Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 100 - 119)



  100. You made the mistake. You created this mess, so now what do you say? The onus of proof is going to be on the taxpayer to come and get back the money they should have had already?
  (Mr Montagu) We did not create the mess. These are cases where—

  101. The taxpayer did not.
  (Mr Montagu)—for a wide variety of reasons there are no pay and tax details on the record. That is not the same as the Inland Revenue creating a mess.

  102. You have lost your records.
  (Mr Montagu) No, we have not lost our records. For a lot of these people there may rightly be no records. These are cases where, on previous form, perhaps because someone has been working for an employer, we would have expected to have pay and tax details and there are not any. There may be perfectly good reasons where we have tried to find out whether there are good reasons and have been unsuccessful in doing so. We do not go on and on and on. We suspend action but we will resume it if asked to do so if alerted by the taxpayer or by fresh information coming in to us.

  103. So now, three years later, people are going to be asked to provide documentary evidence which they conceivably could have supplied before? Could it conceivably have been part of a record you lost?
  (Mr Montagu) We did not lose records.

  104. You just do not have them?
  (Mr Montagu) No. We do not have records of tax paid or of pay for these people, for whatever reason. We are writing out to them and we will be saying, "We do not have these records for you so it is possible that you might have paid too much or too little tax". (As we have said, in practice most of them will have paid the right amount.) "If you think you have paid too much or too little, let us know."

  105. And they have to have the evidence three years later? I know you can say, "You are expected to keep your documentary evidence for so many years", but this really is a cop-out, is it not?
  (Mr Montagu) No, Mr Williams. I think this Committee would have something to say to me if I paid out repayments on the basis of mere say-so without some documentary evidence. It might be pay slips, it might be the end of year P60 or whatever.

  106. I do not go on to anything else because I am still sitting here trying to absorb the implications of what we have just been told. I find it utterly unacceptable what we have heard expressed here today and I think people reading it outside will find it utterly unacceptable.
  (Mr Montagu) I think, Mr Williams, that people would find it unacceptable if I did not apply value for money considerations in running my Department as the Accounting Officer.

Mr Davidson

  107. I would like to turn to questions of the construction industry where in one of the papers we have there is mention of a culture of non-compliance, which I take it is a euphemism for fraud and deception, being widespread. As I understand the position there are advantages to employers of having a large proportion of the workforce self-employed on the basis that it saves them money, and that there are advantages to the employee or the worker involved on the basis that it not only eases their cash flow but they might save money as well. Am I right in thinking that the criteria that you apply to accept whether or not somebody is self-employed are much looser and slacker than anywhere else within the economy?
  (Mr Montagu) No, I do not think so, Mr Davidson. The indicators of whether people are self-employed or not are applied pretty constantly across the economy. While obviously you cannot have a hard and fast set of rules which enables you to say on one side, "You are self-employed; you are employed", there are indicators like hours, "Do you supply your own tools?", and so on.

  108. I understand that. In terms of joined-up government do you think the Inland Revenue has basically the same criteria for judging self-employment as other government departments?
  (Mr Montagu) As far as I know, yes.

  109. I am interested in that in particular because there are a number of cases that have been drawn to my attention, in particular a legal case IR v Shire Roofing in 1995 where it went to court and where under health and safety legislation the people injured were deemed to be employees for the purposes of health and safety legislation but were assessed as being self-employed by the Inland Revenue. There is a whole string of cases like that on health and safety. There also seems to be a whole string of cases where UCATT in particular are taking employers to industrial tribunals for holiday pay and getting that holiday pay even though you recognise the people involved as being self-employed, so there does seem to be a divergence of criteria. Can you comment on that?
  (Mr Montagu) I am not familiar with the case that you mention, but certainly if we are classifying someone as self-employed who subsequently took his employer to court successfully for holiday pay, then these would be people whom we re-visited.

  110. No, they are not people whom you have re-visited. They are people, as I understand it, whom the contractor made it clear would only be employed if they were self-employed, who got the job on a self-employed basis and then, because effectively they were working as direct employees, took the employer to a tribunal and were awarded holiday pay, having been falsely described as self-employed workers.
  (Mr Montagu) What I am saying is that in those cases we would go back to the employer and say that he had falsely described self-employment and in those circumstances—and Ann will correct me if I am wrong—he would be liable for the higher national insurance contributions for both the employer and the employee. There were a number of cases like this in the construction industry, which was one of the reasons behind the construction industry scheme being set up where people initially said, "I want to be self-employed", and then started talking in industrial injury terms or terms which indicated a contract of employment.

  111. I am surprised at that. Maybe you can tell me how often, if it is not a situation where it goes to an industrial tribunal, you actually do go back to re-examine whether or not somebody is defined as genuinely self-employed or is it something that you go back to every three months or every six months, or is it only by exception you ever check?
  (Mr Montagu) We would obviously not check on everybody who is self-employed, goodness knows how many million, every three to six months or whatever. What we would do, and in a way it goes back to what I was saying to the Chairman about employer compliance, is that if we have indications that a particular employer or particular organisation is risky or is operating in a risky way, or again, in this area quite often, on third party information, then we would check and we would check with the employer, we would check with the employee, we would interest ourselves in things like the working practices, the hours requirement, who supplied the tools and so on.

  112. My understanding is, again from the trade union involved in this, that they have asked yourselves on a number of occasions to be much tighter on the rules regulating the self-employed and to actually implement surveys and reviews and investigate on sites, and you have declined to work with them on that sort of project. Why is that?
  (Mr Montagu) I am unaware of cases of this. If we were alerted, by a union or by anybody else, to an employer taking on people on a bogus self-employment basis we would certainly investigate it in the same way as we would any other third party allegation of tax or contribution fraud.

  113. So you would be willing to work with UCATT in the future on any big drive on this?
  (Mr Montagu) Extremely.

  114. That is very helpful. You are presumably aware of the statistics demonstrating that the self-employed are much more likely to be killed on building sites or seriously injured than those who are directly employed. I hope you appreciate that this is not just a question of taxation; it is also an issue of lives. What steps do you take to ensure compliance with the existing regulations on self-employment and can I just clarify how many cases there have been where you have applied sanctions?
  (Mr Montagu) I could not give you a figure off hand for where we have applied sanctions for bogus self-employment. Certainly, as I have indicated, wherever we were made aware, either as a result of a visit[10]—

  115. Okay; I understand that, if you were made aware. Is there anything that you yourselves initiate in terms of the score card for risk and so on? The building and construction industry is widely known to be one of the worst areas of tax evasion and avoidance and a number of other faults. I presume that you have as many checks there and site swoops as you have anywhere else. Do you have figures for these?
  (Miss Chant) Can I help? I do not have the figures but I can tell you, if I go back again to a phrase that you have used before, that with employer compliance we do indeed work on a risk analysis basis. In certain areas, certain trades, professions and certain locations we would certainly direct much more attention to employers or groups.

  116. Is it possible to have a note indicating the scale of visits or attention that is paid to the construction industry so that I can assure myself by comparing it with other industries—
  (Miss Chant) It is certainly an industry that we are particularly looking at in the light of the Grabiner Report again as well. Whether I can give you the numbers nationwide I do not know but I will do the best I can from our operation[11].

  117. But if you cannot tell me the numbers nationwide what sort of control have you got?
  (Miss Chant) You may be right. I will just put up a caveat that I will do the best I can.

  118. That worries me even more. I can understand you not being able to produce it off the top of your head, but having been asked for a figure for the number of investigations there have been over whatever period you see fit in construction as compared to other industries and you think maybe you cannot do it—
  (Miss Chant) But you asked particularly on self-employment or employment as opposed to going to the construction industry to check on their employer compliance generally.

  119. If you go to a construction site to check on employers' compliance, presumably you have checked whether or not they are employing people who are not paying any tax. There are all sorts of things you check.
  (Mr Montagu) Yes.

10   Note by Witness: The construction industry scheme has compliance built into the system. Contractors are not able to pay people who are not registered with the Inland Revenue without becoming liable to penalties. Back

11   Note by Witness: As indicated at paragraph 121, there have been around 8,500 compliance reviews of employers and contractors operating the scheme, since the construction industry scheme was introduced in August 1999. The Department's Business Support Teams are also available to help employers (etc) understand and meet their obligations. Back

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