Examination of Witnesses (Questions 40-59)
16 MAY 2007
HM REVENUE AND
CUSTOMS
Q40 Mr Dunne: Why is it then that
so few businesses, particularly small businesses, are aware of
the online bounty, which I understand is applicable, of £150
to file online and aware that that should be completed by Saturday
this week. I refer you to the You Gov poll in the Financial
Times of last week which indicated that 28% of the 1,386 companies
they interrogated were not aware of the deadline.
Mr Gray: I cannot give you a precise
explanation of that. There is less awareness than one would like
there to be. I am sure with the benefit of hindsight we may have
been able to do better in terms of our own information provision
and guidance. It is also similar to the point I was making to
Mr Touhig that busy business people have a lot on their minds
and their awareness of these things is less than we might wish.
Certainly going forward, I am extremely keen and committed to
making sure we do ensure that our provision of information and
marketing of the online opportunity gets better.
Q41 Mr Dunne: May I ask you about
the bounty? When was it introduced?
Mr Gray: I am afraid I do not
have that figure in my head.
Mr Lloyd: I think you are referring
to the amount for employer returns which is not the corporation
tax.
Q42 Mr Dunne: This is the PAYE then.
Mr Lloyd: Yes.
Q43 Mr Dunne: It does not apply to
corporation tax returns; there is no bounty applying to that?
Mr Gray: Nor for VAT; that is
right.
Q44 Mr Dunne: Do you think you ought
to consider an incentive to encourage people to file on time and
online?
Mr Gray: In terms of on time I
have sought to respond to your colleagues that, although it is
an interesting idea, there are cons as well as pros of us consciously
reducing the amount of tax we are collecting below the due level.
In terms of online, we have not at this stage gone down that route
in relation to the corporate taxes. As Geoff Lloyd pointed out,
we did do that in relation to employers' PAYE returns. We are
still in the process of evaluating whether the online premium
that we gave people has offered good value or not. There is always
a danger in economist jargon, particularly when the underlying
trend is going up very sharply, of significant dead-weight and
whether it is a good use of public money to pay people—
Q45 Mr Dunne: Do you mean rewarding
the good behaviour of those who would behave properly anyway is
not something you want to encourage?
Mr Gray: Behaving properly is
a description that I would apply to on time. Whether I would regard
it as proper in terms of online—
Q46 Mr Dunne: You have already just
conceded that it is cheaper for you, for the taxpayer and for
the company to file online and therefore it is good behaviour.
Mr Gray: It would be good value
if we were actually able to direct the money to the people who
would not otherwise do it. Giving the money to people who are
going to do it anyway is the problem.
Q47 Mr Dunne: And that is your objection
to the proposals in table 11 on page 24 for financial incentives
that the NAO recommend and I accept that argument. Have you considered
providing incentives for those companies who file late either
on the second occasion or the third occasion and rather than hit
them penalties, have you considered giving them incentives for
them getting those filings in on time, online?
Mr Gray: No, we have not, to be
honest.
Q48 Mr Dunne: May I suggest you have
a look at that? It is a good suggestion from the NAO and I accept
your argument on the first point. Just in relation to the other
recommendations in table 7, the experience in other countries,
are there any specific issues that have been raised by the NAO
for improving online participation that you have recognised as
something you could introduce or should consider introducing here?
Mr Gray: I cannot point you to
anything very specific, but certainly all the issues that were
brought out in that table and particularly around mandatory online
filing we are obviously pursuing following the Lord Carter's Report.
The table does bring out that there is one country, Mexico, that
has gone for the monetary rewards approach and we have talked
about that. It is certainly very helpful to have the further input
from the NAO study that causes us to look a little more intensively
at some of the things other countries are doing.
Q49 Mr Dunne: May I suggest you also
look at the Irish experience? The tax clearance certification
seems to be an interesting route to improve performance. Final
question on table 14, pages 32 and 33. The flow of the process
shows that at the end of the process, if someone has provided
a validated form for their corporation tax, HMRC acknowledges
the self-assessment or gives notice of a correction for a corporation
tax form submitted by a company. Does it do the same for a partnership
or for a sole trader and if not, why not?
Mr Gray: I am afraid I do not
have that answer in my head.
Q50 Mr Dunne: The reason I raise
it is that I have had constituent issues raised with me from tax
advisers who submit returns on behalf of small businesses and
are no longer able to be given a receipt by the local tax office
because the procedure has changed. They are no longer able to
prove to the Revenue or their client that they have submitted
their return on their behalf. This is something which is quite
wrong and I would urge you to look into that.
Mr Gray: I entirely take the point
and I will happily look into it.[4]
Q51 Mr Wright: In 2005-06 85% of VAT
returns and 79% company tax returns were filed on time; 74% of
businesses filed and paid VAT on time in 2005-06 and 60% of companies
filed their company tax return and paid their corporation tax
on time, a slight decline. They seem very low to me. Are they?
Mr Gray: They are not low in relation
to our recent historic experience. Those are the trends.
Q52 Mr Wright: Are they lower internationally?
Mr Gray: I am not sure to be honest.
Q53 Mr Wright: You do not do comparisons
as to how European companies file and then pay VAT.
Mr Gray: We certainly do look
at that, but I am afraid I do not have that material in my head.
Q54 Mr Wright: Is there a sense that,
as you said, the trend has been around these numbers for quite
some time? You said, and it was an interesting couple of quotes,
that this is not absolutely near the top of the list and you said
in terms of the resources of the organisation you want bangs for
your buck. Is it just a case that you have an implicit feeling
that it is always going to be round about this figure and if you
throw any more resources at it, as you have done in the past when
nothing has happened, you are just happy to keep it as it is?
Is that true?
Mr Gray: I would take a rather
different view if our assessment was that lateness was leading
to significant losses of tax. I made the point earlier that although
we do have significant proportions for both taxes where the filing
is late, I am reasonably satisfied about the arrangements we have
in place, via assessments for VAT and determinations for corporation
tax, that we are still in the position to collect that tax. As
I said earlier, if there were no other constraints in the world,
I would push harder in this area. What is more important, as I
said earlier, is trying to make sure we improve the accuracy level.
Q55 Mr Wright: May I just ask about
that? I am interested in your accounting systems. When do you
actually recognise the revenue? What is the point at which HMRC
recognise the revenue? Is it when you issue the assessment or
is it when the cash comes in?
Mr Gray: We have increasingly
moved over recent years to a resource or accruals accounting basis,
so we are accruing now rather than being purely cash accounting.
Q56 Mr Wright: So how much debt do
you write off on a year-by-year basis with regards to VAT and
with regards to corporation tax?
Mr Gray: I wonder whether Geoff
can help me with figures on that. We do have figures for how much
we write off.
Mr Lloyd: We have written off
around 2% of the VAT in 2005-06.
Q57 Mr Wright: Is that just a general
assumption that you expect to get in a certain figure, you will
write off 2%, rather than individual accounts?
Mr Gray: That is the net result
of a lot of individual accounts.
Q58 Mr Wright: And how much is that?
Mr Lloyd: It is £1.5 billion.
May I just add to the previous point that you were making about
amounts received? We actually receive quite a considerable amount
of the corporation tax before the return is due, not simply after.
80% of our corporation tax comes in through quarterly instalment
payments and all four of those quarterly instalments are actually
made well before the return itself. We are not simply looking
at the difference between the date of return and some tax that
is due afterwards, it goes both ways.
Q59 Mr Wright: May I ask about information
that you receive, paragraph 1.8, and the Chairman alluded to this?:
"The Department's understanding of the small and medium sized
businesses that fail to file Company Tax returns on time is at
local level only—as developed by the Area Office inspectors
responsible for those companies". Do you think that is reasonable
or do you think the level of control should be much stronger?
Mr Gray: That is an historical
arrangement that we are seeking radically to move away from and
to move to a much more centralised risk assessment. One of the
first things that I and my predecessor did following the merger
of the former Revenue and former Customs was to move our organisational
structure away from an essentially regional geographic base to
an essentially functional base. Although we still obviously have
staff around the country, we are seeking to manage and drive the
business much more on a centralised basis and we are developing
centralised risk tools. We still have some way to go on that,
but going away from local nous to more structured, consistent,
intelligent, drawing information from different taxes so we are
building a much better overview of the business or indeed the
individual that we are dealing with.
4 Note by witness: When self assessment tax
returns are filed online, receipts are given automatically. Postal
services offer various facilities, including receipts and the
ability to "track and trace" the progress of posted
items both online and by telephone. It is not HMRC policy to issue
receipts when returns are handed in at their enquiry centres.
However, in 2005, the Working Together Steering Group, a consultative
forum which comprises representatives of HMRC and tax advisers
professional bodies, agreed a satisfactory "audit trail"
which will normally be accepted as "reasonable" evidence
of delivery. Back
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