Examination of Witnesses (Questions 100-119)|
22 NOVEMBER 2006
Q100 Mr Love: Finally, everybody
recognisesthis Committee certainly recognisesthe
real difficulties you face in relation to smuggling but, by your
own admission, when you were talking about reducing to 16% and
it had got stuck there you were accepting that perhaps you have
not done enough. Tell me what the HMRC is thinking will begin
to reduce that further from 16% to something that can satisfy
the people of this country that you are dealing adequately with
the problem of smuggling.
Mr Eland: The key thing for me
is developing the overseas intelligence in relation to the sources
of counterfeit supply and that is where we are putting the emphasis
and putting new resource. If we can develop that picture it will
enable us to use our people at the frontier and our criminal investigators
to drive down that percentage further.
Q101 Mr Love: We always talk about
the Chinese as being this and the Chinese as being that, but everyone
tells me that when you go to China they say, "We have not
got control of our own problem, so how are we going to control
the problem that comes to you in the West?". How can we get
to a situation where the Chinese can do something about this?
Mr Eland: One recent thing we
have done with our new liaison officer in Beijing is that we are
going to train them in intelligence techniques to spot exports
to us of suspect consignments. We have agreed with them that we
will give them some training in those techniques. It is that sort
of concrete thing that we are looking to do.
Q102 Ms Keeble: How many people do
you bankrupt for non-payment of VAT or apply to put their estates
into administration? Do you have those numbers?
Mr Gray: I certainly do not have
them with me. I do not know if Stephen has got them.
Mr Jones: We have not, I am sorry,
but we could let you have them.
Q103 Ms Keeble: Can you provide those
Mr Jones: Yes, of course.
Q104 Ms Keeble: Can you tell me what
procedures you go through before you take that step, which is
a very drastic step for some people?
Mr Gray: We go through a range
of steps which, as we go through our compliance spectrum, similarly
to what Mike was just saying in relation to tobacco issue, we
seek in the great majority of cases to see whether we can reach
an agreed way forward with somebody about an alternative means
of their meeting their debt to us. We certainly do not go round
taking bankruptcy proceedings against people just to show that
we are macho or aggressive people. We reach that judgment case
by case if we conclude that all the other avenues have been exhausted.
Mr Jones: If I can add to Mr Gray's
answer, first of all we seek to agree a time to pay arrangement
with the debtor if there is a realistic prospect that the debtor
can clear the debt within 12 months. That is the first step. Secondly,
we would want, in the case of a business debt, and you referred
to VAT debt, to look at whether the business was simply going
through temporary difficulties or whether it was in terminal decline,
because if it is in terminal decline the best thing we can do
for the business is to take action that brings matters to a head.
The third area is the area of assets: has the business got any
assets that they can use to pay the debt? If they can and maybe
reschedule their assets to clear the debt then we might go through
a process of what we call business rescue with them and where
we have done that it has quite often been successful.
Q105 Ms Keeble: But what happens
when your basic assessment is wrong and the person is bankrupted?
Do you keep figures on the numbers that you bankrupt where there
are basic mistakes in what you have calculated?
Mr Gray: I am not sure whether
we do it. It is slightly difficult to know how we would do that.
Have you got a case in mind?
Q106 Ms Keeble: Yes, I have. I had
a constituency case where you bankrupted one of my constituents
for a VAT problem and then it took two years to get that accepted
and put right. I wondered if you had figures on the number you
bankrupt, on the procedures you go through if there are mistakes
and what the procedures are for doing that. If you do not have
it now perhaps we could have those figures so I can see if it
is a big problem and if there is an issue about error.
Mr Gray: Can we look into that,
Ms Keeble: I do not want to delay things
but perhaps they could come back on that.
Q107 Chairman: Sure.
Mr Gray: It may be that we have
something. If not, we can consider what it is and put something
in to you.
Q108 Peter Viggers: While looking at
the point that Sally Keeble has raised perhaps I can mention the
name of a company in my constituency called Watercraft, which
was the world's leading manufacturer of safety boats. They produced
a boat which was alleged to be capable of taking a machine gun
(they were proposing to sell to Iran) and Customs and Excise fined
them, I think, from memory, a third of a million pounds and put
them out of business, which struck me at the time as amazingly
high-handed. Perhaps you could add that to the list.
The Comptroller and Auditor General's standard report was quite
critical of some aspects of the administration of PAYE. Do you
feel that you are on top of resolving those, what are you doing
about it and how confident are you that the administration will
Mr Gray: I think we are getting
on top of them would be my assessment. I cannot remember which
of your colleagues touched on the issue of PAYE earlier in the
hearing. A number of issues have emerged from the work of our
own internal audit department as well as the work of the NAO.
We have now identified the extent of the difficulties we are challenged
with and are putting in place strategies for dealing with them.
Mr Jones: There are two areas
where we have made specific improvements. One is in relation to
processing employer end-of-year returns, where the process this
year with the technology has gone extremely smoothly and we have
not encountered any of the difficulties that we encountered in
the previous year. Secondly, in relation to coding and benefits
in kind work, which was referred to in the Comptroller and Auditor
General's report, we now make you survey a tool that we have given
the staff which we call "coding assistant" and which
vastly reduces the opportunities for error in coding work, and
again the early results from that have been encouraging.
Q109 Peter Viggers: Delays in processing
in the 2004-05 PAYE annual returns apparently resulted in some
200,000 small employers waiting six months or longer for their
incentive payments. Is that one of the problems that you now feel
you have resolved?
Mr Gray: Yes.
Q110 Peter Viggers: Do you intend
to make further changes to your internal processes before you
require small employers to file online?
Mr Gray: We are certainly looking
to steadily improve our business processes. As you know, there
are proposals following Lord Carter's review for the implementation
of mandatory online filing in a number of areas. There is now
a timetable he has recommended for the various steps of that.
We are certainly not standing still saying, "Okay, all this
will now be solved by online filing". We are looking progressively
to sort out all the underlying glitches and problems that we have
in anticipation of that.
Q111 Peter Viggers: You have very
demanding head count reduction targets and internal problems of
processing to sort out. Do you feel you are fighting on two fronts
and how do you prioritise your attacks?
Mr Gray: I think we are fighting
on a number of fronts and I think it is right as a large business
that we have demanding targets set for us on those fronts. As
I was trying to say earlier to Mr Cousins and others, we are constantly
in a position of seeking to balance the cost reduction and the
effectiveness improvement agendas. The targets we face on both
fronts are demanding but, as I think has come out of some of the
earlier discussion, we feel that we are broadly on course to meet
both sides of that challenging agenda.
Q112 Peter Viggers: You have a PSA
target to reduce underpayments of direct taxes by £1.5 billion
by 2005-06 and that is a figure you report as having achieved
in that year.
Mr Gray: Yes, indeed.
Q113 Peter Viggers: Which taxes contributed
most in reducing these underpayments and where is most of your
effort going to secure the £3.5 billion needed now by 2007-08?
Mr Gray: Stephen, do you have
any of those figures in your head, or Mike?
Mr Eland: I cannot give you a
breakdown of the past areas, I am afraid. We probably could research
that and let you have a note on where we have got that from.
In terms of where we are looking to get future receipts, clearly
it is part of this risk-based approach I was talking about earlier.
We are looking to identify the areas of most serious non-compliance
and tackle those.
Q114 Peter Viggers: A note on that would
Mr Gray: I am not sure we can
give you the precise taxes that we are targeting but a number
of the key projects we are seeking to deliver are around tackling
the commonly complex personal returns and expatriate returns,
but we will certainly let you have material on what particular
taxes, which I think was what you were asking.
Q115 Peter Viggers: Your compliance
targets for indirect taxes aim to achieve a specific percentage
reduction in the tax gap. By contrast your targets for direct
taxes do not identify the size of the tax gap but require you
only to identify the amount of reduction in underpayments which
arises from particular compliance initiatives. Can you explain
Mr Gray: Yes. Although estimating
tax gaps for indirect taxes is itself pretty challenging, for
the reasons Mike was explaining, in dealing with consumption taxes
there are sources of data in relation to consumption levels for
those particular products with which we can compare consumption
and our tax take and seek to put all that data together and identify
what is the gap. When we are talking about direct taxes it is
a more challenging enterprise to try to have enough data to be
taking one side of the account and the other side of the account
and come up with an estimate that here is the tax gap. We are
certainly seeking to pursue our efforts on that and refine our
work over time but, frankly, at the moment we feel that if we
sought to produce estimates it would rely a bit too much on the
finger in the air and there is too little analysis to underpin
it. As an intermediate target for the direct taxes that is why,
in discussion with the Treasury, we have agreed that the more
sensible way to formulate the targets is as you were describing,
the specific amounts of additional tax collected rather than X%
reduction in some gap when we are really not quite sure how big
Q116 Peter Viggers: In that case
I will not press on the global amount, but can you perhaps tell
us which tax stream appears likely to have the biggest proportion
of uncollected tax?
Mr Gray: I am not sure we can,
basically for the reason that I have described. If you are asking
about which of the direct taxes as distinct from the indirect
taxes, with the most direct taxes we are facing broadly similar
challenges. It is probably true to say that for the broadly based
taxes on income, whether we are looking at income on persons or
business income, because of the size and complexity of those markets
that is quite difficult. For some of the more specific direct
taxes it may be that the gaps are slightly less but in the whole
of this area, for the reason I was trying to explain just now,
it is very difficult to get a handle on that.
Q117 Chairman: One of your 2002 targets
was to ensure that by 2005 100% of your services were offered
electronically, and your answer to that in this report is that
97% of transactions are available online. Is that sleight of hand?
What is the percentage of transactions that is actually represented
as a percentage of services?
Mr Gray: I honestly do not think
there is an attempted sleight of hand there and I am afraid I
cannot remember what is covered by the 3%. I do not know whether
Stephen has got that in his head.
Mr Jones: Yes, I have got a little
of that in my head. The transactions figure comes because we know,
for example, volumes of transactions in international trade, which
is an electronic service where volumes are high. An example of
a service which was not available online was the basic Excise
return service where the numbers of people transacting with us
are extremely low.
Q118 Chairman: So what is the correct
figure as a percentage of services rather than transactions?
Mr Jones: I think I am right in
sayingand I will correct this if I am not rightthat
there were six principal services which were not enabled, and
I think there were considerably more than that which were.
Q119 Chairman: So what is the answer
in terms of percentage?
Mr Jones: I am afraid I have not
got that in my head. I will give you a note on that.
Mr Gray: Are you asking in terms
of the number of services we provide or the amount of business?
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