Examination of Witnesses (Questions 140
- 159)
WEDNESDAY 18 JANUARY 2006
MS JEAN
JESTY AND
MS JANE
MOORE
Q140 Chairman: Could I welcome you
to the Sub-Committee. Could you introduce yourselves formally
for the shorthand writer, please?
Ms Jesty: I am Jean Jesty, President
of the Association of Taxation Technicians and Chairman of the
Technical Committee.
Ms Moore: I am Jane Moore. I am
a Technical Manager at the Institute of Chartered Accountants
in England & Wales.
Q141 Chairman: I think you have appeared
before us before?
Ms Moore: Yes.
Q142 Chairman: Welcome back.
Ms Moore: I have appeared in your
constituency as well.
Q143 Chairman: You did. You are both
involved in advising clients on tax credit issues. How successful
do you think tax credits have been in achieving what the Government
wants to achieve?
Ms Moore: I would say they have
been quite successful for a lot of people. As was mentioned earlier,
we only tend to see the things where there are problems, we do
not see the ones that are trotting along quite happily. It depends
who you are, how many changes in circumstances you have and how
happy you are at filling in forms. There is no doubt that the
money, assuming you get the right amount, is much better than
under the previous system.
Ms Jesty: I would agree with that.
I think we have to point out that most of the clients we see can
afford professional advice and, therefore, although many are certainly
illiterate in terms of government forms they are not quite in
the same category as some of the ones who go direct to the voluntary
sector.
Q144 Chairman: If these reforms do
not work, the Chancellor said he would be prepared to look again
at a system of fixed awards based on last year's entitlement.
Do either of you think we should go back to that or should we
persevere in getting the system right?
Ms Jesty: I think one ought to
persevere. The system in itself is a good concept and having gone
this far I would be very surprised if it would be possible to
go back to a fixed award system.
Ms Moore: We are moving towards
a fixed system in effect with the £25,000 disregard, so for
some people it will be fixed with respect to their incomes anyway
unless they go down. I think the responsiveness to income going
down plus the responsiveness to change in circumstances is a good
thing. The annual basis is better than the previous system of
WFTC et cetera, which was based on a snapshot of the period
before you claimed and could give you an amount which was predictable
but perhaps not quite what you needed.
Q145 Chairman: In your own written
evidence, you suggest one result of the Pre-Budget Report reforms
will be that claimants will have to have a lot more contact directly
with HMRC. Is that going to increase the costs of administering
the system?
Ms Moore: It is difficult for
me to comment on the costs for HMRC of administering the system
but there is going to be more contact in that there are more things
that have to be notified. There is going to be more initiative
from HMRC to encourage people to notify of things they are not
even obliged to. More contact would presumably mean more cost
for HMRC, yes.
Q146 Peter Viggers: In your representation,
Ms Moore, you recommended that the £25,000 should apply to
awards for 2005-06.
Ms Moore: I was not necessarily
recommending that it should apply, I was suggesting that when
we get to the next renewals round in the summer of this year people
who will have read about the £25,000 may perhaps be expecting
that their awards for 2005-06 will be fixed with that disregard
applying, and of course it will not, it will only apply for 2006-07
awards onwards. I think possibly there is a public expectation
problem there that people will not understand what this £25,000
is that has not really affected them yet.
Q147 Peter Viggers: With the £25,000
disregard, is there another opportunity for individuals who choose
to behave this way to establish a low pattern of income and then
jump to a significantly higher pattern and not be penalised?
Ms Jesty: There is certainly scope
for it. Given that it is there in the legislation there will always
be people who will seek to take advantage of what is in the legislation.
I see no way around that.
Q148 Peter Viggers: In what way is
the system generally liable to fraud in your experience?
Ms Jesty: I think it depends on
what you consider to be fraud. I would say there is a distinction
between fraud and manipulating the system, which would be called
avoidance, which would be perfectly legal in terms of what the
system allows. Fraud is what we read about in newspapers of people
making false claims.
Q149 Peter Viggers: Indeed. Lawyers
know the difference between avoidance, which is legal, and evasion,
which is not. I was talking about this kind of fraud where millions
of pounds have been taken from the system. The system was apparently
designed with fraud avoidance in mind. I wonder if you are able
to give us any indication, based on your own reading of newspapers
and your comments on your experience of the system, of the manner
in which fraud operates.
Ms Moore: My feeling reading The
Times report is that there must be some inside work going
on there to lift individuals' details wholesale and use them for
fraudulent claims. Obviously we are not in a position to say what
may or may not have gone on. I would have thought with things
like the £25,000 disregard and the possibility of manipulating
in the kind of way we are talking about, the notional income provisions
ought to be used to pick up people who are deliberately doing
that. I would be interested to know whether HMRC are now putting
in firmer checks to spot patterns of people trying to do that
so they use the notional income provisions to stop it.
Q150 Peter Viggers: The two obvious
examples are alternating the years in which you make contributions
by way of Gift Aid and then the amount you draw by way of pension,
which are clearly capable of being manipulated. To what extent
does the end-of-year renewal process currently cause overpayments?
Ms Moore: There have been problems
with things like the renewal packs going out late and provisional
payments running on and people building up overpayments. I think
it is a significant cause of problems because people do tend to
leave it a little bit late sometimes.
Q151 Ms Keeble: I suppose it is obvious
but with the change in the rules so that you have to renew by
the end of August, do you think that is practical given the way
people inevitably lead their lives, that the end of August is
not a good time to ask people to do anything?
Ms Moore: I have thought about
that. I am not sure I feel very strongly that it should not be
brought forward a month but I am not convinced it is going to
achieve all that much. I think more could be achieved by getting
the packs out promptly and educating people to renew earlier.
I also think for some of our members who have clients who are
under self-assessment, there is a lot to be said for the 30 September
deadline tying in with the first date when the Revenue want tax
returns back. I think that makes it easier for people to grasp
the deadlines and understand what is coming up rather than having
an August one and then a September one if they are in that position.
Q152 Ms Keeble: Can I just ask one
further question which relates to Peter Viggers' question about
fraud and manipulation, which is probably a much bigger issue.
Previously when people worked more regular employment patterns,
people would have a job and that would be it, it would be a known
quantity, whereas now quite often people make up packages of employment
with a number of different jobs or they vary their hours and juggle
them quite carefully. One of the things I wondered was whether
the present system incentivises people to work as much as they
can or whether it says to people, "Make up your income package
so that you juggle the hours you work to the tax credits you can
get so you get something that works properly for you". I
do not think that is what the tax system and benefit system is
supposed to do. I wonder what your comment is on that.
Ms Jesty: I think you would have
to be extremely sophisticated to be able to manipulate your work
patterns to that extent to maximise your credits.
Q153 Ms Keeble: I do not think you
do particularly. I have certainly had constituents tell me that
in a sense it is fair enough, they will work a few hours, get
tax credits for a bit and get the childcare element and it makes
up quite a good package. That is fine as far as it goes but if
what you are trying to do is encourage people to maximise their
employment opportunities and perhaps think of moving from part-time
to full-time work, it can act as a disincentive. I think people
are very sophisticated about the way they work and the way they
juggle things, obviously for perfectly understandable reasons.
Ms Moore: It is one to think about
in a way. I agree, I think people would have to be quite sophisticated
to do that. Particularly if you are looking at the average over
the year income measure, you would have to do quite well to juggle
it to affect your tax credits for the whole year.
Q154 Ms Keeble: What I am saying
is that if you decide you are going to work for a certain number
of hours or you can have three different part-time jobs, which
is perfectly possible, you could do six hours here, ten hours
here and five hours here—I forget the exact hours you need—that
will give you a certain income and then you can get your tax credit
and your childcare element and you will have quite a good package
and that encourages a particular pattern of employment, whereas
for the person who perhaps retrained to do a really good job the
stability would go and they would lose their tax credits. I find
it particularly with women who might be thinking about retraining
to become teachers or retraining to move to classroom assistants
and then become teachers, that kind of thing. Do you think that
is a disincentive?
Ms Moore: I see what you mean
but if you are going to have a threshold with hours to qualify
for things or not qualify, surely there are always going to be
people who organise their affairs around the borderline. The alternative
is to have a complete gradient from nought hours up to however
many hours you work. It has been suggested that there are problems
with the 16 hour cut-off for people who want to get back into
work who are disabled or ill who cannot manage 16 hours but could
manage 14. I cannot give you a completely considered answer to
that really because I have not thought about it.
Q155 Chairman: If you want to reflect
on it and you come up with a more considered answer, do feed it
into us.
Ms Moore: I think that might be
wiser.[1]
Q156 Lorely Burt: I would like to
ask your views on the tighter reporting deadlines and what effect
you think those are going to have. Jane, you say in the context
of increased responsibilities to report the changes, the penalty
regime should be applied with a light touch. What approach would
you say HMRC currently applies to applying penalties?
Ms Moore: Generally there has
been a fairly light touch. I am thinking more about the things
you are going to have to report now that have not had to be reported
before, such as drops in working hours which are hard to work
out, particularly with flexible work patterns. There is not any
very good guidance out there for people to know how to work out
their average work. If they are going to have to report it within
one month rather than three, a month may not be enough for them
to even know if their pattern of work has changed permanently,
so therefore they should not be penalised. The same applies to
people who have a new relationship, for example, or a relationship
break-up. A month is not long. You cannot really say to your new
bloke who has just moved in, "Okay, you have got one month
to tell me if this is permanent". People do not live their
lives like that.
Q157 Lorely Burt: I wonder if I could
ask you, Jean, do you think HMRC is justified in concentrating
on getting claimants to report only those changes to which penalties
apply, whereas you suggest that delays in the reporting of other
changes may also result in overpayment?
Ms Jesty: By the very nature of
things it would be surprising if the Revenue did not concentrate
on revenue raising matters. The whole question of time limits
for reporting is a difficult one because the more you have to
report and the sooner, the more likely it is to be incorrect and,
therefore, will have to be revisited. I have strayed from your
original point.
Q158 Lorely Burt: What I am thinking
about is we have heard from previous evidence sessions that you
can only make a small number of changes in any one day, so if
your phone number is changed as well as other circumstances then
that might just cause a problem in the whole system and you have
got to start all over again. Have you got any experience of that?
Ms Jesty: The difficulty seems
to be to get through in the first place. If you have to stop at
three and redo it the next day something will crop up and it is
quite likely to slip your mind.
Q159 Lorely Burt: Indeed. Can I move
on to recovering overpayments? The Ombudsman recommended that
consideration should be given to writing off all overpayments
caused by official error during 2003-04 and 2004-05. Do you know
of any way that these overpayments could be identified without
placing an undue burden on HMRC?
Ms Moore: There is not very much
information to be had about the causes of overpayments and I suspect
in most cases there is a mixture of things, partly official error,
computer error, which is official error, a whole host of things.
It is hard to pinpoint and categorise them. I would like to see
more information on that I must say. As to writing off everything
caused by official error and ignoring the reasonable test, that
is probably a bridge too far in using public funds because we
have come across plenty of cases where people have quite substantial
overpayments and they know they are wrong and are not too fussed
about paying it back provided they know that it is correct. It
seems unfair to those who have already struggled to pay off an
overpayment or have borrowed to do so if people now are going
to have the balance of overpayments written off.
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