Select Committee on Treasury Minutes of Evidence


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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