Examination of Witnesses (Questions 280-279)|
WEDNESDAY 20 MARCH 2002
280. Has that been tested? Was that part of
the trial? If they can do it, why can the Inland Revenue not do
it? The systems must be there, the banks must know what to do.
(Mr Hamper) I think the reason is one of law more
than anything else. The arrangements with the gas and utility
companies is one of commerciality, if you like. They are in the
commercial world, and, to a certain extent, they can make the
rules to suit both parties. I think the Inland Revenue are obviously
governed by the legislation. Unless there is some facility whereby
they can accept money upfront, if you like, they will not be able
to move on that. It is a question of what happens if somebody
skips a payment? Is there going to be a sanction for that skipping?
I think there is a lot of legal problems that worry the Revenue
rather than the commerciality of it.
281. Difficult to imagine if you are saying,
"Well, you can pay at the end of the year, but rather than
have that big burden, would you like to take this as an alternative?"
That would be a matter of choice.
(Mr Hamper) We would certainly welcome that for our
282. You also mentioned the possibility of an
alternative payment being by credit card. Is that not a rather
strange way of anyone paying when credit cards have such very
large interests on them?
(Mr Sweetman) I think the suggestion of paying by
credit card is really looking at payment over the internet, which,
after all, is becoming a more and more common feature of life,
and it is almost the only way to do it, to pay by credit or debit
card. This simply would reflect the fact that an enormous amount
of the financial transactions in our society must be carried out
by credit card, and yet here we have one major field where it
is not allowed.
Nigel Beard: Thank you very much.
283. Can I just clear up this utility/credit
card business. Could you see a situation where the Revenue, for
example, offered a discount? They would benefit commercially,
presumably, from getting the money in earlier, therefore having
to borrow less on the markets, where, like utility, they offered
a discount to people using debit or monthly systems.
(Mr Sweetman) There is one member of the Operations
Consultative Committee who claims to have been telling the Revenue
for 25 years that if they offered discount for early payment they
would get more tax in. They tend to say, "The Treasury would
not let us". Quite what they mean by that I am not sure.
Chairman: Well, we might pursue that.
284. Switzerland does operate a process of advance
payments. If you pay in advance, you get interest for the amount
up to the tax that you are actually due to pay. You cannot pay
in £1million and say, "Right, give me interest".
I just have one question on credit cards. Normally, credit card
companies will charge the beneficiary a certain percentage for
the facility, and sometimes they will credit the payer with a
certain amount. I get 1 per cent on what I pay on my credit card.
Would you actually not see that as a drawback unless the Inland
Revenue recouped it through a surcharge?
(Mr Sweetman) I am sure the Inland Revenue is large
enough to make a good bargain with credit card companies, but
I do take the point.
(Mr Hamper) The Revenue actually trialed a payment
by direct debit. There were certain taxpayers that were invited
to pay by direct debit, Switch cards, this sort of thing, and
of course they are electronic cheques, if you like. There must
be some sort of commission paid to the bank on that sort of transaction.
I see the two running either/or: either use Delta or Switch or
285. Do you know when the trial was?
(Mr Hamper) I think it was the Autumn of 2000.
286. Do you know where?
(Mr Hamper) I think it was a sample of the taxpaying
population. I do not think it was in any particular part of the
287. You say again in your submission that the
structure of surcharges, interest and penalties make it very difficult
to get people back from the shadow economy, and you are suggesting
in your memorandum that that difficulty has been made worse by
Self-assessment. So what changes would you like to see to the
existing regime to make some sinners repent more easily?
(Mr Sweetman) What I think is the last resort is often
the Revenue's practice. In order to welcome somebody back into
the fold, if you like, they would, in the last resort, accept
the tax that was due without charging interest, surcharges and
penalties. And I think it is a feature of the current system,
and, of course, the surcharges and penalties were imposed at the
time of Self-assessment. I think it is a feature of the current
system that the amount owing can mount up at frightening speed.
288. Have you discussed this and put the case
to the Revenue, your organisation?
(Mr Sweetman) Certainly it has been said at various
289. What have they said?
(Mr Sweetman) I think what they would say is that
they need this structure in order to keep everybody paying on
290. But they are also keeping some out.
(Mr Sweetman) I think they are keeping some out, yes.
291. You note that the burden of Inland Revenue
enquiries under Self-assessment falls disproportionate to your
small businesses who are most likely to be the subject of an enquiry.
Is that not because in these cases there is a greater chance of
tax being at risk; is that not why they are subject to enquiry?
(Mr Sweetman) I am far from convinced about that in
the report that the Revenue produced recently, because they have
made some changes to the enquiry structure. One of the points
that they noted on that was that enquiries into small businesses
were the least productive and caused the most grief, essentially,
even within the Revenue. It took them longer to do and produced
poorer results than any other part of their enquiry work.
292. They say that they have a means of scoring
risk and that the enquiry is based on how risks score, so, according
to that, it implies that small businesses are more of a risk.
Is that your experience?
(Mr Sweetman) But, for instance, the risk factors
that they take include a business that takes cash. You are a higher
risk if you are a farmer. Doubtless these risk factors are based
on experience, but it does still remain the case that the hardest
and the most difficult enquiries are those into small businesses.
293. There is an indication in some of what
you say that they may be difficult, but you are also saying they
(Mr Sweetman) The thing that I would really like to
get across is that the Inland Revenue has been saying since the
days when I was an Inspector of Taxes that it was going to take
its enquiries upmarket, and it has never actually succeeded in
doing so. It continues to conduct much the greater part of its
enquiry work at the bottom end of the scale.
Mr Beard: You also say that most
294. Can I just pursue this a little. Are you
suggesting as really an historical approach by the Revenue here
that they started off 10, 20, 30 years ago by saying small businessmen
generally are a fairly risky category, and that that has never
really gone out of the system?
(Mr Sweetman) I think that is absolutely true. Certainly
this was, if you like, the classic point of view in the Revenue
in the days when I was there. I do not think it has changed that
there is a feeling that people in small business are likely to
be on the fiddle. I do think this is part of the problem, but
particularly, I think the structures that the Revenue has adopted
in the past, and the way in which since they introduced performance
statistics, those statistics have in the past been rather too
much related to yield and not enough into the way in which the
case was worked. That is changing, I think. If you look in their
report for this year, you will see that they refer to that, but
it has been a feature of the system that inspectors were given
brownie points if they got more money, however they got it.
295. They told us they had a sophisticated way
of working out the risk factors and they based their enquiries
on that scale of things.
(Mr Sweetman) This is a comparatively new system.
Until fairly recently, the selection of cases for enquiries was
done within a tax office and based on the judgment of a relatively
296. Are you implying, therefore, that in the
local tax office, in the old system, they would have chosen a
small businessman as against, say, the local teacher or magistrate,
whatever, simply because the yield might be greater if they found
there was a mistake?
(Mr Sweetman) I think that is right, and I think also
they would have tended to choosebecause of the system which
rewarded a comparatively high turnover of cases, inspectors were
supposed to work quite a lot of cases at one timebecause
of that, they were inclined to pick what looked as if they might
be easy targets and these would be cash businesses and they would
be the smaller end of the self employed and small businesses.
297. You mean cash businesses, where you were
almost inevitably going to find some kind of mistake?
(Mr Sweetman) There is a very good chance that you
were going to find something wrong, yes.
298. On the risk weightings that we discussed
with Revenue officials, is it your impression that this is a very
modern thing? You were there: did they review the various risk
factors of particular groupings?
(Mr Sweetman) My understanding is that the way they
do it now depends on having all the returns put into an electronic
format because they are now computer sorted, with various risk
factors put in. The Revenue does not say specifically what most
of the risk factors are; some of them one learns by experience.
But it is something that came in at the beginning of Self-assessment.
Given that they need to see a business's returns over a number
of years to get this right, it was obviously two or three years
into Self-assessment that they really began to use these risk
factors seriously, so they are really only just about starting
299. Do you have confidence in them?
(Mr Sweetman) I do not really know enough about them,
because they do not say publicly what are the criteria which they