Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 100-119)


22 NOVEMBER 2006

  Q100  Mr Love: Finally, everybody recognises—this Committee certainly recognises—the 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 figures?

  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, Chairman?

  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.[4]

  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.[5] 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 be improved?

  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.[6] 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 be helpful.

  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 that?

  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 it is.

  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 saying—and I will correct this if I am not right—that 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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