Examination of Witnesses (Questions 60
- 79)
WEDNESDAY 2 FEBRUARY 2005
HM CUSTOMS &
EXCISE
Q60 Mr Allan: That is not going to—does
that not move towards 100%?
Mr Eland: We want electronic filing.
We want to encourage people to do that. We want to tackle that
cultural issue, but to do it voluntarily first of all rather than
going straight into compulsion.
Q61 Mr Allan: You are saying to all
small VAT-registered businesses that they will have to move to
electronic filing.
Mr Varney: We are trying to encourage
them rather than saying "you have to". At the moment
we get the vast majority of volume filings done electronically;
but they are only a small percentage of the total number of files.
Q62 Jon Trickett: I want to focus
on the tax gap, which is the estimated difference between the
amount of tax due and the amount of tax which people pay. The
estimate, which is rather precise, is that at the moment the tax
gap at the beginning of this period is 15.8%, and the target is
to get it down to 12% eventually.
Mr Varney: Yes.
Q63 Jon Trickett: Can you tell the
Committee about the accuracy of the data upon which you are basing
your estimates? It seems to me slightly preposterous to suggest
that you have the figures very accurately in some ways.
Mr Varney: I do not think it is
right to the nearest penny. We are trying to assess the total
amount of expenditure in the economy that theoretically is available
for VAT. Then we look at the tax liability on that expenditure,
based on the commodity breakdown, so we have some sort of model
run by economists and statisticians. We then take a view of what
would be legitimate deductions from VAT liability through schemes
or relief or government policy, and that would give us a net VAT
theoretical tax liability, which goes by the entrancing name of
VTTL.
Q64 Jon Trickett: Given the national
debate going on at the moment about the Chancellor's estimates
on the economic activity within the nation, and given the fact
that we have so many different points of view about whether the
economy will upturn in any quarter, consultation you tell us if
you use he same statistical base to synchronise with the Treasury's
estimates? Secondly, given the inaccuracy of everybody else in
estimating where we are going to be, how is it that you are producing
something that you think is accurate?
Mr Varney: We use the Office of
National Statistics data.
Q65 Jon Trickett: Is that synchronised
with the Treasury estimates?
Mr Varney: The Treasury is dealing
about the future.
Q66 Jon Trickett: So are you, are
you not?
Mr Varney: This is a historic
Report on the gap. We do some forecasting of what we think the
gap might be and what it might involve in terms of our target,
but what we are reporting is historic, so we are looking through
the rear-view mirror and using the data we have got—what
we thought should have been the theoretical VAT payments as against
the actual, and then estimating the gap. Of course, we are joined
up with the Treasury in terms of forecasts.
Q67 Jon Trickett: At what point do
you produce your results?
Mr Varney: We will give you the
latest data we have. Some of that data is subject to revision
as the Office of National Statistics gets more data. When we get
that, we obviously revise the data.
Q68 Jon Trickett: At what point do
you produce figures?
Mr Varney: At the Pre-Budget Report.
Q69 Jon Trickett: They are based
on the previous year.
Mr Varney: Yes.
Q70 Jon Trickett: So in November
you estimate what the tax gap was for the previous year.
Mr Varney: Yes.
Q71 Jon Trickett: Does that change
any further, generally speaking?
Mr Varney: I am sure there are
minor changes backwards and forwards, hopefully, in the right
direction.
Mr Gray: If the underlying accounts
data changes, then, yes, it will change with it.
Q72 Jon Trickett: You have a percentage-based
calculation which you then turn into financial targets.
Mr Varney: We are set a percentage
target under our PSA.
Q73 Jon Trickett: You turn that into
cash, and give that as targets to the Department.
Mr Varney: We do a bit of both.
We have a target of percentage, and we obviously look at how much
money we think we have collected in terms of increased VAT, and
how much we think is general economy, as against how much has
come from our VAT-compliance strategy.[4]
Q74 Jon Trickett: Looking at paragraph
3.8 on page 131, you turned the tax gap, which is in percentage
terms in terms of your objectives, into increased cash returns.
As I understand that table, that is the percentages turned into
a million pounds. When you said you are looking in the rear-view
mirror, somehow you have turned the rear-view mirror into guiding
you on what motorway you are on, and turned it from percentages
into millions of pounds.
Mr Varney: What we have done there
is use the—I think we are trying to discuss two things:
the historic percentage you started with, which was the answer—how
do we do it in the rear-view mirror; in terms of increase in yield,
those are fed in to the PBR type forecasts and those are derived
numbers using the basis of the assumptions for the economy going
forward.
Q75 Jon Trickett: I was talking all
the time about the projected gap actually, and you may have answered
different questions from the ones I was posing, but somewhere
I read that you have achieved 12.9%.
Mr Varney: Yes.
Q76 Jon Trickett: Your objective
was to get down to 12%, was it not?
Mr Varney: Yes.
Q77 Jon Trickett: That 12.9% was
at 2003-04. Is that figure of 12.9% accurate?
Mr Varney: It is our best estimate
at this point in time.
Mr Gray: it is based on pretty
firm figures for the actual amount of VAT that we collected.
Q78 Jon Trickett: We are making heavy
weather of this. Let me try to push forward a little bit. Paragraph
3.8 talks about £35 million. I understand that that was your
projection of the decrease in the tax gap or the VAT gap that
you would achieve in that particular year.
Mr Gray: It is one part of the
gap. It just relates to one of our areas we are looking to focus
on, this general non-compliance area, which was the area of VAT
activity that the NAO Report concentrated on; but there are other
areas such as the—[5]
Q79 Jon Trickett: What was your projection
of the increased yield produced by the decrease in the tax gap
for 2003-04 because ostensibly this looks as though it is supposed
to be £35 million? You are now clearly saying it is only
the fourth part of it.
Mr Varney: We are saying that
in terms of reducing the tax gap there are a variety of activities
in which we engage, of which this general compliance is one element.
We have got a breakdown in terms of the missing trader fraud,
which we think probably contributes somewhere between £480
and £610 million.
4 Questions 66-73 refer to the PSA target for reduction
of the VAT gap, this was set as a percentage rather than a monetary
amount in an attempt to enable measurement free from wider economic
factors. Back
5
Note by witness: The reference to paragraph 3.8 is incorrect
and should actually refer to Figure 3.8. Back
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