Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 140 - 159)



  140. Okay. Let us just move on from there, although still keeping round the same topic of people not actually complying. In paragraph 3.11 on the same page it tells us that the Inland Revenue have a priority of pursuing large debts rather than outstanding returns and, therefore, the backlog is actually accumulating. What is the actual backlog at the present time?
  (Sir Nicholas Montagu) I will give Stephen a moment to find the numbers, if I may.

  141. What is the backlog? What are you going to do to reduce that backlog?
  (Sir Nicholas Montagu) What we are going to do is we are going to collect 40 per cent of the old returns between May 2001 and March 2002 and we are already well on the way. In other words, we are tidying up. Yes, there was a backlog, and again it goes back to many of my other answers. For the future, what we want to do is to preempt and avoid backlogs through things like the Taxpayer Filing Initiative that I have mentioned. Stephen, would you like to give Mr Steinberg some figures.
  (Mr Banyard) That is right. What we have got is targets in the future so that for the current year we get in 90.5 per cent this year but then year on year improvements. The target for those which are one year late will be 96½ per cent and we will target to increase that. Then to sweep up the backlog we are trying to collect 40 per cent of those in this year and we are on course to do that, and to get the remainder next year.

  142. The question I would ask here is you go after the big debts, would it not be more beneficial to go after the backlog rather than big debts? In other words, how do you know that in the backlog there are not huge debts?
  (Sir Nicholas Montagu) Again, intelligence reports. They are not foolproof but we are constantly and iteratively analysing the reports. It shows that the people who file on time tend to have the bigger debts. As I say, it is not an absolute but as a generalisation late filers have smaller debts.

  143. I have just about run out of time but there is one question I really want to ask. A lot of people have actually asked me this, it sort of continues the question. My understanding is that you check at random on every thousand or so people, whatever it is, who have already filed their forms in.
  (Sir Nicholas Montagu) Yes.

  144. Are you aware that it costs people to respond to that random check?
  (Sir Nicholas Montagu) Yes, in the sense that obviously they will need to devote time or they may use an agent to do so. What we try to do is again to keep the hassle to a minimum, not to prolong enquiries—

  145. Okay, you have answered the question, it does cost them. Is that not damn well unfair on somebody who has complied, who is probably and possibly paying exactly the right tax to then have to pay out to either an agent or whatever to get that information and at the end of the day they are out of pocket? If those persons are found to have put in a correct tax form why should you not refund them for any expenses that they have had?
  (Sir Nicholas Montagu) Because, Mr Steinberg, the random checks are an essential part of our routine checking to make sure that we are targeting the right people and they critically inform the kind of risk, intelligence and analysis that we have been talking about. The design of the checks was specifically approved by Parliament and we only reimburse the expenses incurred by taxpayers for tax agents in cases where they were caused by our error. Without random checks our intelligence would be the poorer. Of course businesses can offset the costs of their fees to tax agents against their tax liabilities.

  146. Can I just ask one final question. It is a bit of a bugger though, is it not, that somebody who has complied and has done everything right finds themselves having to pay out extra because you have randomly caught them and there are other buggers not paying their tax who are getting away with it and the penalties are so small that it does not matter if they do?
  (Sir Nicholas Montagu) Mr Steinberg, it is not for me to say whether a design approved by Parliament is a bit of a bugger or not.

Jon Trickett

  147. I think we are almost on the last lap so I shall sweep up on some issues to do with compliance work and random selection. We have just heard that you use one per thousand cases at random—
  (Sir Nicholas Montagu) Sorry, did you say one thousand?

  148. One per thousand. It does seem to me that both the management information systems, which you have already acknowledged were weak, and the management itself has also been lacking to some extent in that process. I just want to take you through a number of points in the report. The first is in the first year we have figures that you under-achieved your target by 50 per cent in terms of the number of cases you wanted to open.
  (Sir Nicholas Montagu) Which paragraph are you looking at, Mr Trickett?

  149. I am on table 13 on page 19.
  (Sir Nicholas Montagu) Right.

  150. In a way I thought these figures would probably be imprinted on your heart as well as in your mind. You will see that you failed by 300,000 cases in that particular year. Can you see where I am, first of all?
  (Sir Nicholas Montagu) Yes.

  151. I am on the NAO Report, page 19, table 13, the total figures. It seems you targeted 619,000 cases but only dealt with 308,000.
  (Sir Nicholas Montagu) Yes.

  152. Why?
  (Sir Nicholas Montagu) Stephen, would you like to answer?
  (Mr Banyard) I think two answers to that. One is that was our first year, I believe, with that set of targets and we were not sure with the non business enquiries precisely how many we could do with the people that we had got, how many we could accomplish. The second thing is that the non business enquiries are relatively focussed enquiries where we go in and look at particular points. For example, the resource per enquiry is much less than the top column which is the "business full" enquiries where we look much more closely at the business records. It was a case of getting used to the new targeting system and on that one we got it wrong.

  153. Was the 619,000 one per thousand or is the new figure which you halved almost, 385,000 one per thousand cases?
  (Mr Banyard) Sorry?
  (Sir Nicholas Montagu) These are not the random enquiries.

  154. I am misreading it. Perhaps you could explain what this table indicates?
  (Mr Banyard) Yes. This table is our targets for take up of cases each year. Under "business full", for example, in 1999-2000 we target to look at 44,145 businesses.

  155. So I see. This table is introduced by paragraph 4.9 which presumably you have agreed and that refers to compliance enquiries which fall into three categories. You have massively failed or else massively over-estimated your capacity to do work. What proportion of your total case load fell into the 619,000? If you do not know that is as good an answer as that you do know the answer.
  (Mr Banyard) I will try and answer it. What we are looking at is a certain proportion of the businesses where we are looking at them very fully indeed and we are looking at their records, and that is the top line. The second line is where we are looking at businesses but certain particular aspects of the business where we are not going in and looking at all the records but we are saying these particular areas are at risk.

  156. I understand that but you are not answering the question I was asking. I want to move on to another question which is in the following year you over-achieved your targets because presumably you estimated lower and actually achieved more than you had intended to. Now in the footnote I see that this does not mean you completed these cases, these are the cases which you opened and a large number of which presumably rambled on for some months or possibly even for some years to come. Can you indicate to us how many were completed in that year?
  (Mr Banyard) Broadly we would complete the same number that we opened because we do not want to start building up cases. I can give you the average in lapsed time. We would normally spend about ten to 12 months on average on one of these cases.

  157. Is there any double counting between the two years?
  (Mr Banyard) No.

  158. How did you over achieve then? You simply did more cases than you intended?
  (Mr Banyard) Our people were able to do more cases than we originally targeted for.

  159. I want to just go on then to follow the logic through of this paragraph and see what actually happened. In paragraph 4.10 we see that the local office compliance plans and targets which they were given were actually not related to the population size or the number of taxable points which were within that geographic area or sectoral area but was related to the resources within the Department. I think that is what paragraph 4.10 is saying partly. We have already heard that the South East of England, particularly London, were under-resourced and maybe still are. Are you able to say what the kind of differences are in the compliance plans and targets between different local offices?
  (Mr Banyard) We try and target risk as far as we can. We look at the cases or taxpayers we have got in an area and we score them and then we allocate staff to them, so we allocate staff to compliance risk as far as we can. If we find that in any area we have not got the staff to do that and there is a significant difference then we can move cases from one area to another. For example, we have moved cases from the southern end of Hertfordshire and had them worked by inspectors in Norfolk.

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