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Publications on the internet
UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
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Mr George Mudie (Chair)
Mr David Ruffley
Mr Andrew Tyrie
Witnesses: Paul Aplin, Chairman of the Institute of Chartered Accountants England and Wales, Tax Faculty Technical Committee, Chas Roy-Chowdhury, Head of Taxation, Association of Chartered and Certified Accountants, Robin Williamson, Technical Director, Low Incomes Tax Reform Group, and Richard Baron, Head of Taxation, Institute of Directors, gave evidence.
Q76 Chair: Good morning, gentlemen. I am sorry that we are a bit short. We usually meet in another room and we are hoping other Members are sitting there waiting for us, but perhaps not. It is such a nice day. Thanks for coming, and what we lack in quantity we will make up for in quality. You don’t all have to answer each question. If the questions are in your area of interest or expertise, that will be much appreciated; but you don’t all have to contribute unless you are disagreeing with something someone else has said. That is very useful and constructive.
Mr Williamson, it is about the perception of HMRC. You say in your submission, "It now is too often seen as an organisation that is unable to collect the right amount of tax. It is increasingly difficult to contact by phone, letter or in person, yet unforgiving of customer error and relentless in its pursuit of small debts. Otherwise it is fine". Would you like to spell out what is behind this comment?
Robin Williamson: Yes. Starting with the bits that are fine, there are some very dedicated and very good officials working within HMRC. But taking that comment bit by bit, "an organisation that is unable to collect the right amount of tax": I think the recent PAYE crisis came as quite a shock to members of the public who were used to thinking of anything that came to them in a brown envelope as being, ipso facto, right and not to be challenged. To be told that several million people had either underpaid or overpaid tax through the PAYE system was quite a culture shock.
As for being difficult to contact by telephone, the HMRC evidence itself admits that the number of calls that HMRC are able to handle sometimes veers around the 40% mark. As for being difficult to contact by correspondence, we often have people ringing us up saying that they have been told that it will take up to six weeks, or even longer than that-sometimes a matter of months-before a letter is dealt with. Therefore, people go to the telephone and ring up and say, "When is my letter going to be answered?" and, of course, they can’t get through. Inquiry centres, which used to abound throughout the country, have steadily been closed down since the early part of the millennium, since before the merger started, and recently there was a consultation on closing down more inquiry centres and cutting the hours of some that remain.
So it is more and more difficult to contact in person, which is fine, so long as you are computer literate and can go online and work out-from the generic information on the HMRC website or on the Directgov website, or wherever it happens to be-what you need to do in order to resolve your particular query. It is less good for unrepresented taxpayers who do not have advisors, particularly if they are not comfortable using the internet or are in an area where there is unreliable or no broadband connection, and so forth. There are large swathes of the population now that are finding contact extremely difficult, because of the direction in which the HMRC has been travelling.
As far as unforgiving of error is concerned, this is becoming more and more of a trend. We are seeing fraud and error combined as though it were a composite concept and not two very distinct concepts, one of which involves intention to deceive, the other of which-error-can be entirely innocent. Even with the PAYE difficulties, there were a number of people who felt that the extra tax they owed and could reasonably have expected their tax to have been right all those years ago-they found that they were going to be asked for it back. In some cases there is very little quarter being shown there, with large sums of money being demanded within 30 days, and so forth.
Chair: Does anybody else want to add to that?
Chas Roy-Chowdhury: I would like to agree with everything Robin says, but I think in many ways HMRC have been operating almost on autopilot. If the PAYE system did not operate in a self-functioning manner, if the VAT system did not operate in a self-functioning manner, then I think a lot of the revenue that the Government and the Exchequer rely upon just would not be coming through, because it is very difficult to communicate with the tax authorities, the HMRC, if there is a problem, if there is a question, if there is something wrong or if you do not understand something. Then to get a coherent and correct answer back is not always the case.
Therefore, the way that the system works in the UK where most people are compliant, most people try and pay the right amount of tax at the right time, is probably the only thing that has been getting through the current problems we have in dealing with HMRC and the difficulties of ordinary taxpayers who do not know what the tax system is really about. It is the only reason why the Exchequer is still getting tax paid at the right time and roughly the right amounts.
Q77 Chair: Let me just ask you: if you had been coming here and asked these questions before the start of the departmental economies that have gone on now for four or five years, would you be making the same sort of comments then? I am conscious that we knock HMRC about in terms of being critical of Pay-As-You-Earn, but there is the other side that they have had to cut regularly every year and this year they are facing the Spending Review with a 15% cut after you take the £900 million out.
Paul Aplin: Could I answer that?
Chair: Yes, certainly.
Paul Aplin: In addition to chairing the Institute’s Tax Faculty Technical Committee, my day job is as a practitioner in a relatively small firm down in the south-west and the experience we had of HMRC pre-merger-let us say, five or six years ago-was just totally different from the experience we have of HMRC now. Five or six years ago, if we wanted a relatively simple thing done, like a PAYE coding changed, it was one telephone call, the coding would be changed that day, and it was a very simple and efficient process. If I want that simple thing done today it can take me literally months to get that same simple matter dealt with. In that period of several months I have to waste HMRC’s time chasing it for an answer. I have to cope with frustration from clients. The amount of time it now takes me to deal with that one simple matter has gone from minutes to, in some cases, an hour.
Q78 Chair: I don’t mean the worst that springs to mind, but is that the worst experience when you are chasing a Pay-As-You-Earn number or is that a constant experience when you are carrying out that task?
Paul Aplin: It is pretty much a constant experience. It is the same with trying to get through on a telephone line; once you are connected there are also problems speaking to someone who understands the problem that you are trying to deal with, which really illustrates a training issue. Five or six years ago you would deal with someone on the other end of the phone who understood your question and could deal with it quickly. That now, I am afraid, is something of a rarity.
Chas Roy-Chowdhury: I think the cuts have been very unhelpful. Before HMRC came into being or just after, this Sub-Committee looked at that. At that time the evidence that we gave said very much that we didn’t want to see cuts in personnel within HMRC, but that is exactly what happened. The 25% cuts in the five years since the HMRC’s existence have not been very helpful and now they are having another 25% cut, or 15% when you take the £900 million into account. Again, that is not very helpful in a situation where you have so much complexity, an ever-changing environment, and two cultures that came together in the previous period. I think that has all worked against HMRC in being able to offer a coherent tax strategy for the taxpayer, especially the unrepresented taxpayer. So they have not been in control, they have not been their own masters, and I think the way it has been handled has not been helpful in terms of the cuts that have been imposed on them.
Chair: Richard, do you want to say anything?
Richard Baron: Only to agree with a lot of what has been said. In terms of ease of dealing with HMRC, we did do a survey of our members in September last year. I will happily send the data on to the Committee clerk afterwards, but basically one of the questions we asked was: how easy is it to get the information you are looking for from helplines or from the website? For both of them, about a third of respondents said it was fairly difficult or very difficult. So there is clearly a problem there.
In terms of the impact of the cuts, I guess that what has happened is they said, "Okay, we are going to lose people. At the same time expectations are rising"; and we have had this fuss recently about people having the wrong amount of tax in total collected under PAYE. That has probably been going on for years and years. They have just noticed because they have improved their computer systems and picked up where it has been happening. They have tried to make things better and therefore tried to build more elaborate systems, which then takes time because Paul can’t just ring them up and say, "Can you sort this out?" It has to go through some complicated system. I wonder if what may have happened is that this cutting and developing systems to try and get it more and more correct have been coming together at the wrong time, and that is the problem.
Q79 Mark Garnier: I want to carry on with this if I may, because the HMRC claim they have achieved £1.1 billion in savings without overall negative impact on performance. We have just heard from two of you that that is simply not the case. Are they effectively lying on this point?
Paul Aplin: I do not think they are lying. I think they just have a rather different perception from the perception those of us at the coalface have.
Q80 Mark Garnier: But what you said, Mr Aplin, is very, very stark, I think. If your service with them goes from minute-long services to months-long services, that is clearly a very dramatic cut in service. For them to turn around and say there has been no negative overall impact on their service is just nonsense. Does anybody have anything they would like to add to that?
Chas Roy-Chowdhury: I think it is nonsense. It is also variable because you may phone up and get through to somebody who is very helpful and solves your problem straightaway, but that is probably the exception or is becoming more the exception. You could then call with exactly the same question and get through to somebody else who will not necessarily give you the right answer or be able to deal with the question correctly. The whole idea of having this uniform customer experience through the call centre approach does not seem to be working, because the people who are dealing with the face-to-face interaction are not necessarily tax people or have been adequately trained. I think that is where one of the big problems is.
Paul Aplin: It is also very much a curate’s egg. My experience is that the staff dealing with corporation tax are very well trained; they are very well-informed; they can deal with technical questions over the telephone very quickly and efficiently for HMRC and very quickly and efficiently for the taxpayer or for an agent. Elsewhere in the organisation the experience is very different. So I think you do have parts of the organisation that are working well but other parts that are not working well at all.
Robin Williamson: I would certainly echo that from the perspective of unrepresented taxpayers and also tax credit claimants. You can ring up and get the right answer but, equally, you can get the wrong answer. We have had cases of foster carers, for example. The rules for tax credits are that if you are a foster carer you can get child tax credit for your own children but not for the children you are fostering. However, you can get working tax credit for all the work you do as a foster carer. Now, not infrequently, they ring the helpline and put these questions to the Tax Credit Helpline and get the answers precisely reversed: no, they can’t have working tax credit; yes, they can get child tax credit for the children they are fostering. So they act on that information and, of course, they get an overpayment, which at some time they will either have to repay or they will have to go through a bureaucratic battle with HMRC to persuade them that it was their fault that the overpayment has arisen and could they please write it off.
The question of training has been raised. In one call that we took just this week, somebody had been told by a call centre operator that they should be keeping records for seven years, an individual not in business. No, the right answer is 22 months after the end of the tax year in question; certainly not seven years. There is a lot of misinformation going out.
Q81 Mark Garnier: You are painting a very dismal picture of HMRC. Given the fact that we have 15% to 25% cuts coming ahead as a result of the spending cuts, what do you think are the areas that are at the biggest risk of being affected even more dramatically or do you think this is as bad as it is going to get?
Paul Aplin: No, I don’t think it is as bad as it is going to get. I have one fundamental worry, which is: this is the emperor’s new clothes. For five years those of us at the coalface have been seeing service standards decline. That has come alongside the change programme, alongside HMRC taking on tax credits. I think the department has more than it can handle and it has had its resource cut by 5% a year, year on year. The fact is that if its resource continues to be cut the service levels will continue to decline. My fundamental worry is this is undermining trust in the tax system, and the more trust is undermined in tax administration in this country the more I think we have to worry about tax leakage. That is a fundamental concern.
Chas Roy-Chowdhury: I think what Paul says is absolutely right. I think things are going to decline. The HMRC’s strategy at the moment is to work with agents and to pass on as much of the work as possible over the next few years to agents. They are thinking about registering agents. They are thinking of having agents being able to change their clients’ tax codings. All this type of work will be passed across from HMRC to the agent. Now, whether the agent community will want to do that and they will work fast enough for that to happen, with the resource cuts in HMRC that are going to happen-the continuing 5% cut is going to carry on under the present proposals-there is bound to be a dip before the pick-up again where the agents are starting to do some of that work.
Richard Baron: I am not sure I would say "bound to be a dip". Maybe I am too optimistic here.
Chas Roy-Chowdhury: Quite likely to be a dip.
Richard Baron: Yes. I think it may be worth exploring precisely what the causes of any further decline are likely to be and, therefore, how you could step in to arrest a decline. It seems to me the overall picture is: cuts; therefore, must build an efficient mass production system. Taxpayers are just units; nearly all taxpayers are just numbers in the system, and it has to be like that otherwise you just can’t cope with the level of business if you are going to be losing resources.
Then there are two points at which the mass production system can go wrong: one is by having glitches in there where there just isn’t the right expertise in the right place, so they give the wrong answers to foster parents. The other is, even if you solve all those regular sources of glitches, there will sometimes be cases where it goes wrong and you may or may not have a sufficiently good system to step in there and say, "Okay, we have it wrong with you. Now let’s sit back and sort you out". I think on both of them they have problems but it may be worth asking exactly where the problems are most likely to be. My fear is that the inability to have resources to say, "Okay, we are getting you wrong; let’s pull you out of the mass production system and sort out your case", is going to be a particularly worrying development.
Q82 Mark Garnier: That sounds like quite a challenge because they have been cutting in anticipation of efficiencies but the efficiencies do not seem to have come along. What you are effectively saying is that they have got themselves into this sort of cul-de-sac where they do not have what they need yet. They are going to have a further cut in resources. They are then going to have to pull people out of it, but they are not going to have the resources to pull them out of it and it is going to be increasingly difficult. Is that a fair assessment?
Richard Baron: That is my worry, that it could go like that, and I think the difficulty of getting through to the helplines is symptomatic of that. Obviously there has been a peak in pressure on the helplines because of the problems surrounding PAYE, but heaven knows what other peak there will be next year creating the same level of difficulty.
Paul Aplin: I think you hit the nail on the head with your words "cuts in anticipation". I think that has characterised the change programme. The headcount reductions have always come first; the change has followed. In most commercial organisations you would decide how you might be able to reduce headcount; you would decide how you might design a system to cope with that reduced headcount and increase efficiency; you would parallel-run it, you would scenario test it and when you were satisfied that it worked then you would reduce headcount.
Q83 Mark Garnier: It would be very useful for us to have examples, other than you have already given, of how this has manifested itself.
Paul Aplin: NPS and the PAYE system. There is nothing wrong with the PAYE system, per se. There was nothing wrong with the NPS computer system. Amalgamating 12 regional databases into one national database had to make sense and in the longer term I am sure it will deliver the results that have been anticipated. But, from the outside looking in, it does appear that the pace was forced and it does appear that some of the problems that emerged last autumn could have been anticipated, with proper scenario testing and with more engagement with stakeholders. I think there is a lesson there. Some of the progress HMRC has made with electronic filing has been the result of very close engagement with stakeholders who have been very open to talking with us, to hearing some very uncomfortable things. As a result of that openness, they have been able to manage things such as the Carter electronic filing programme, Self-Assessment Online and VAT Online far better than they would have with other things. NPS was outside the Carter programme, and I think the cultural difference between the way those two programmes were managed is absolutely manifest and the results were pretty public last summer.
Q84 Mark Garnier: We have this £900 million about to be spent on trying to close the tax gap and I think then to raise an additional £7 billion in tax revenue. First of all, do you think that is credible and, secondly, if you do, where would they best be targeting their money?
Richard Baron: It is very difficult to say where they should best be targeting it because we haven’t seen the computations. I understand that they estimate the tax gap to be £40 billion, and therefore £7 billion should be achievable. I understand that the computations have been scrutinised by the Treasury, but I don’t know what that means and I would encourage the Committee to demand to be shown the full computations of that £7 billion.
Chair: Before Andrew comes in, can you speak up, gentlemen? The people behind you, and people in front of you, can’t hear the pearls of wisdom and it is a shame to miss them.
Q85 Mr Tyrie: It is the first day that we have seen the sun for some while, but I don’t think I have ever heard gloomier evidence about a Government department or sub-department. This is the description of a failing institution, isn’t it? If you disagree, speak up. If you agree, you can say, "Yes".
Chas Roy-Chowdhury: I am not sure that we are trying to spread doom and gloom. We are trying to say it as it is.
Mr Tyrie: I am not asking you to spread doom and gloom. I am asking you to tell me the truth.
Chas Roy-Chowdhury: I think one of the problems we have is that there have been staff cuts in HMRC, without any consideration of what they are required to do, and that has been the problem. They have not been their own masters in terms of the way things had been going when HMRC was created and, therefore, we are now seeing the payback for that. What we need to see with the current cuts that are going to be implemented-which I think they should not because they have already gone through this 25% cut-is that they should be allowed to do their job of collecting money for the Exchequer. We are going to see problems but they are solvable if we just have everything out in the open.
As I think Paul was saying, in the areas where we have been openly engaged with HMRC, and have been having a dialogue, we have been able to help them. They have not been listening in some of the areas on electronic filing, such as XBRL at the moment. They have been listening but not following what we have been saying. But at least we are out there talking to them and trying to get it right. I think more openness, hopefully, and engaging agents in the years to come will mean that there will be a pick-up in the service. Agents, unfortunately, will have to do more of the work for HMRC-repayments, tax codings, overpayments, and a number of other areas-but I don’t think it is an organisation that is disappearing into a black hole. There are strategies in place that are hopefully going to deal with the shortcomings that we are outlining at the moment.
Q86 Mr Tyrie: You are now describing the life rafts on the Titanic by the sound of it. What you have described to us is a tax system whose very integrity is at risk, where the tax yield itself may not be secure in many cases and where there will be great unfairnesses. Again, have I said anything there that you disagree with? I am just trying to get a picture of the scale of the problem before we move on to some solutions, so if I am being unfair or not summarising accurately what you have said, please speak; otherwise, please just say, "Yes, that is broadly right", or qualify it.
Paul Aplin: I don’t think it is broken but I think it is stretched almost to breaking point.
Mr Tyrie: I am sure we could have a philosophical discussion about what that means. You wanted to say something quickly, Mr Baron?
Richard Baron: Yes. I was just going to say that I think most of the Titanic will continue to float. That is to say, most of the things that deliver the big money-the PAYE and National Insurance system, the VAT system and the corporation tax system-is still coming in and will continue to come in. It is not as if the Government is suddenly going to lose all of its revenue.
Q87 Mr Tyrie: Can I just ask one more question. I have been around on these sorts of issues a long time and I have heard some gloomy pictures. Has it ever been this bad?
Paul Aplin: No.
Robin Williamson: I think it has reached the point where the long process for many years of being required to do too much with too little, if that continues, if a solution is not found, then it will pass breaking point. A solution has been found, as we have been hearing from colleagues, in working with agents. For unrepresented taxpayers there should be similar resource expended on finding solutions with the voluntary sector.
Q88 Mr Tyrie: I just wanted to be clear about the scale of the problem. Now I want to start talking about solutions. I want to look at one small part of that, which is trying to identify who is paying the bills for all this. How much of the cost-cutting at HMRC is being achieved by putting costs on to taxpayers? One of you said a moment ago that you may spend weeks or months changing a PAYE coding. That is a huge cost transferred to businesses. How much is being transferred to businesses? Do people know? Is this being estimated? Have HMRC done any work on costing?
Paul Aplin: Not to my knowledge, but certainly in my office down in Somerset I work in a small tax department. I have eight colleagues around me. I hear what goes on when they are on the phones and I see what is on their desks. Five years ago there might have been half a dozen PAYE coding notices that they would have had to deal with. Now, I regularly see a pile this big and I have to listen to my colleagues trying to get those codings changed over the telephone. It is a hugely time-consuming process and it is a cost I either have to bear as an extra cost of my business or I have to pass it on to my clients, many of whom are elderly and can’t afford to have the cost passed on, many of whom also ring up and they are on the phone for five or 10 minutes. That is an additional cost but it is part of the job; you have to allay their concerns. Those are tasks that have been effectively outsourced to us, without us being asked. There is a solution to that but a solution is desperately needed.
Q89 Mr Tyrie: But, just to be clear, you are saying two things: first of all, a huge part of the cost of implementing these so-called savings-I say "so-called" because I think some of you have been sceptical about whether they really are savings-have been handled by saddling taxpayers and their accountants with dealing with it. So it has just been a transfer.
Paul Aplin: Correct.
Chas Roy-Chowdhury: Yes.
Mr Tyrie: You are saying, secondly, that in the process the total cost of doing it in the round for everybody, HMRC and you added up together, is much greater for the economy.
Paul Aplin: Yes.
Q90 Mr Tyrie: Correct? Are there any estimates of that? Has anybody said, "Okay, what is the increase in running the tax system?"
Paul Aplin: Not to my knowledge.
Q91 Mr Tyrie: Mr Baron, have you tried to do any of this type of work for the IOD?
Richard Baron: No.
Mr Tyrie: This is very much your pigeon.
Richard Baron: I suppose what we could take as a baseline was a study that KPMG did for the Revenue in 2005 and was published in March 2006, estimating in a particular way, which did not really take into account all of the hassle costs, the administrative cost of the tax system. Now you might, if you wanted, do a rerun of that exercise. Of course, although you would get a different figure for the cost, it would be quite difficult to separate out and say, "Well, this bit of the change in the figure was due to cuts at HMRC. This bit was due to stuff that is now done by agents. It didn’t used to be done by them. This bit is due to this change in the law". You could do that kind of exercise, but I think it would be quite hard to draw firm conclusions about how much work has been dumped on agents.
Chas Roy-Chowdhury: But I think it is also the unrepresented. Robin could probably say more, but there are so many more taxpayers out there who have no agents whatsoever. How do you measure their cost of wasting their morning or their evenings or their day trying to sort things out?
Mr Tyrie: Sampling and polling.
Chas Roy-Chowdhury: Yes, and then once you try and-
Q92 Mr Tyrie: Is this going on? Is anyone doing this?
Robin Williamson: There is one cost that could be measured by that method, and that is the cost of telephoning helplines from a pay-as-you-go mobile. Most of the helplines are 0845 numbers and it is expensive to phone those from mobile phones.
Q93 Mr Tyrie: What you are describing is an extremely parlous situation. What you are describing is: just as we are trying to get the economy going again, a large part of which is going to be a revival of small business activity, we are imposing on those very businesses huge new extra costs. I think that is a fair summary of the evidence I have heard this morning. It seems to me the very first thing you have to do, as a group, is find out ways of making estimates of that cost that can’t be entirely shot down in collaboration with HMRC. Are your organisations prepared to take on that work?
Robin Williamson: We have already started on a survey of the extent of contributory official error in the system and the extent to which that increases the compliance costs of individuals, unrepresented individuals.
Q94 Mr Tyrie: From the economic side, Mr Baron, we have only been discussing the direct cost here-the accountancy cost or the cost that would have been done by an accountant but is done by an individual taxpayer. But there are also the indirect costs, where the energy of a business is deflected from its primary purpose to this secondary purpose.
Richard Baron: Yes, and that is quite hard to get a handle on. The Revenue produce some assessments of the impact of their policies-and indeed all Government departments assess the impact of their policies-in terms of "how much time is this going to take up?", they have to put a figure on how many pounds per hour they are going to value that time at. There is also the much harder to measure general hassle time when you are worrying about whether there is a new rule you need to take account of or whether you have checked everything. That sort of thing is much harder to determine.
One thing I would say, though, which I think we have to bear in mind, is that we-the taxpayers-pay for the Revenue’s work anyway because it is funded out of tax revenues. Therefore, the question is not exactly how much extra is this costing us in our private work, but how much extra is it costing us minus how much we are saving by not spending so much on running the Revenue. The question then is: is it more efficient to have more done by the Revenue and less done externally, or to have less done by the Revenue and more done externally? That is the balance. But wherever the work is done, we end up paying for it anyway.
Mr Tyrie: But we do not know what the numbers are because, on the whole, the work has not been done.
Richard Baron: No.
Q95 Mr Tyrie: My last question to you is: having had this exchange, do you think it is worthwhile going back to think about how to get on with it; how to get these numbers as best we can?
Chas Roy-Chowdhury: Yes.
Paul Aplin: Yes.
Richard Baron: Yes.
Robin Williamson: Yes.
Mr Tyrie: Is there general agreement that you are all going to have a go?
Paul Aplin: Yes.
Mr Tyrie: Thank you.
Chair: I thought it was agreement they were going to think about it.
Q96 Mark Garnier: It strikes me that there are three big issues that are coming out of this particular point about the cost to the economy as a whole. that is going on. The first is the utter complexity of the tax system, which makes it very difficult for everybody to know. The second is the idea that you have self-assessments so that HMRC has passed the job of working out how much tax we pay to the taxpayer. The third seems to be a general level of incompetence; using a slightly crude term maybe for the HMRC, but just an inability to be able to service the taxpaying public. Here is a big question. Do you think your members would be willing to see an increase in taxes in order to be able to-I don’t know what you do about the complexity-sort out the incompetence and take away that self-assessment element, in order to make it a much more simple system to deal with overall? Do you think that would be a welcome proposition?
Richard Baron: I am not sure about exactly that proposition but one thing we have asked our members-again, this was in the survey we did in September-was: if you have a choice between lower rates across the board or higher tax rates but special reliefs, which of course bring complexity because you think, "Am I entitled to this relief; what forms do I need to fill in", and so on, we did get a marked preference for a simpler system with lower rates across the board, and get rid of special reliefs. That is within the context of the same overall tax burden. It is just that some people would pay more and some people would pay less.
Q97 Mark Garnier: What I am trying to get at is: would people pay more tax in order to pay their accountants less or spend less time trying to deal with it?
Chas Roy-Chowdhury: I think if we are starting from a lower base then they might well consider accepting tax rises for more service from HMRC. But I think where we are starting from with rates where they are-base rate 20% income tax, top rate 50%, corporation tax maybe falling down to 24% over four years-they are pretty high already by European and OECD standards. So I am not sure that anybody would want to pay more tax for HMRC to do what they should be doing anyway.
I don’t think that moving back out of self-assessment is a starter because I don’t think we could impose, say, another £1 billion or £2 billion of tax to start resourcing HMRC so they do all the tax work. I think we need to become smarter. We have the IT solutions of online filing where people have tools to be able to have their tax worked out for them, where they are income tax filing, or corporation tax filing with the new XBRL system.
So we are where we are, and we need to move forward and accept that these cuts have happened. But what we need to do is make sure there are no further cuts until the system we have works effectively: where agents are able to handle the tax affairs of their clients with the minimal interaction that they need with HMRC; where the unrepresented can phone somebody up at HMRC and get an answer quite quickly; where their IT systems provide the right answers to the right people. I think that is part of the problem that we have at the moment; people may not be effectively trained in their call centres or trained up to a high enough level. But the IT tools they have should be able to provide better answers than seem to be coming through at the moment.
Q98 Mark Garnier: KPMG did a survey saying the burden to UK business was 0.4% of GDP of the tax system. That compares with slightly higher in Denmark and the Netherlands, which were the two countries used as comparators. Let us have a good news story. Is that a good thing or is that just masking a whole load of problems that are unquantifiable?
Richard Baron: That is the survey I referred to earlier and they were perfectly clear about the methodology, quite rightly so, which enabled them to make these international comparisons. It was the time you spend collecting data and filling in the form and submitting it. So it did exclude all the hassle, the worry when you are trying to think of, "Should I be checking this rule; does that apply to me?" So I suspect the true figure is going to be higher than that, but 0.4% of GDP is quite a lot, isn’t it?
Mark Garnier: It is a big economy. I mean you are comparing it to a much-
Richard Baron: Yes. To be spending 1/200th of all the wealth you generate simply on shuffling money around a tax system is quite a scarily high number, even if it looks good by international comparisons.
Mark Garnier: I am glad you said that. Thank you.
Q99 John Thurso: Can I come back to this question of service standards? Perhaps I might come to Mr Aplin because I think the Institute, in its evidence to us, was very critical of the measures that HMRC use for service quality. What would you like to see?
Paul Aplin: I would like to see HMRC sit down with some of its external stakeholders, with the professional bodies, and agree on some performance measures that we find credible, to use a word we try to avoid using but HMRC seems to love using-some measures that its customers might believe. I think it is pointless the department setting its own service standards. The measures I think they need to look at are post turnaround times. That is one of our biggest frustrations. A few years ago I gather that the targets within the department were turnarounds within 30 days or there was trouble. We regularly wait two to three months for a reply to a letter and when we ring to chase, the answer we regularly now get is, "We can’t find the letter". If you chase below two months the answer is, "It hasn’t come to us yet". If you wait too long the answer is, "We can’t find it"; so you have to write again and go through the process again. That is something I have had personal experience of. So a credible measure of post turnaround times would be very useful.
Credible measures of the effectiveness of telephone call answering would be useful, because a couple of years ago HMRC was publishing statistics saying that the call response times were less than 30 seconds in 96% of calls. I invited a fairly senior member of HMRC to spend a day in my office. I could not have planned it better because the first telephone call of the day to a helpline took 12 minutes to answer and getting the change to a PAYE coding took a further seven minutes; 19 minutes to do something that, frankly, could be done in 60 seconds. But that member of HMRC had walked into my office that morning thinking that 96% of all telephone calls were answered satisfactorily within 30 seconds. I think it came as something of a shock.
Q100 John Thurso: A point that I made when this Committee in the last Parliament was inquiring into HMRC is that if one were to compare the way in which most Government bodies look at customer satisfaction, but particularly HMRC, and compare it to how, say, the hospitality industry does it, the Government’s approach is simply not credible because it sets its own targets and sets its own levels, and-surprise, surprise-almost always more or less meets them. Do you think that it is now essential that HMRC has external credible customer satisfaction data?
Paul Aplin: Yes, I do; absolutely essential.
Q101 John Thurso: The other point on that: in the last report from HMRC the baseline that they were working with on general satisfaction-I think in 2008-was about 72%. They were frightfully pleased that it went up in March 2010 to 76%, although explained that it has dropped back to 72% as being inevitable, and forecast in September. But 70- anything per cent is a hopelessly inadequate figure, isn’t it? It should be 90 something per cent.
Paul Aplin: Yes, it should. If I ran my business with a 12-minute response time to a telephone call I wouldn’t have very many clients left.
Q102 John Thurso: Let me come on to the next point. We have two sets of institutions: one that has spectacularly failed, which is banking, and another that seems to be failing, which is HMRC. They both have an identical business model, which is to get rid of human beings and put everybody in a call centre somewhere and dehumanise the whole process. HMRC are closing regional offices, getting rid of all the people who know local businesses. How much is that having an impact on the ability to deliver service effectively?
Chas Roy-Chowdhury: An enormous impact, because in 2005 when this Committee looked at the creation of HMRC that is exactly what we said. I can’t remember exactly, word-for-word, what I said but you can look it up. It was about not reducing staff numbers at the time of creation of HMRC; we should keep the skilled people; we should not reduce numbers at all until the system had bedded in, and the creation of the department had started working. That is exactly what didn’t happen. So we now have the situation where those people who could leave did leave; the ones who were getting on into their 50s, I guess. They received good pension pay-offs, but they were the ones with the experience and knowledge in tax. HMRC have divested themselves of that knowledge base at a local level as well, which has not been very helpful to giving the right answer at the right time to agents or taxpayers when they phone up. They now have to go through to a call centre anyway where the people dealing with those are not tax specialists. So I think that is exactly the problem we have. Lots of the people who knew about tax have now haemorrhaged from the organisation, which is now causing the problem.
Q103 John Thurso: Is that a worry that all of you would share: that we are removing technologically proficient people and replacing them with process people who don’t understand what they are processing?
Paul Aplin: Yes. Some parts of what HMRC does can be adapted to a production line, to processing. I do not doubt that. For example, a lot of electronic tax compliance, which is one of HMRC’s big success stories, can work on that model. I think call centres can work but not in the way it is currently being done. You still need people with training, with technical knowledge, to deal with technical issues.
Q104 John Thurso: I do not want to be guilty of leading the witness, for once, but it would be perfectly possible to conceive an operation where regional local offices were smaller and confined to some really quite high-class people able to have a portfolio of companies, or whatever they dealt with, and have a centralised back-office system, which is where you have your efficiencies. But HMRC seem to have said, "It is one or the other", rather than perhaps doing what most businesses would do, which is to take the back-office efficiencies but use that to empower the team in the local office. Is that a fair comment?
Paul Aplin: I think it is. I think that model could work. I think it can work, but it is not working at the moment.
Robin Williamson: One thing that did work very well, which I witnessed back in the late 1990s in Wolverhampton, was a bus in the middle of the market square where there were good quality Inland Revenue officials and officials from the benefit office and from the local authority, who provided a one-stop-shop. People could go there on a Saturday afternoon when they were doing their shopping and could put their questions about their tax to the Revenue person. At the same time they could sort out any benefit problems they were having, run a benefits check and make sure they were claiming everything they needed, and if there were any housing benefit problems a local authority person was there as well. Now, there is a model that cost comparatively little and which was sponsored by three Government departments, not just the one. It was a way of getting a whole range of problems sorted in one go.
Q105 John Thurso: The data seem to suggest that tax agents are particularly dissatisfied. Is that simply because you know more or is there a particular problem?
Paul Aplin: I think it is because we deal with a large number of cases. Over the last five or six years we have seen a huge change in the job we do. We have seen a huge change in the technical ability of the people we deal with and inevitably that is something we are unhappy about. But underneath that, it is more than just unhappiness. I think what we see is the integrity of the system being weakened and, as a taxpayer, I find that very concerning indeed.
Chas Roy-Chowdhury: But I think in the Asian community we operate businesses and the more time it takes the more cost you incur and that is where the problem is: things are just taking longer and it is harder to achieve the end result. It is very difficult to get that interaction with HMRC dealt with once-off very quickly, as used to happen in the past, and then it is out of the way. It is much more of an ongoing saga.
Q106 John Thurso: Last question for Richard Baron. There seems to be much more dissatisfaction also within the SME community. There is a feeling that HMRC either do not understand or are inherently suspicious of it. Is that something that you would concur with and what are the causes?
Richard Baron: What we do not have is data across a time period to be able to say definitely that it is getting worse or it is getting better or it is staying the same. We did ask a couple of questions in our survey about attitudes. One was: how would you rate the understanding that HMRC officials have of your business? The answers were: very good 1%; good 9%; neither good nor poor 31%; poor 22%; and very poor 15%. Then we asked: if someone who is thinking about starting a business knew as much as you do about HMRC would it encourage them to go ahead or discourage them from going ahead? Eighteen per cent said encourage, 43% were neutral and 36% said discourage. So the mood out there is not particularly good.
Anecdotally, I have had grumbles about HMRC getting quite tight on arrangements to give you time to pay when you have cash flow problems. They were very good about this a couple of years ago. They said, "Look, we know people have problems; we would rather have our money late than not have it at all", and entering into arrangements to allow businesses more time to pay. As I say, it is only anecdotal but I have had grumbles that they are clamping down on that. I think it is difficult to assess these kinds of data properly because you have to factor in the fact that nobody is ever going to love the Revenue. Their job is to take money off you.
Q107 John Thurso: Funnily enough, in my constituency casework I find now that, whereas one used to be able to speak to somebody senior and say, "Look, this is a basically sound business; can you give them time to pay", and they would be up for that arrangement because they received all the money in the end, the response now is very much, "No, they have had the time; bang". Even if they only get half of what they might have received, it seems to be that, "Get 20p or 30p in the pound and close the case", is better than, "Run the case and get 100p in the pound". Is that what you are saying there seems to be a shift about?
Richard Baron: Those are the sorts of anecdotes we are getting but, as I say, it is only a few people who happen to raise that point. One can see, from the Revenue’s point of view, that they do not want to operate as a bank because they do not want to become a lender of first or second resort to businesses.
Q108 John Thurso: How much might that also be the fact that, because they are getting smaller and de-skilling, they no longer have people who they trust to make the judgments?
Richard Baron: There may be some of that in it but I do not have evidence either way on that.
Q109 Chair: This is an interesting conversation, but it is between middle-class people or professionals with good salaries and it leaves out a large number of the population. Your customers are very lucky, because they have you to pursue the Inland Revenue and you are an articulate, patient professional. But what, Robin, happens to all the lads and lasses on Pay-As-You-Earn who run into difficulties with the Inland Revenue? It seems to me-as the offices are disappearing, and as the telephone system is getting worse-there is a real hard attitude to the ordinary people who Pay-As-You-Earn, pay it steady, but run into some difficulty in terms of a coding or a demand for payment. There is also a ruthlessness by which they attack them because they are caught, "You are on Pay-As-You-Earn and we will have it from you and we have the methods of taking it from you", whereas the big corporations have professionals and lawyers. Would you like to comment, Robin?
Robin Williamson: Yes. There is definitely great inequality of arms between HMRC and the individual unrepresented taxpayer, as you say, with a problem with their coding or who are being chased for a tax debt. They can’t go to the statute book and see whether the debt they are being chased for is statute-barred. They can’t necessarily go and check whether the officer who is on their premises has the right to ask for what he is asking for, or whether there is a limitation on their powers to do that.
These are all things that professionals who specialise in those areas would be able to tell them and, of course, they have no access to them. The only thing they can rely on is information put out by HMRC. More and more information put out by HMRC is online, less and less on paper. That instantly excludes a great many often poorer, often older people, who are not comfortable using the internet or have never used a computer-people with disabilities can’t-and people who live in areas that are remote and have unreliable broadband access.
Chair: I find more and more on my estates, people do not have a standard telephone, so every call they make is on a mobile, which is expensive.
Robin Williamson: It is.
Robin Williamson: Yes, you do not get the local call rates to 0845 numbers if you are ringing from a mobile, and they have to hang on and on.
We have a couple of very good tax charities. There is TaxAid, of course, in Southwark, which also has a national presence, and there is Tax Help for Older People, which is a national charity. A lot of people are finding their way to those charities. I can speak for Tax Help for Older People. Certainly in the last three years while footfall in HMRC inquiry centres has fallen, the calls into Tax Help for Older People have virtually doubled. So they are stepping in to the breach to some degree.
Q110 Chair: Yes. But also, when we had Mark Hoban here last week I was questioning him on the fact that the Government are ending the Financial Inclusion Fund from the end of next month, March. The CAB are laying off 500 debt advisors. Now, a fair proportion of their time will be on tax issues but they are going to be made redundant at the end of March; theoretically, to be replaced sometime in the future. But if the HMRC are not geared to deal with the interlude, if it is going to be even a short interlude-I rather suspect it will not be filled at all-this is stranding a lot of very vulnerable people.
Robin Williamson: One has to ask as well whether it makes economic sense to implement such cuts when the result will be more people in debt; fewer people able to find their way out of debt; more people in trouble with their tax. That means more work for HMRC to do further on: more reworking; more complaints; more disputes; more appeals; more reviews. The Adjudicator’s Office has already been given extra funding to deal with copious amounts of complaints, and I daresay is already struggling.
Q111 Chair: Paul, you mentioned the word "trust" earlier. British people are very good in terms of paying their taxes in the main and there is an attitude of mind that you pay your taxes. But if the people on Pay-As-You-Earn are getting hammered this way and they see big companies, and so forth, avoiding paying tax-"Oh, it is okay to avoid tax; it is not illegal or anything; you are prudent to do it". We had Mirrlees, the people who are doing tax policy in the future, and it was interesting. They put a lot of ideas up but dismissed a number of them that would be bring in revenue and chose to put it on Pay-As-You-Earn because it was a captured tax base. That just shows you an attitude of mind: if you are on Pay-As-You-Earn you can’t argue, whereas if you could get nice adviser and a few lawyers you can avoid. But that starts to break down the trust, doesn’t it? Once you break down the trust it becomes something like, "Well, if they can do it we will do it". We are in a different ballgame in terms of income, aren’t we?
Paul Aplin: I think we are. As Robin was speaking I was thinking about my parents. My mother is in her 80s and my father-
Chair: I hope you think about them all the time.
Paul Aplin: I do. My father is in his 90s. They are taxed through PAYE. They would not have a clue if the coding was right or wrong but what they do have, because it is a generational thing, is an absolute trust that a Government department is going to get it right. If I told them-as on one occasion I have had to-that a Government department had got it wrong, that is something they fret about. If you extrapolate that across the country; as I said earlier, PAYE is not broken but people do put fundamental trust in it and that is my underlying worry about all of this. If that fundamental trust breaks down because people start having reason to think that PAYE is not working for them, or that perhaps they can’t telephone someone who can help them and answer their question convincingly, I think there is a knock-on effect.
Chas Roy-Chowdhury: As you were saying earlier, Paul, you were talking about people who are fairly articulate, because I imagine your parents-and I think of my mother in the same light-are able to see through a few things and ask the right person or they know us. The jargon in tax is not normal language, so how many people are out there who are overpaying or underpaying and they just do not know until much further down the line? I think that is where the problem is; when they then try and sort it out they can’t articulate what the problem is on these helplines. The people on the other end are not helpful in being able to bring it down to a level where they can have a conversation about it. I think the whole tax system itself is a part of the problem. We need to simplify it. We need to make it understandable. As long as we have self-assessment, where the vast majority of people in the overall self-assessment system, including PAYE, are not represented they need to be able to engage in a way that is ordinary language. We don’t have that and that is something that needs to be achieved.
Chair: Okay. But when Mirrlees suggested simplifying it they went away from the dodgy stuff like corporation tax, where the customer might argue with them and take them on, to pushing it on to personal tax where it was easier to collect. Simplification could cost the ordinary worker out there a bit of money; talking of which, David is going to talk to you about big business, aren’t you, David; large firms?
Q112 Mr Ruffley: Yes, I will kick off. Mr Baron, the IOD came up with some interesting data on the country’s 770 largest business that deal with HMRC’s large business service: you found that 86% of those large businesses rated HMRC’s service as good or very good. That is quite a high figure. What do you attribute that to?
Richard Baron: Firstly, I should say that those were not our data. They were from someone else’s survey and we reproduced them. It wasn’t our survey-I hope there is a footnote there to explain that-so not our data.
Q113 Mr Ruffley: Do you think that figure is right?
Richard Baron: Yes, it came from a perfectly reputable survey. I think that it is an impressive figure because, as we were saying earlier, the job of HMRC is to take money off you and therefore you are not likely to love them. But what has been done at the large end, introducing these personal customer managers who will co-ordinate the work of the different bits of HMRC who will have to interact with a large group, does seem to have been a big success story-to the extent that they have now extended it still further down the line into what they call the large and complex group who are outside the ambit of the large business service. So I think that illustrates very nicely what you can do when you have a small enough group of taxpayers who are individually significant enough that you can devote that kind of personal attention to them. What goes on in the large business service is not a mass production business. Of course, as we have been saying, that is what does not happen and, frankly, economically can’t happen across all the millions of ordinary taxpayers.
Q114 Mr Ruffley: Sure. You also go on to make the rather interesting point that in 2008-09 20% of corporate tax revenues came from businesses with individual liabilities of less than £100,000; typically, the kind of small to medium-sized enterprises that Members of Parliament come across in their advice surgeries. They don’t get similarly high levels of service from HMRC. Would you agree with that?
Richard Baron: Correct, yes.
Q115 Mr Ruffley: What do you think could be done to rectify that?
Richard Baron: I am afraid we are back to the problem of just looking at the economics of HMRC’s resources. You cannot give them that level of individual attention because there are just too many of them. But of course they are very important. They employ lots of people and, as you have just noted, they do pay a significant proportion of the corporation tax revenue. Of course, HMRC is not a business that you can deal with or not deal with as you choose. We all have to deal with it and it has certain responsibilities as a public department for that reason. So I think that we are going to have to be in a position of saying, "Yes, it will be, to some extent, a mass production business. It has to be, dealing with the tax affairs of all of those small businesses. But we need to look again at whether we should be putting more into an exception, so that when the mass production system gets something wrong for you, you can be taken out of it and dealt with individually".
Q116 Mr Ruffley: Sure, because you come to the conclusion, and I would agree with this, "The interests of smaller businesses should be given full weight when resources"-HMRC resources-"are allocated". How are you going to lobby for that?
Richard Baron: We will keep on pestering HMRC. When we do surveys or when we get anecdotes-obviously with anecdotes we strip off the identifying details that would tell them which taxpayer it was-we say, "Look, here is another one. Is this a systemic problem or is this just a one-off?" All we can do is keep on pestering them.
Q117 Mr Ruffley: Pestering perhaps is not a strategy. I just return to a point Mr Tyrie made: small businesses, SMEs, are going to be key in the export-led recovery that the current Chancellor of the Exchequer tells us will get the economy out of the mess it is in. Small businesses are the backbone of employment in this country, and it seems to me that they are not being accorded the necessary and appropriate level of respect, care and attention when it comes to HMRC delivering administrative services. Now, "pestering" is what you talk about. Is there any sense you get from all the other small business lobbying groups and organisations to make a united front to argue for better customer care, better levels of service, so that it more nearly approximates the excellent service, apparently, that HMRC gives to big businesses? I quite understand we can never get that bespoke approach from tax officials in HMRC, but to get nearer that gold standard, if you will. I want to understand what the IOD and others are doing to make the case. Pamphlets and submissions, no matter how worthy, are fine, but is anyone getting serious about this in the small and SME business world, apart from yourselves?
Chas Roy-Chowdhury: Can I just respond?
Mr Ruffley: Chas, please do comment, yes.
Chas Roy-Chowdhury: We had a meeting, which Paul was at, at the start of this year with the Exchequer Secretary, the CEO and Chairman of HMRC and others. At that meeting we made these points, not just about small businesses but taxpayers in general at the smaller end. One of the things that HMRC are going to be doing, while reducing in some aspects, is recruiting more people for the helplines-the right kind of people with the right kind of skills. So there are interactions going on that are more than, I would say, pestering. We are having concrete meetings, and we have these fairly regular meetings in general across a range of areas to drive home where the concerns are, where the problems are, as we have been discussing this morning. So HMRC are aware. I have not seen it written down, but there is a plan to try and do something about it. So, hopefully, we are getting somewhere and it is a matter of seeing if it does turn out to be effective. It may not be; we will have to see.
Q118 Mr Ruffley: But is there a particular piece of work that the Exchequer Secretary is undertaking? Is that what you are saying?
Chas Roy-Chowdhury: No, there was a meeting about the way forward: what HMRC are going to be doing with the new political administration coming in; with the cuts that are being imposed on HMRC, how they are going to deliver under those cuts.
Q119 Mr Ruffley: Can I just ask a question of any of you but particularly Mr Aplin. Is it the case that HMRC are going to roll out its big business model to smaller businesses? Do you recognise that?
Paul Aplin: I think there was an aspiration to do it a year or so ago.
Q120 Mr Ruffley: Is it a hard and fast proposal to roll out the big business service model to smaller businesses? That is not your understanding?
Paul Aplin: That is not my understanding.
Q121 Mr Ruffley: Okay. Sorry, it was just a note passed to me that suggested that they might. I just want to return very quickly to the Exchequer Secretary’s conversations with you. Don’t you think it might be a good idea to hold the feet of the Treasury Ministers to the fire on this and, rather than have general conversations, to give them a target to produce something for you and colleagues who are interested in this area?
Chas Roy-Chowdhury: We will certainly be back, because this is part of the ongoing engagement. We will certainly be back-where things are not improving or they are not being addressed in the way we were told earlier this year-in a few months’ time to revisit that meeting to see what the progress has been.
Q122 Andrea Leadsom: I want to go back to what Andrew Tyrie was saying because I completely share his concern that, in fact, this is a broken system and we have an organisation where staff morale is extraordinarily low, which we have not really discussed; where customer service is, at best, confused-we get some reports that suggest it is very good but anecdotally all of your experience is that it has become considerably worse over the last five years-significant cuts in budget that obviously puts pressure on any organisation; then this enormous move to turn everything into online electronic reporting, away from human beings. It seems to me that that is a complete recipe for a total breakdown of the organisation and I think we have seen a lot of evidence that suggests that that is exactly what is happening.
But I just wonder if you could all comment on the cultural issue at HMRC. In the last evidence session there was some talk about the fact that the idea of moving to processing everything, to try and improve systems and make them more efficient, was leading to a failure any longer on the part of the HMRC to understand that tax is difficult. It is not easy for people to do and that in itself is creating more problems. I would be grateful if you could comment specifically on the cultural issue.
Chas Roy-Chowdhury: Just following up from the meeting we had at which the Chairman of HMRC was present, one of the things that he said is that part of the new processes would be to try and encourage HMRC people to think about what they are doing, rather than purely being process driven. I think, culturally, there is a problem because there is a process-driven attitude and they do not want to think outside the box. They want to have a very clear-cut area that they deal with and that is it, if they step outside. I think there is also a morale issue, in terms of if they do something wrong there may be consequences or there may not. I don’t know, I have not worked inside HMRC, but I think there is a morale issue as much as a cultural issue, which is affecting them-almost like a small animal in the car headlights-in terms of them being able to be actively doing something about sorting out the problems.
Robin Williamson: Specifically, on your point about processes and HMRC’s failure to see the effect this is having on ordinary taxpayers, the latest PAYE difficulties are an example of that. There is a concession that has recently become rather better known than it was before-concession A19-which says that if HMRC have delayed in making use of information about you, or affecting your coding, then in certain circumstances they will write off any underpayment that results after a certain waiting period, but only if they think that you could reasonably have thought your tax affairs were in order.
This is where the cultural issue comes in, as I think HMRC-we have had this discussion many times with them over the last few years-still have difficulty in appreciating that people who do other jobs of work, who do not spend their time doing tax, do not necessarily understand the way in which these processes work. They don’t necessarily pick up a coding notice and instantly understand what it is telling them. Therefore, they will come up with remarks such as, "It is up to you to check your coding notice and tell us if anything is wrong or how" when you have no idea how the thing works in the first place.
Q123 Andrea Leadsom: Is there a presumption that people will pay their taxes or is there a presumption that nobody will pay their taxes?
Paul Aplin: I think there are two cultures within HMRC. I think there is a culture that is genuinely very customer focused, does want to engage and does want to try and deliver better service, and there is a counterbalancing culture that does believe that all taxpayers are trying to avoid paying tax and all accountants are trying to help their clients avoid paying tax, and those two culture are in conflict. I think there are some people at a very high level in HMRC who are extremely serious about delivering a good customer-facing service; again, we come back to the fundamental problem here, which is resource.
Q124 Andrea Leadsom: Is it resource, though? That is really the nub of my question: is it resource or is it a lack of clear strategy? Is it because of this rush to automate everything away from the human face and to an automated position, possibly because of resource constraints? Is it that the resources are simply not there or is there, in fact, a broken culture within HMRC which means that we are trying to force everybody down an automated route, failing to appreciate that that simply does not work for an awful lot of people and businesses?
Paul Aplin: I think it is three things. I think the cause here is pressure on resource and funding. The second part of it is pace of change. There has been pressure, not just on funding but on driving change very quickly over the last five or six years. Then I think there is a question over the way some change has been managed; not all change but some change. When you combine those three things you get the effect that we are all seeing now. But I think the initial driver is pressure on funding. That is exacerbated by pressure to change quickly. If I could advise HMRC to do one thing over the next couple of years it is this: just slow down.
Q125 Andrea Leadsom: Yes. I don’t believe we have touched on this, but the issue of National Insurance matching surely goes to the heart of this issue of trust. I mean, if I have spent 40 years working, paying my National Insurance contributions, and then discover I am not fully paid up when I come to retire because somewhere along the line my contributions were not being matched to my pension pot-which is what I understand from the media has happened recently for millions of people-that goes right to the heart, doesn’t it, of this issue of trust in HMRC to deliver a fair service to everybody?
Paul Aplin: I think it does. That has hit the headlines very recently but in fact National Insurance matching is a problem that goes back a very long time.
Q126 Andrea Leadsom: Absolutely. But that is exactly the point, isn’t it? It goes back over a very long time. Is it possible even now to go back and match those NI receipts? If not, what does the individual do if they suspect that they probably should be fully paid up? How on earth do they prove it and is the onus now on them to prove it? You are all nodding. Is that a "yes"?
Chas Roy-Chowdhury: I think it is a problem. Again, as you were saying, in terms of culture, how many people at HMRC had the information and thought, "Well, we don’t know who this NI contribution is from so we will just leave it"? Would that be good enough if we were doing the same the other way around?
Andrea Leadsom: If it was in a bank, for example. Yes.
Chas Roy-Chowdhury: That is right. I think we need to turn it around and see how we-as ordinary people-would accept if it were a bank or we with our clients would react. We would not get away with that, and it would not be acceptable from our own professionalism point of view. I do not think to say, "Well, we did all we can", is good enough because they could always have found a way of finding out where those contributions went, whether PAYE payments were right or wrong. I think, as I was saying earlier, there has been a culture of: near enough is good enough, and that probably is not good enough going forward.
Q127 Andrea Leadsom: But we do have this massive backlog and a very specific point I wanted to come on to is the iXBRL, the new corporate online filing system, and the fact that there seems to be a debate-which I gather the Chancellor will today be giving a final decision on-whether to delay the implementation of that system because accounting package software isn’t ready. The Inland Revenue are saying, "Well, we don’t want to delay; we want to get on with it". But surely, in light of the long chapter of disasters in other areas that have tried to go online, is this not simply going to end up with masses more problems for companies-who, as we have said, are going to be the life blood of our recovery-who will find themselves being fined for something that is beyond their control, and in the end all it does is create more workload for an already constrained HMRC and more workload for the client, that is, the company?
Chas Roy-Chowdhury: Some of us were party to a joint letter that we wrote into the Exchequer Secretary. So, yes, we will probably get a response today at some stage. But we are very positive about iXBRL tagging and we are very positive that it should come in. It is an appropriate form of software for companies to use. But, as you say, one provider does not have the package completely ready yet. So there are companies out there and agents out there who do not have the full package yet to be able to implement this type of software.
So what we are saying is there should be either a workaround or a deferral of the deadline-which is April this year-for, say, six months. That is absolutely right. We should make sure that the implementation of this brand new system works effectively for everybody. We would like it to work from a later date rather than rushing it through from April, because we do think it will create bad headlines. It will create a bad taste in the mouth for companies who are having a half-baked system. So let us get it right first and then implement it.
We are very much on board, but this is an area where we are having discussions with HMRC and we are agreeing to disagree or disagreeing and telling them quite openly about what our concerns are. At the end of the day, I think this is one of those situations where it will work effectively when it comes in, because we are having this open debate and discussion with them. It is not about winners and losers. If the Exchequer Secretary turns around and says, "We are not going to defer", we are not losers. If he says, "We are going to defer", HMRC are not losers. It is getting it right for companies.
Q128 Andrea Leadsom: You say it will be good when it comes in but that is the point, isn’t it: when it comes in and is working properly. That is the thing that concerns me. Are you talking to HMRC about a service level agreement? As I understand it, when VAT Online became compulsory it was always promised that there would be a workaround and there would be a facility for people who could not go online to file VAT, and yet there have been around 100 prosecutions and fines for people who have failed to pay and they are still arguing about whether they were able to or not. Take, for example, the market trader in my market town of Northampton. What if they do not happen to have a computer? I mean, it is very easy to assume every business has 20 staff and offices with computers, and so on, but businesses do not necessarily work like that, do they? How is this going to be rolled out so that we do not simply end up with yet another massive backlog of problems?
Chas Roy-Chowdhury: On this specific issue of XBRL, there will a soft-touch approach from HMRC for the first two years, where they will not prosecute where there are any discrepancies in the way that the filing has happened. But what we are saying is that where the actual software itself is not fully available for some companies there should not be the roll-out now. We should defer so that everybody comes on at the same time. So we do have the service agreement backing up once all companies can file using this software properly, but there is a step before that so that everybody has the ability to file using this tagging.
Q129 Andrea Leadsom: So you think that on this occasion this is going to go through smoothly? Are you confident about that?
Chas Roy-Chowdhury: Depends on if we get the deferral, I think. Without it we may have a few bad headlines for HMRC.
Robin Williamson: I think on the point of the market trader without a computer, that is where I think HMRC are going to need to use their discretion and give themselves a discretion in the regulations-if there isn’t one there already-to define certain categories of people for whom it is impractical to expect them to file online, and create some sort of workaround, whether it is continuing to file on paper or whether it is some other kind of personal assistance that they are able to offer.
Q130 Andrea Leadsom: The new system is about to be rolled out. Is that workaround yet available?
Robin Williamson: I would have to ask colleagues who have been more involved in this.
Paul Aplin: I think the great problem with XBRL is about timing in that products have only come to market very recently. One supplier was way ahead of the field and had their product out about 14 months ago. The product my firm uses, we only had in October or November. December and January tends to be a fairly busy time of year for us; so we are only starting to get to grips with it now and we are weeks away from the deadline. So I think what we need out of HMRC to get a soft landing or a soft take-off-whatever the best expression is-is some sort of delay. There is a willingness to do this. We have all spent the money on the software. We know that we are going to be doing this, and we know that we are going to be doing it for Companies House in two years’ time.
So there is no resistance to XBRL, per se, but we want to do it in a controlled fashion. We can either do that with a short delay and very light touch on penalties, or we can do it by HMRC saying, "Look, we want to stick with 1 April but there will no penalties whatsoever as long as you make a reasonable attempt. If you do not have the software obviously you can’t make any sort of attempt but there will not be a penalty. If you do have the software, as long as you try to use it there will be no penalty". There are lots of ways around this. There is a pragmatic solution there for all of us. But particularly with Companies House now saying that they will be going down this road, I think the idea that it is avoidable has now been completely dispelled.
I think one thing I would urge HMRC to do is look back at Lord Carter’s report because he did not say HMRC should force the market on XBRL. What he said was, "HMRC should not require online submission of company tax returns until XBRL has been implemented and has bedded down". Well, that is not where we are today.
Q131 Chair: Lastly, can I just come back to the culture. I think you are being very gentle with the Inland Revenue. I will give you three instances where this Committee has crossed swords with them. When they brought tax credits in and they pulled stuff over from the DWP we were aghast at all the problems that it caused and the hardship, with people being made to pay back for overpayment. It was clear that if it had stayed with DWP they would have had a right of appeal; they would have known their right of appeal and it could have gone to a tribunal. We never got that from Inland Revenue. In fact we had to squeeze out of them Code 26-I think it was-which they never admitted to until it was put on the table. They would not improve without being bashed around in here.
There was the Pay-As-You-Earn stuff the Christmas before last. They did not say, "You can appeal under clause 19". It was the press who said that, and then their response in the press was, "Yes, a lot of pensioners could do that but not many of them will win". We had the same with tax credits. There are three examples where they have the culture of a bully: they have the last word; they have the strength and there is no negotiation with them. I have found that in my casework. There is no negotiation with them whatsoever. In fact, my experience is they object to MPs getting involved with their constituents. Do you think I am being too hard? Now, remember, you are all paying tax so you had better say, "Yes, George, you are too hard", or, "No". They will be taking a close look at it.
Paul Aplin: I think there have been times over the last couple of years when they have been far more combative than does them good. Perhaps a little work on a charm offensive might be appropriate on some of these things, especially when eventually they do have to give in. I have always taken the view that you should give in gracefully.
Robin Williamson: There is a particular problem still ongoing with tax credits, which I think is going to spread wider, and that is particular targeted compliance initiatives where they see somebody who they think has a partner living with them in their house. It may be an ex-partner who is continuing to use that address for certain purposes, and they will go at that like a dog with a bone. They will stop the claim because they consider that the person who they are targeting-usually a lone parent-is not entitled to make a single claim but should make a joint claim, because of this rather shadowy evidence of somebody living there. She is left with no money; writes in, appeals and it takes several months for the appeal to be dealt with.
We quite often get involved in those sorts of cases and if we are able to bring up the evidence that they should have looked at in the first place, or if we are able to get the matter before a tribunal on appeal, then quite often the initial finding of the compliance team is overturned. I think that is an instance of the sort of culture of: "We are right and it doesn’t matter what a long string of tribunal cases have said about whether you are claiming jointly or singly". That is just one example.
Chair: Sadly, we agree. Gentlemen, thank you very much. It has been very, very useful and we have some useful information for our inquiry.
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