challenging their ability to do accounts.
  (Ms Monteith) These are in the main judgmental decisions.

  Chairman: Sure.

Mr Plaskitt

  215. I still have not got a clear picture of what you want done. You said one thing you want the Revenue to be upfront about is why they are challenging.
  (Mr Maas) Yes.

  216. That would be your principal recommendation?
  (Mr Maas) Yes.


  217. We have to leave it there now. I want to thank you both very much. You have made two statements in your memorandum, which I have asked you about. This inquiry is running for several more weeks. You have referred to the significant additional costs and you have referred to the large number of procedural errors. If you are able on reflection over the next few weeks to put any kind of quantitative measure against those two things, we would be extremely interested. I appreciate those are very difficult. For example, under procedural errors, if you were able to make some estimate as to whether it was one in ten, one in 100 or whatever, if you have any survey evidence of that kind it would assist us certainly. Likewise on costs, because that is one of the things we shall be looking at. That is a further invitation.
  (Mr Maas) We can certainly put something on our website and invite members to give us their experience and try and collate that. Thank you very much.
  (Ms Monteith) Thank you very much.

  Chairman: Thank you both very much.

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