Examination of Witnesses (Questions 200
WEDNESDAY 13 MARCH 2002
200. The fact that the Revenue are not prepared
to be specific about the nature of their enquiry or the fact that
they are not prepared to go to the appeal, does that mean necessarily
that they are engaged on a fishing expedition?
(Mr Maas) No, it does not.
201. Could there be other explanations?
(Mr Maas) There could well be other explanations.
I hope that it is because I convince them they do not need the
(Ms Monteith) There could be the possibility, also,
that they actually do not think that there is anything particularly
wrong with a taxpayer's affairs. They do ask enquiries on occasion
for reasons of quotas, they have to open so many enquiries to
fulfil their own obligations.
202. On a statistical basis?
(Ms Monteith) Yes. Of course that does cost people
to comply with them.
(Ms Monteith) Also I think we have not really focused
on the effects on the individual of getting an enquiry letter.
If you look at the letter that is sent out, although it is much
better than the original letter it is still quite frightening
for the little old lady who receives an enquiry letter which makes
her assume that she has done something terribly wrong on a Saturday
morning and she then has to wait until Monday before she can do
anything about it.
(Mr Maas) Just to be fair, could I make clear that
the Revenue are about to embark on experiments with these little
enquiries of actually telling the taxpayer so it is something
they are conscious of.
204. It ought to be possible, ought it not,
to tell the taxpayer the broad area that is the element of mystery?
(Mr Maas) There is a dilemma because if what the Inland
Revenue want to ask about is something very simple, then it makes
sense to tell the taxpayer. If what the Revenue want to ask about
is "Can I have this page and a half of information"
then an awful lot of taxpayers will get very frightened to receive
that. Initially it was agreed between the professions and the
Revenue that they would not tell the taxpayer anything other than
it was an open enquiry. However, they are now reviewing that and
it has been accepted that it is important to distinguish between
serious enquiries where you could frighten a taxpayer and tiny
little enquiries where it makes much more sense to say to taxpayers
"This is what it is all about".
205. I can see a situation where you might have
a fairly specific enquiry where a set of documents which should
be there were not there and needed to be tracked down or whatever.
(Mr Maas) Yes.
206. A situation in which you would not necessarily
have to alarm the taxpayer by saying "We are having a general
enquiry into your whole tax".
(Mr Maas) That is right. They are now distinguishing
those two types of cases.
207. They are. Right.
(Mr Maas) Yes.
208. You could see a situation, also, where
they do not explain the problem because they just fear it is just
giving someone an opportunity to concoct some cock and bull story
to excuse what they have been up to.
(Mr Maas) I hear what you say. At the end of the day
what story you concoct is pointless unless the facts support it
and that an enquiry is going to look at what actually happened
in the year of the underlying records. You cannot change those
facts by knowing what is worrying the inspector a year later.
Chairman: Right. Can we turn finally
to corporation tax. I do not know which of you wants to field
that but Mr Plaskitt has some questions to ask you.
209. You may have heard Heather Self, who was
giving evidence just before you, from the Chartered Institute
of Taxation say that in their view it is working very smoothly,
is that your view as well?
(Mr Maas) Yes, because it was built on to pay and
file which has been there since 1992. I would reiterate what Heather
said, the major problem area is quarterly payments on account.
210. In your submission to us you have talked
about the Revenue challenging accounting principles. You have
cited that as a problem.
(Mr Maas) Yes.
211. Do you want to give us some examples of
(Mr Maas) I have a case in the office at the moment,
for example, where I sent in some accounts and the Inspector wrote
back and said "Your accounting policies do not take account
of SSAP 2, FRS 15 or IAS 3" and I wrote back and said "Tell
me why you do not think that it takes account of SSAP 2 and the
other two are not relevant, tell me why they are relevant".
I got a letter back saying "Well, I do not really know, I
was told to say this by somebody else, I will have to go back
to him and ask him why". What is happening is the Revenue
have made a very sensible decision to employ accountants, to employ
qualified accountants and put them into local tax offices to help
inspectors to understand accounts. I think some of the accountants
are flexing their muscles and saying "Why do you not challenge
this because if you challenge this accounting policy you might
be able to get more tax". There are two points to make. Firstly,
when they challenge they tend not to say "We think you have
got the wrong accounting policy because", they simply say
"Why are you adopting this accounting policy". What
the law actually says, and head office accept it, is that the
taxpayer can adopt whatever accounting policy he likes as long
as it is a validly accepted policy. So the Revenue do not have
power to say "Well, I would rather use this policy rather
than that one", they only have power to say "The policy
you have adopted is not actually a generally accepted one, it
is not one that other accountants use".
212. Are you suggesting they are acting ultra
(Mr Maas) I am not suggesting they are acting ultra
vires, I am saying that they are going about some of these
accounting issues a bit like a bull in a china shop.
(Ms Monteith) I think it is a case of there is a new
source of knowledge within the Inland Revenue which we agree with,
we think it is a good idea to have accountants there. My own experience
recently was over the question of a life of an asset, how long
could a life of this particular large piece of machinery be expected
to last? Talking to a tax person at the Revenue produced a rather
confused and drawn out correspondence. When they brought in their
accountant it became much easier to talk on the same level and
to bring about a quicker agreement. There are cases where it is
a good idea to get straight on to talk to the accountant. In Robert's
case obviously Chinese whispers had created confusion and that
was why they had this correspondence which wasted Robert's time
and wasted the Inspector's time. If there is an accounting issue
it needs to be dealt with by the appropriate person as quickly
as possible. I think underlying all of this, both the corporate
tax and income tax, is simplicity. We need simplification of our
tax system. For corporate taxes, we are discussing that at the
moment, if you look at the number of different definitions of
groups, there are loads. Look at the different definitions of
small and medium sized companies, sometimes it is Companies Act
legislation, sometimes it is Taxes Act, now we have EU definitions
being brought in and euros being used. There are just so many
different definitions. Every year we get a new Finance Act and
a new set gets introduced. It is very, very complicated and we
have to self assess within all of that.
213. I thought the observation you were making
was that the complexity here is to do with rules of accounting
rather than changes in the tax system itself.
(Ms Monteith) Rules of accounting on top of an already
complex tax system.
(Mr Maas) To challenge the accounting rules, which
are basically challenging timing differences, "have you recognised
enough profit this year or should some of it fall into next year",
to build that on top of an already very complex tax system just
aggravates the problems.
214. On the accounting side, what would you
like to see done to overcome these problems?
(Mr Maas) I would like to see the Revenue think why
they want to challenge a policy not just to leap in and say "We
would not have done it this way". I would like them to say
"We see you have done this, why do you think this is a generally
accepted accounting policy?" What you have to realiseI
would hate to think this is me riding a hobby horse, it is not,
it is something that we get letters from Members onvery
many accountants feel fairly upset when they get a letter from
the Inspector of Taxes challenging their ability to do accounts.
(Ms Monteith) These are in the main judgmental decisions.
215. I still have not got a clear picture of
what you want done. You said one thing you want the Revenue to
be upfront about is why they are challenging.
(Mr Maas) Yes.
216. That would be your principal recommendation?
(Mr Maas) Yes.
217. We have to leave it there now. I want to
thank you both very much. You have made two statements in your
memorandum, which I have asked you about. This inquiry is running
for several more weeks. You have referred to the significant additional
costs and you have referred to the large number of procedural
errors. If you are able on reflection over the next few weeks
to put any kind of quantitative measure against those two things,
we would be extremely interested. I appreciate those are very
difficult. For example, under procedural errors, if you were able
to make some estimate as to whether it was one in ten, one in
100 or whatever, if you have any survey evidence of that kind
it would assist us certainly. Likewise on costs, because that
is one of the things we shall be looking at. That is a further
(Mr Maas) We can certainly put something on our website
and invite members to give us their experience and try and collate
that. Thank you very much.
(Ms Monteith) Thank you very much.
Chairman: Thank you both very much.