Examination of Witnesses (Questions 60-79)
Wednesday 31 March 2004
Mr Mike Eland, Mr Mike Wells, and Mr Richard Summersgill
Q60 Mrs Browning: Having been caught.
Mr Wells: Or having come forward
in some circumstances as well. So, this is mitigating down the
higher penalties that we apply in cases where traders are not
as cooperative and in fact, in these cases, we are getting in
around 75% of the tax within three months rather than about one
third under the arrangement that would have applied otherwise.
So, we are actually getting in money considerably faster through
this arrangement and clearly getting in the money at the end of
the day is the biggest incentive of all.
Q61 Mrs Browning: Of these mainly small
businesses, we read that a third under declare. How persistent
is that and what plans do you have to tackle that?
Mr Eland: If they do under declare,
they are liable without going through this civil evasion penalty
approach to a misdeclaration penalty which is usually 15%. So,
if we felt that it was justified, we would apply that sort of
penalty each time. If we felt there was repeat behaviour, we might
move up a notch and, as I say, ultimately we could move into prosecution.
Also, it would change their risk categorisation, so we would be
visiting them more frequently to make sure that that behaviour
was not repeated. So, if you like, their credit rating with us
would deteriorate and that would mean that we would pay much closer
attention to the business.
Q62 Mrs Browning: Do you categorise the
businesses as I believe the Inland Revenue do in terms of sector,
particularly focusing on those sectors which deal with cash a
lot?
Mr Eland: Yes. We do a central
risk assessment of every individual company according to their
history and, on top of that, we also do a sector examination and
we are increasingly moving down that approach which we have found
very beneficial and clearly there are some higher risk sectors
than others. We have special cash teams that work in the areas
that deal in cash trading.
Q63 Mrs Browning: What analysis have
you made of the scope of fraud and under declaration and all the
things that are identified in this Report by companies and individuals
who focus mainly on Internet trading? Is that something that is
likely to compound these problems? Is that something which is
compounding these problems?
Mr Summersgill: We have done some
research into the risk presented by the Internet and the different
types of fraud, in particular, for example, with gambling, the
risk of evasion or avoidance. In terms of VAT, we have also put
in place systems to make sure that we can capture the VAT in respect
of supplies over the Internet from third countries. So, it is
something at which we have been looking but we probably do need
to do a little more work in terms of looking at how the Internet
might increase revenue risk in specific trade sectors.
Q64 Mrs Browning: Have you undertaken
an analysis in terms of what this might mean in terms of fraud
or lack of revenue coming in which should be coming in? Do you
have any idea as to what the size of the problem is?
Mr Summersgill: We have some idea;
we had to do some work on this. We think really the risk is in
term of third country supplies of goods over the Internet and
we have put in place a mechanism to capture that where traders
in third countries are prepared to sign up to the system.
Q65 Mrs Browning: Is there any strategy
in place or being worked up to deal with this?
Mr Summersgill: As I say, it is
something at which we are looking. We do not consider it a great
threat from the analysis we have but we are not complacent about
it.
Q66 Mrs Browning: We notice at paragraph
24 on page 7 that when you do bring these large criminal cases
to court, you have to wait sometimes up to a year for court time
and for lawyers to become available to try the cases.
Mr Eland: Yes.
Q67 Mrs Browning: What representations
have you made to try and improve that situation?
Mr Eland: We are talking to the
Department of Constitutional Affairs. The problem is partly the
complexity of some of these cases, which is why there are relatively
small numbers of them, and we are looking to see whether we could
actually have a dedicated court that has full electronic equipment
in order that we can present thousands of documents electronically
which would clearly help quite a lot.
Q68 Chairman: You are dropping your voice.
Mr Eland: I apologise. I was saying
that we are talking to the Department of Constitutional Affairs
in order to see if we can get a dedicated court with electronic
document handling equipment which would very much help in this
field, but there are also some constrictions on counsel. These
are very complex cases and you need to have the people who have
the skills to prosecute fraud. So, that does also lead to some
restriction but they are both areas we are looking to address.
Q69 Mrs Browning: Are you getting a favourable
reception from the department?
Mr Eland: Yes, we are.
Q70 Mr Jenkins: You said in answer to
the Chairman, "We are committed and we are going to close
this VAT gap."
Mr Eland: Yes.
Q71 Mr Jenkins: It is easy, is it not,
since the VAT gap is what is actually collected by you and an
estimate of what should be collected by you. So, all you have
to do is reduce the estimate and you have closed the gap!
Mr Eland: I am sure that if I
came to this Committee and used that as an argument, I would very
rapidly be subject to difficult questioning. We are clearly looking
to improve the yield and I imagine in future that is what you
will be looking at.
Q72 Mr Jenkins: In the Report, figure
2 on pages 11 shows that you use the top down approach whereas
the bottom up approach would show that your gap is very, very
quickly closing. What is the difference between the two in essence?
Mr Eland: The top down is done
by our analysts or economists and is essentially a statistical
exercise. The bottom up approach is something we try to do using
information coming through our operational teams and to build
up a picture of how we see the fraud. So, that is what we are
trying to do.
Q73 Mr Jenkins: So, by merging the two
and coming to a compromise figure, you actually close the gap,
do you not?
Mr Eland: We are not presenting
it in that way. The figures by which the targets—
Q74 Mr Jenkins: But it is possible.
Mr Eland: I am sure it would be
possible if that were the way in which we wanted to present it
but we are not presenting it in that way.
Q75 Mr Jenkins: In answer to another
question, you said that VAT had increased by £3 billion.
Mr Eland: Yes.
Q76 Mr Jenkins: Did that VAT increase
because of your efforts to collect the tax in or did that VAT
increase because the economy was doing so well? When I go to my
petrol station, I pay VAT. There are loads more traffic and loads
more people on the roads, so we are collecting much more VAT in,
are we not? So, which is it?
Mr Eland: It is not the economic
effects. If consumption has increased, that is taken out of the
equation. So, it is largely, we think, as a result of our efforts.
There will be an element. We have not fully analysed that £3
billion and we will not be able to tell until later in the year
as to what its different components are but we are fairly confident,
as I was saying, that at least £1 billion of that is because
we have reduced the amount of fraud. So, it is not an estimate
issue.
Q77 Mr Jenkins: When you said in answer
to Mr Steinberg's question that you have transferred resources
to serious crime, you must have done a value for money approach
on this.
Mr Eland: Yes.
Q78 Mr Jenkins: You must have looked
at the amount of cost involved in the searching, investigating
and the bringing to court of these cases against what would be
brought in—I would not say it is either/or but, if you are
switching resources, you have made that decision—by visiting
small traders and capturing small traders and rolling them out,
which I presume would be quite a quick exercise.
Mr Eland: Yes.
Q79 Mr Jenkins: There are two cases on
pages 32 and 33 and the one on page 33 is where you visit the
small trader, decide that he is not paying the requisite amount
of tax in case 10 and you collect £73,000 in tax. How many
cases of £73,000 would you undertake and wrap up and collect
on at a time of involvement it would take in the serious crime
squad?
Mr Eland: The average amount involved
in a serious investigation is about £17 million. In a big
criminal investigation, it is about £1 million. In some of
these smaller cases, it is below £100,000. So, those are
the sort of ranges about which we are talking.
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