Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 280-279)



  280. Has that been tested? Was that part of the trial? If they can do it, why can the Inland Revenue not do it? The systems must be there, the banks must know what to do.
  (Mr Hamper) I think the reason is one of law more than anything else. The arrangements with the gas and utility companies is one of commerciality, if you like. They are in the commercial world, and, to a certain extent, they can make the rules to suit both parties. I think the Inland Revenue are obviously governed by the legislation. Unless there is some facility whereby they can accept money upfront, if you like, they will not be able to move on that. It is a question of what happens if somebody skips a payment? Is there going to be a sanction for that skipping? I think there is a lot of legal problems that worry the Revenue rather than the commerciality of it.

  281. Difficult to imagine if you are saying, "Well, you can pay at the end of the year, but rather than have that big burden, would you like to take this as an alternative?" That would be a matter of choice.
  (Mr Hamper) We would certainly welcome that for our small businessmen.

  282. You also mentioned the possibility of an alternative payment being by credit card. Is that not a rather strange way of anyone paying when credit cards have such very large interests on them?
  (Mr Sweetman) I think the suggestion of paying by credit card is really looking at payment over the internet, which, after all, is becoming a more and more common feature of life, and it is almost the only way to do it, to pay by credit or debit card. This simply would reflect the fact that an enormous amount of the financial transactions in our society must be carried out by credit card, and yet here we have one major field where it is not allowed.

  Nigel Beard: Thank you very much.


  283. Can I just clear up this utility/credit card business. Could you see a situation where the Revenue, for example, offered a discount? They would benefit commercially, presumably, from getting the money in earlier, therefore having to borrow less on the markets, where, like utility, they offered a discount to people using debit or monthly systems.
  (Mr Sweetman) There is one member of the Operations Consultative Committee who claims to have been telling the Revenue for 25 years that if they offered discount for early payment they would get more tax in. They tend to say, "The Treasury would not let us". Quite what they mean by that I am not sure.

  Chairman: Well, we might pursue that.

Dr Palmer

  284. Switzerland does operate a process of advance payments. If you pay in advance, you get interest for the amount up to the tax that you are actually due to pay. You cannot pay in £1million and say, "Right, give me interest". I just have one question on credit cards. Normally, credit card companies will charge the beneficiary a certain percentage for the facility, and sometimes they will credit the payer with a certain amount. I get 1 per cent on what I pay on my credit card. Would you actually not see that as a drawback unless the Inland Revenue recouped it through a surcharge?
  (Mr Sweetman) I am sure the Inland Revenue is large enough to make a good bargain with credit card companies, but I do take the point.
  (Mr Hamper) The Revenue actually trialed a payment by direct debit. There were certain taxpayers that were invited to pay by direct debit, Switch cards, this sort of thing, and of course they are electronic cheques, if you like. There must be some sort of commission paid to the bank on that sort of transaction. I see the two running either/or: either use Delta or Switch or cheque.


  285. Do you know when the trial was?
  (Mr Hamper) I think it was the Autumn of 2000.

  286. Do you know where?
  (Mr Hamper) I think it was a sample of the taxpaying population. I do not think it was in any particular part of the country.

Mr Beard

  287. You say again in your submission that the structure of surcharges, interest and penalties make it very difficult to get people back from the shadow economy, and you are suggesting in your memorandum that that difficulty has been made worse by Self-assessment. So what changes would you like to see to the existing regime to make some sinners repent more easily?
  (Mr Sweetman) What I think is the last resort is often the Revenue's practice. In order to welcome somebody back into the fold, if you like, they would, in the last resort, accept the tax that was due without charging interest, surcharges and penalties. And I think it is a feature of the current system, and, of course, the surcharges and penalties were imposed at the time of Self-assessment. I think it is a feature of the current system that the amount owing can mount up at frightening speed.

  288. Have you discussed this and put the case to the Revenue, your organisation?
  (Mr Sweetman) Certainly it has been said at various Committees.

  289. What have they said?
  (Mr Sweetman) I think what they would say is that they need this structure in order to keep everybody paying on time.

  290. But they are also keeping some out.
  (Mr Sweetman) I think they are keeping some out, yes.

  291. You note that the burden of Inland Revenue enquiries under Self-assessment falls disproportionate to your small businesses who are most likely to be the subject of an enquiry. Is that not because in these cases there is a greater chance of tax being at risk; is that not why they are subject to enquiry?
  (Mr Sweetman) I am far from convinced about that in the report that the Revenue produced recently, because they have made some changes to the enquiry structure. One of the points that they noted on that was that enquiries into small businesses were the least productive and caused the most grief, essentially, even within the Revenue. It took them longer to do and produced poorer results than any other part of their enquiry work.

  292. They say that they have a means of scoring risk and that the enquiry is based on how risks score, so, according to that, it implies that small businesses are more of a risk. Is that your experience?
  (Mr Sweetman) But, for instance, the risk factors that they take include a business that takes cash. You are a higher risk if you are a farmer. Doubtless these risk factors are based on experience, but it does still remain the case that the hardest and the most difficult enquiries are those into small businesses.

  293. There is an indication in some of what you say that they may be difficult, but you are also saying they are unjustified?
  (Mr Sweetman) The thing that I would really like to get across is that the Inland Revenue has been saying since the days when I was an Inspector of Taxes that it was going to take its enquiries upmarket, and it has never actually succeeded in doing so. It continues to conduct much the greater part of its enquiry work at the bottom end of the scale.

  Mr Beard: You also say that most—


  294. Can I just pursue this a little. Are you suggesting as really an historical approach by the Revenue here that they started off 10, 20, 30 years ago by saying small businessmen generally are a fairly risky category, and that that has never really gone out of the system?
  (Mr Sweetman) I think that is absolutely true. Certainly this was, if you like, the classic point of view in the Revenue in the days when I was there. I do not think it has changed that there is a feeling that people in small business are likely to be on the fiddle. I do think this is part of the problem, but particularly, I think the structures that the Revenue has adopted in the past, and the way in which since they introduced performance statistics, those statistics have in the past been rather too much related to yield and not enough into the way in which the case was worked. That is changing, I think. If you look in their report for this year, you will see that they refer to that, but it has been a feature of the system that inspectors were given brownie points if they got more money, however they got it.

Mr Beard

  295. They told us they had a sophisticated way of working out the risk factors and they based their enquiries on that scale of things.
  (Mr Sweetman) This is a comparatively new system. Until fairly recently, the selection of cases for enquiries was done within a tax office and based on the judgment of a relatively senior inspector.


  296. Are you implying, therefore, that in the local tax office, in the old system, they would have chosen a small businessman as against, say, the local teacher or magistrate, whatever, simply because the yield might be greater if they found there was a mistake?
  (Mr Sweetman) I think that is right, and I think also they would have tended to choose—because of the system which rewarded a comparatively high turnover of cases, inspectors were supposed to work quite a lot of cases at one time—because of that, they were inclined to pick what looked as if they might be easy targets and these would be cash businesses and they would be the smaller end of the self employed and small businesses.

  297. You mean cash businesses, where you were almost inevitably going to find some kind of mistake?
  (Mr Sweetman) There is a very good chance that you were going to find something wrong, yes.

  298. On the risk weightings that we discussed with Revenue officials, is it your impression that this is a very modern thing? You were there: did they review the various risk factors of particular groupings?
  (Mr Sweetman) My understanding is that the way they do it now depends on having all the returns put into an electronic format because they are now computer sorted, with various risk factors put in. The Revenue does not say specifically what most of the risk factors are; some of them one learns by experience. But it is something that came in at the beginning of Self-assessment. Given that they need to see a business's returns over a number of years to get this right, it was obviously two or three years into Self-assessment that they really began to use these risk factors seriously, so they are really only just about starting now.

  299. Do you have confidence in them?
  (Mr Sweetman) I do not really know enough about them, because they do not say publicly what are the criteria which they use.

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