INLAND REVENUE: EMPLOYER COMPLIANCE REVIEWS
THE CONDUCT
OF INVESTIGATIONS
23. The Department's National Audit Groups, which
review larger employers, saved £12 for every £1 spent
in 1995-96, twice that of the Local Employer Compliance Units.
The division of responsibility between the Groups and the Units
depends on whether the employer has 1,000 or more employees or
a group structure. The Department have not reviewed either the
continued relevance of this criterion since it was established
in 1988, or the relative success of the different approaches of
the Groups and Units.[22]
24. The Department were asked about the disparity
between the performance of the Groups and Units.[23]
They informed the Committee that the Groups dealt with larger
businesses so a relatively small failure to operate the legislation
correctly could produce a very much bigger yield than the same
failure in the smaller businesses typically examined by the Units.
The Department accepted, however, that the differences in yield
might also be due to differences in methodology and that there
was a case, therefore, for spreading best practice.[24]
They said that they were proposing to address this issue by, for
example, including the Groups' sampling techniques in the Department's
training initiatives for Units and by making the Groups' library
of information on large businesses and public sector employers
available to Units. They also told us that they accepted the need,
after 10 years, to review the National Audit Groups and proposed
to set up a working party in 1998 to do so.[25]
25. When asked how they were going to ensure that
in future best practice was disseminated when it had not always
happened in the past,[26]
the Department said that the National Audit Office report had
been genuinely helpful to them in highlighting a number of areas
where there was scope for doing better than they had in the past.
The Department also believed that one of the things that would
come out of the planned review of the Groups, the introduction
of Self Assessment and more sharply focused training for compliance
staff, would be better liaison between Groups and Units, in both
directions.
26. Traditionally there have been two main sub-groups
of Local Employer Compliance Units: since 1947 those specialising
in checking the operation of Pay As You Earn by employers; and
since 1985 those checking that employers are correctly reporting
employees benefits and expenses payments under the Schedule E
income tax legislation. Between 1980-81 and 1994-95, the number
of employees reported as receiving benefits and expenses rose
from around 815,000 to some 3.3 million, whilst their value increased
from £237 million to £7,360 million. Whereas staff involved
in PAYE reviews have detailed guidelines and a basic structure
for a review including standard routine checks, Schedule E compliance
officers have guidance and an aide memoire but no formal structure
or standard checks.[27]
27. The Committee asked the Department what they
were doing to remedy the lack of standard checks for Schedule
E reviews.[28] They said
that as part of their compliance quality initiative they were
currently piloting standard checks covering both PAYE and Schedule
E and these would be introduced nationally in January 1998. Staff
would be provided with a very detailed list of checks to be carried
out at each stage of a review. They were also building in quality
monitoring as an integral part of the system.
28. We also asked the Department how they knew that
staff could do their job properly given that there were no examinations
at the end of their training course.[29]
The Department explained that newly trained staff would start
off on a relatively simple case and would be the subject of a
good deal of monitoring by their managers. The Department were,
however, currently looking at the role of managers and the training
for employer compliance staff with the aim of providing more guidance.
Once this training was sufficiently settled to be tested, the
Department would consider introducing examinations.
29. When asked about their response to the 176 suggestions
for improving training which emerged from the National Audit Office's
survey of Units,[30]
the Department told the Committee that the suggestions had been
taken very seriously in revising staff training and where they
were obviously well founded would be acted upon. For example,
over 20 per cent of the comments related to the training course
for Schedule E and both the study and tutor-led elements
of this course had been revised as a result.
Conclusions
30. The Department's National Audit Groups, which
review larger businesses, achieved a return of £12 for every
£1 spent in 1995-96, twice that of their Local Employer Compliance
Units. The Committee welcomes the Department's decision to review
the respective approaches of the Groups and Units and expects
the Department to ensure that the initiatives being taken to encourage
the exchange of information and best practice are implemented
as soon as possible.
31. Benefits taxable under Schedule E amounted to
over £7 billion in 1994-95. In view of the potential amount
of tax at risk from non-compliance, it is unsatisfactory that,
until January 1998, some 13 years after Schedule E reviews began,
there were no standard checks for this aspect of employer compliance
work. The Committee expects the Department to put in place appropriate
quality assurance arrangements to ensure that the checks are carried
out.
32. Given the importance of employer compliance work,
we are concerned that the staff who do it are not required to
sit examinations after their training. The Committee therefore
welcomes the Department's decision to consider the introduction
of examinations for new reviewing officers once training is sufficiently
settled to be tested.
33. The Department have responded positively to staff
suggestions for improving training following the National Audit
Office survey of Units. The Committee looks to the Department
to act upon suggestions where it is clear that worthwhile improvements
are possible.
22 C&AG's
report (HC 51 of Session 1997-98), para 2.33 Back
23 Q17 Back
24 Qs
18-19 Back
25 Q17 Back
26 Q96 Back
27 C&AG's
report (HC 51 of Session 1997-98), paras 1.6, 3.5 Back
28 Q7 Back
29 Q109 Back
30 Qs
110-111 Back
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