Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 80 - 99)



Mr Davies

  80. Excellent.
  (Sir Nicholas Montagu) They are very determined to bring together all the sources of intelligence, all the sources of information. I do not know if Mr Davies had a chance to talk to the head of our risk, intelligence and analysis team there but I did and he was extremely excited about the new arrangement and what was the potential there to achieve. It all goes back to a better understanding of taxpayers, risks, a so called leverage trial.
  (Mr Hartnett) Mr Jenkins, we have done just what you have described. Our special compliance office, which is our prosecution arm but also investigates cases other than for prosecution, has in the past targeted particular areas, parts of the stockbroker belt come to mind—it tends to be at the top end—has done just what you described and to very good effect.

Mr Jenkins

  81. All too often in the past what we have seen and read about is the tax people coming in and looking at taxi drivers who are moonlighting and earning a few extra pounds a week, you do not seem to take the overall picture where you have people living way beyond their means, what you would consider to be way beyond their means, you are not targeting them. I am glad that you are now looking at an area of approach.
  (Mr Banyard) We are moving away from targeting specific trades to trying to target specific characteristics in the business and specific characteristics in the accounts. We are trying to bring to bear on that things like third party information which we are matching on our computer systems. We are trying to bring together information that is available in the public domain, for example the Housing Benefit payments that are mentioned in the report, and we are trying to bring together the results of our own intelligence projects where they do go out and can spot from the road the apparent presence of large wealth, for example, which is then not matched perhaps in the accounts. We try to bring all that together and say from all of that which of our cases look most risky and how can we target on those? It is a very broad approach we are trying to follow.
  (Sir Nicholas Montagu) At the same time it is a targeted approach. I mentioned the leverage trials that we are carrying out. These will target small traders, people typically with a trading turnover of less than £15,000 because they can get away with three line accounts. What we will be doing is identifying a sector where we think that we need to improve compliance, benchmarking the level of compliance across the sector, working with and including trade associations, to provide better education, support and encouragement because, again, that is important. We are not just in to bust them, we are there to put them right as well, with a warning of increased enquiry coverage to follow later. Essentially this is enabling but backed up by regulating and we will evaluate and bench mark when we have done an exercise of this sort.

Mr Osborne

  82. Sir Nicholas, paragraph 2.8 of the report states ". . . the Department estimated that intelligence work led to an additional tax yield of some £21.8 million in 1999-00 . . ." Why is it a third less than the previous year?
  (Sir Nicholas Montagu) As Sir John notes, the figure may understate the impact of this work as it excludes cases referred to compliance units for action, the subsequent tax yield and the compliance. Increasingly we are looking at intelligence in a much more holistic sort of way. The main focus is to bring people within the tax system, we have changed the business direction. We regard direct yield as only part of the result. It is perfectly possible, of course, that we might end up paying the same person tax credits if we discover they have got an eligibility that we do not know about.

  83. Those things that you say the figure may under-estimate, presumably they apply to the figure for the year 1998-99 so they are comparable figures?
  (Mr Banyard) Not entirely. We were moving from a system where we ran single intelligence cases and measured the yield from them to a system where we measured the projects which were much more complex spread out over a number of different offices and where it was becoming increasingly difficult to track back the yield to the project. What we do is we measure all the yields in the total figures which are declared in Chapter 4 and we have decided that the more effective use of our recording is to measure the number of people that we bring in. So the risk and analysis teams will in future bring back from their projects the total number of ghosts and moonlighters that were brought into the system. The yield that they get will be captured in the yield for the overall enquiry cases. There is no reduction in yield from the intelligence cases, it is just that we are no longer measuring it in that way.

  84. That is quite convenient. Even if the figures do under-estimate the impact of the work, is not £21.8 million a tiny percentage, even on the best guesstimates, of the amount of tax that is not collected?
  (Sir Nicholas Montagu) Again, it is a very complex issue, Mr Osborne. We have never targeted yield, I never want to target yield. What we are after is getting the right people paying the right tax at the right time or, indeed, claiming the right credits at the right time. The sort of outline that Stephen has given does reflect the fact that we are shifting our emphasis. What I would certainly expect is that the risk, intelligence and analysis teams will make much more effective the intelligence that we pick up from our random enquiries, that this will translate through into enquiries and what comes out of them. Perhaps I can give you an example. We got third party information which showed a building society account which was not included on an individual's tax return. I give you this example because it is not one in Sir John's report. We matched this from information that the individual was running two residential care homes instead of the one declared to us and this revealed substantial receipts missing from the undeclared account. Undeclared income amounted to £150,000. Now you could find this knocking into all sorts of different sorts of yields, including, for example, undisclosed PAYE, employer compliance. What you need to look at is what we are achieving across the piece.

  85. Obviously you are very proud, both of you, of your intelligence gathering systems. Now on paragraph 2.11 of the report however it says "The Project Support System is a local system and does not allow staff to share new approaches to intelligence activity or to track cases referred from one office to another. Staff therefore have to follow up referrals manually. This is a slow process and staff waste time determining whether action has been taken or any additional tax identified and collected. Some tax offices have access to all payment details held by local authorities . . ." It is a bit chaotic according to paragraph 2.11.
  (Sir Nicholas Montagu) If I may quote Hannibal Lector, Mr Osborne, "Not any more". We always regarded the Project Support System as a short term solution while we worked on a fully integrated mainframe Project Support System. Our priority was to update our main compliance IT system to support self assessment enquiry work. What we have done now is we have set up a new database to record the outcomes of this work on a nationally consistent basis. Our staff no longer have to check manually with other areas to find out the results of a project which they may have started and which have then spread. It was never seen as anything more than short-term.

  86. It did not work particularly well?
  (Sir Nicholas Montagu) It was limited, obviously, for the reasons that Sir John's report notes, which I accept. Creating area management and the risk, intelligence and analysis teams meant that we would need to change the original system anyway and we are making those changes in the way I have described.

  87. Were you making changes before or after Sir John came and investigated you?
  (Sir Nicholas Montagu) Do you know, Stephen?
  (Mr Banyard) We have limited resources and we needed to put something in, this was not the highest priority against the other things we had to do. We put in the Project Support System to do the best that we could at the time. It did not do as well as we wanted to do and we made some changes to it. I can tell you our staff would have been asking for them long before the Comptroller and Auditor General reported. We have been able to put some changes in. We are looking at the Project Support System now in the longer term to see whether, in fact, it will last us in the future or whether we need to replace it with something more strategic. At the moment we are still using it and it is still useful to the RIATs in their new role.

  88. I am sure your staff were asking for it to be changed long before you actually got round to changing it. All I really wanted to know was whether you decided to change it before or after the National Audit Office pointed out all the failings?
  (Sir Nicholas Montagu) I think the answer to that, Mr Osborne, must be that while I do not know, the clear inference has to be before. Sir John's findings on this were useful as, if I may say so, were his findings throughout the report, but we always knew that the system had limitations because of the structure of the IT platform on which it was released, and that was before Sir John's report. We did not scrap it because, although it works in a more limited way than we first thought, it is more effective in the new structure because we know what it is that we require from it and we are getting that.

  89. Am I correct in saying that it is still being used as Mr Banyard was saying, so staff are still wasting time?
  (Sir Nicholas Montagu) No, that does not follow at all. Staff are not any longer having to check manually, which was the Comptroller and Auditor General's main criticism. It is limited in its scope, it is limited in its purpose, but within those limitations it works fine now.

  90. Do you have access to all payment details held by local authorities on Housing Benefit? Paragraph 21.11 states that some tax offices have access to all payment details held by local authorities.
  (Sir Nicholas Montagu) Dave, do you want to answer that one?
  (Mr Hartnett) Yes, Mr Osborne. Section 18A of the Taxes Management Act gives us access to that when we serve a notice. We now have access to everything.

  91. To all the payment details?
  (Mr Hartnett) Yes.

  92. Just to clarify, do you have the right to an individual person's payment details?
  (Mr Hartnett) We have the right to serve a statutory notice. We serve a statutory notice, we get the details.

  93. "Some tax offices have access to all payment details held by local authorities on Housing Benefit, whereas others have access only to details of named persons."
  (Mr Hartnett) Right.

  94. So do you know at all which tax offices have access to all payment details held by local authorities on Housing Benefit, as of today?
  (Mr Hartnett) I simply cannot answer for every single tax office.


  95. Perhaps you would give us a note on that.
  (Mr Hartnett) Of course.[7]

Mr Osborne

  96. If I could move on to bureaucracy or the complexity of the statement of accounts which are not user friendly. What percentage of the eight million self employed and PAYE taxpayers subject to self assessment might have what you would call relatively straight forward tax affairs? In other words, basically all the tax they are paying is paid through PAYE and self assessment does not yield any more tax?
  (Sir Nicholas Montagu) I do not know that we have the data in that form, Mr Osborne. Do we, Stephen?
  (Mr Banyard) I do not think so. The aim of self assessment is to only give a return to those people when we consider that there is a risk that we will not capture their whole income under deduction at source. We do not want to send returns out where they are unnecessary.

  97. You said you were working closely with tax agents, I do not know if you have seen the letter which was sent to this Committee by the Institute of Chartered Accountants but I will read a bit of it to you. It says "As a general comment self assessment has meant that taxpayers have to spend far more time than previously in completing a tax return. Many have opted to pay professional advisers to complete their returns, whereas previously they felt competent to do this themselves. One might argue that a body of tax professionals would welcome the extra work but the reality is that it is to no one's advantage to force those with simple tax affairs being driven into requiring professional advice". Do you agree with that?
  (Sir Nicholas Montagu) No, I would not, you will not be surprised to hear, Mr Osborne. I do not actually have the advantage of having seen the letter which the Institute apparently sent the Committee. We have talked quite a lot during this hearing about the changes that self assessment embodied. Those were changes of policy and they were changes of policy given effect in legislation passed by this House and the other one. Within those constraints we try to make it as simple as we can. I am slightly surprised to find such a negative response from the Institute, with whom we work extremely closely in the Working Together Initiative to improve the operation and efficiency of the tax system. If you visit our website you will find the register of issues covered by this.

  98. What about the Chartered Institute of Taxation who say "We do believe that the additional burdens self assessment has placed on taxpayers and advisers has been ignored"? Do you think it has been ignored, the additional burden?
  (Sir Nicholas Montagu) No, it has not. I have given numerous instances, perhaps the Committee will forgive me on this. Business support teams are a classic example. A small business is setting up, the business support team is there helping them, telling them what they must do, keeping an eye on them, a continuing contact. What we have tried to do is to make it as easy as possible through business support teams, through our literature, through our website very importantly, which has won awards—it can be improved but it is pretty good—through the helplines and, anecdotally, that is the area of our work where I get almost universal praise. We are trying to make it as easy as possible. If your underlying criticism is of the intrinsic complexity of the system then I do have to come back to my response about policy and legislation. I also ought to repeat what I said earlier, that in both our Public Service Agreement and our Service Delivery Agreement we have targets for reducing compliance costs.

  99. Do you have any evidence of how many extra taxpayers have had to employ accountants since self assessment came in and what percentage of the eight million self-employed and PAYE people who are self assessed?
  (Sir Nicholas Montagu) That is not information that we would have quite honestly.

7   Ev, Appendix 1, p29. Back

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