Examination of Witnesses (Questions 100
- 119)
WEDNESDAY 25 APRIL 2001
MR NICK
MONTAGU CB, MISS
ANN CHANT
CB, MR JOHN
YARD CBE, MR
WILLIAM THOMAS
AND MS
ELISABETH ASTALL
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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