Memorandum submitted by the Chartered
Institute of Taxation
1. The Chartered Institute of Taxation (CIOT)
called for a merger of HM Customs & Excise (C&E) and the
Inland Revenue (IR) for many years. We saw considerable scope
for efficiency gains which would benefits taxpayers at all levels.
We therefore supported the proposal to merge the organisations
into what is now HM Revenue & Customs (HMRC), subject only
to concerns about the need to "hive off" the aspects
of C&E's work that were more concerned with policing the UK's
borders than managing the tax system.
2. Whether or not the merger has been a
success it is, in our view, too early to say. We were always aware
that the merger would cause disruption in the short to medium
term. There would inevitably be teething problems. To us, that
seemed a price worth paying. We continue to hold that view, and
believe that progress has been good, albeit with plenty more work
to be done to achieve the full benefits to the UK of the merger.
In the parlance, there is much still to play for.
3. However, we do have concerns about the
current position of HMRC and their progress. We see them as an
organisation that is under considerable pressure. Whilst pressure
to deliver is inevitable and correct for a tax authority, there
are at times signs of the pressures becoming excessive. HMRC need
to be able to give a proper service to the UK's taxpayers, tax
credit claimants, employers and businesses generally: they should
not be forced into cutting corners in any direction through pressures
to deliver targets, shortages of staff or other reasons.
4. The merger has already delivered successes
by facilitating proper coordination between the previously separate
direct and indirect tax systems. A good example is the integrated
approach to debt management policy: a business in difficulty with
its tax bills can now negotiate settlement with a single authority,
and agree how to regularise its position across all taxes. Previously,
whilst the IR would discuss and negotiate, C&E would rarely
do so over VAT and, in any event, there would be two separate
negotiations. The integrated system would not have happened without
the merger, and it has helped a good number of businesses.
5. Single control visits to businesses are
becoming established, helpful for business efficiency.
6. There are some good examples of fresh
thinking emerging in many areas of taxation. It seems unlikely
that the Varney Report would have emerged from the pre-merger
organisations in anything like the same way that it did do.
7. There are, inevitably, many areas where
a start has been made but much remains to be done. Joint investigations
are proving successful in many ways, but at times do expose the
differing powers and practices of the IR and C&E. We support
the reviews that are under way to harmonise the powers and safeguards,
and are well involved with the consultative groups.
8. More needs to be done to harmonise definitionsexamples
would be groups (of companies) and carsacross all the taxes.
This would be a good way of encouraging "joined-up thinking"
across all the taxes, something we are beginning to see more of.
9. There does seem to us to be, at times,
an aura of projects being pushed forward on a "political"
basisthat they must be seen to deliver a merged product.
Whilst this can be helpfulthe progress on the "whole
business relationship" is goodit has driven the major
powers review down a rather less effective path. We have made
many submissions and consistently argued that the indirect taxes
should have their administration harmonisedan Indirect
Taxes Management Act would make eminent senseand there
is, similarly, scope for more harmonisation across the direct
taxes. But to push forward a new taxes management act that brings
together income tax, corporation tax and VAT, whilst leaving aside
other indirect taxes, tax credits and NICs, does not seem to us
sensible. We have a strong feeling that the inclusion of VAT in
this (admittedly much needed) move towards a new management act
is the result of a determination to show that the two halves of
the organisation could work together, rather than a product of
10. The move of significant tax policy resources
to the Treasury as part of the merger was something we supported.
The Treasury needed a greater tax policy focus. However, we were
concerned at the time about two aspects:
The interface between HMRC's tax
policy work and that of the Treasury's: would there be overlap
Whether the Treasury's tax policy
work would link properly to operations: would tax policy decisions
in the Treasury be properly informed by what happens in practice?
We have concerns with both these aspects. That
said, the overall result seems good, but whether we are seeing
fully joined-up/coordinated tax policymaking is a moot point.
There is scope for further progress here, particularly in ensuring
practical experience is taken into account.
11. We do wonder if there are too many projectstoo
many initiativesat the moment. Naturally we make this comment
with some caution: there are rarely initiatives that we do not
support in terms of areas needing examination. However, the organisation
is under strain, and sometimes we wonder if projects are being
undertaken to show action, rather than in an expectation of being
able to complete and deliver in a proper timescale.
12. On the people front, we have two major
areas of concern. The first is that we are seeing too many examples
of people being moved within the organisation at minimal notice,
often well before a successor is identified. To a degree, moves
are inevitable in a merged organisation, and people have always
moved within the civil service with benefits on all sides. But
there do seem to be too many instances of scarce expertise being
moved away, to the detriment of taxpayers, agents and (we would
have thought) HMRC.
13. The second people issue that concerns
us is the pressure to reduce headcount. Clearly, efficiency gains
were expected through the merger; those translate into reduced
headcounts in many cases. But we feel that headcount reductions
are being pushed forward too quickly, before it is fully clear
that the organisation can deliver with the reduced numbers. We
would have thought it better to use the extra people to help deliver
results and then reduce headcount if it is really no longer needed
and not redeployable.
14. We have signalled concerns over the
state of the UK's tax law repeatedly in recent years (see, for
example, our paper "Taxed by Law, Untaxed by Concession",
April 2005). This is not particularly an issue resulting from
the HMRC merger, but there are too many examples of legislation
being made to work by HMRC interpretation rather than sorting
out the rules properly through full consultation.
15. We have some suggestions for areas that
the Sub-Committee might probe a little. These are issues that
do raise some concerns, but are in many ways areas where we are
willing to be convinced that the position is satisfactory.
16. The management structure of HMRC has
always struck us as over-engineered. At times, we have found it
difficult to be sure who is responsible for issues; at times there
can be a surprising number of people concerned with an issue.
Is it really working?
17. Perhaps linked to the last point and
some of the people issues we have mentioned, we wonder about the
general morale within the organisation. Do people feel properly
supported at all levels?
18. The general move towards e-enabling
as much as possible of HMRC's interactions with taxpayers and
agents makes a good deal of sense. But is it being driven forward
with proper understanding for those who are unlikely to be in
a position to e-file (or whatever) in the foreseeable future?
Is there proper planning for all taxpayers in this regardespecially
the smallest businesses, the low paid and the generally unrepresented?
Is there also a risk that reliance on large IT systems which have
not always been up to the mark (eg NIRS2, tax credits) will mean
increasingly scarce human resources will be diverted to sorting
out problems (eg tax credits)? Indeed, are systems tested properly
and lessons learnt from previous exercises?
19. Whilst there is an admirable amount
of information on the HMRC website, we are concerned when taxpayers
are assumed to know something because "it is on our website".
Our Low Incomes Tax Reform Group reports a number of instances
of taxpayer problems caused by this stance. Are information flows
to taxpayers properly thought through?
20. The plans for rationalising HMRC's property
usage, which seem likely to lead to many closures in "local"
offices, may well deliver cost savings. But will this maintain
a proper balance between the needs of organisational efficiency
and taxpayers generally? How will those who rely on a face-to-face
service be dealt with in future?
We would be pleased to amplify our comments
further if that would be of assistance to the Sub-Committee.