Select Committee on Treasury Minutes of Evidence

Memorandum submitted by HM Revenue and Customs

  Supplementary material requested at the evidence session on 22 November 2006.

The Committee asked about the effectiveness of the Customs function. Will closing offices on remote areas like Shetland and Orkney, and relying on mobile teams, degrade the service we provide? [Q 50][9]

  We currently have two frontline Detection officers permanently based on Shetland and intend to maintain that presence for the foreseeable future.

  We deploy to risk on the other islands around Scotland by deploying mobile mainland Scottish based or Strike Force officers as required. Aberdeen based staff have the prime responsibility for Detection work across the Highlands and Islands of Scotland. Again we intend to maintain that presence for the foreseeable future.

The Committee asked about the differential yield outcomes of different kinds of activities. [Qq 57—59][10]

Cost of Collection (pence per £ collected)
2001-0212002-03 2003-0432004-054 2005-06
Income Tax1.381.41 1.361.341.275
Corporation Tax1.011.15 1.240.960.71
Petroleum Revenue Tax0.2 0.13
Capital Gains Tax1.44 2.732.091.95 0.92
Inheritance Tax1.211.38
Stamp Taxes0.110.17 0.420.440.20
National Insurance Contributions (NICs) 0.670.660.49 0.440.42
Insurance Premium Tax0.14
Hydrocarbon Oils 0.16
Gambling Taxes 0.29
Environmental Taxes0.26
Air Passenger Duty 0.05
International Trade6.07
Overall Cost (pence per £ collected) 0.971.11
Tax Credits (pence per £ paid)2.53 2.2123.033.02 2.78
Child Benefit & Child Trust Fund0.641.05 1.17


  1  From 2001-02 ratios are now based on Resource spend rather than Cash.

  2  Excludes costs of preparing for new tax credits, if these are included, the ratio rises to 4.58 pence per £ paid.

  3  2003-04 ratios have been revised following a more accurate reallocation of some costs.

  4  2004-04 ratio was affected by temporary manual processing prior to the introduction of automated processing of SDLT forms.

  5  Includes the combined ratios for Income Tax PAYE & Income Tax SA—separately, the ratios are IT PAYE 1.25 and ITSA 1.28.

The House of Lords Judgement in the Deutsche Morgan Grenfell case. Are there other major group litigation cases going on against HMRC that will be affected by this judgment? [Q 91][11]

  The DMG judgment potentially affects the Franked Investment Income (FII) Group Litigation Order (GLO) and classes 3 and 4 of the Advance Corporation Tax (ACT) GLO. We do not currently consider it affects any other litigation.

  You will of course be aware that in the Pre budget Report, the Government announced its intention to legislate in order to ensure that the limitation period for recovery of tax paid by mistake is six years from the date of payment.

Number of bankruptcies for non payment of VAT. What procedures are there if there are mistakes? [Qq 102-107][12]

  HMRC does not petition for Administration, but it does petition for Bankruptcy and winding up. In 2005-2006 HMRC made 1321 Bankruptcy Orders for non-payment of VAT and Excise Duties.

  An individual can apply at any time for a Bankruptcy Order to be cancelled, known as an annulment. This could be for a number of reasons including when full payment of the debt is made or where an agreement is reached by all creditors under a voluntary arrangement.

  If there has been an error by HMRC an application for an annulment can be made by either party and the Bankruptcy Order is cancelled. During 2005-06 there were 92 annulments, not all relating to actions taken in 2005-06, for the cancellation of Bankruptcy Orders relating to non-payment of VAT and Excise Duties. We do not have a detailed breakdown of the reason for the cancellation.

Constituency case concerning a company called Water Craft. [Q 108] [13]

  A recent case in this name is not recognised. A suitable response can be given if further information can be provided.

The PSA target to reduce the underpayment of indirect taxes and NIC by at least £3.5 billion per year. Which taxes have contributed most to the achievement of the previous and this target? Where will the effort be focussed for the current target? [Qq 112-114][14]

  The yield achieved in 2005-06 reflect the proportions set out below and given the focus of current work it is our best estimate that in achieving in the required figures for 2007-08 those proportions will not be materially different.
IT (SA & PAYE) and including CGT40%
Other (IHT, Stamps etc)5%


  In attempting to achieve the additional yields required by this target HMRC are focusing on areas where the potential of tax loss to the exchequer is greatest and not on specific regimes or heads of duty. For instance we have a key focus on tackling avoidance schemes related to both employment income (PAYE and NICs) and business profits (CT, IT & CGT). In addition it is very difficult to predict with complete certainty when settlements will be achieved as many will depend on the outcome of litigation or other legal processes. As many settlements can be for significant sums this means the proportion of yield by regime can differ considerably depending on exactly the timing of those settlements.

One of our 2002 targets was to ensure that by 2005 100% of our services were offered electronically, and our 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? [Qq 117-122][15]

  While the target prescribed that 100% of services were to be offered electronically, the target technical note interprets the PSA target as services measured by volume of transactions. This reflects the very large volume of services in the former C&E, but also that most of the transactions occur through six major services.

  Of the 14 key services six are available online (VAT payments and repayments, International Trade imports and exports, VAT European Sales lists and Rebated Fuels) and this equates to 43% of the 14 services, but 97% of the total transactions. The services that are not available are used by a low number of customers (43,000) with the majority as one off transactions. It was decided that to deliver online services to achieve the final 3% of transactions electronically would not provide the taxpayer with value for money.

  The ones not available were:

    —  IPT,

    —  APD,

    —  Landfill Tax,

    —  Climate Change Levy,

    —  Aggregates Levy,

    —  Trader Accounts Payment system,

    —  Other Accounting Docs

    —  TSP docs keyed.

Child Trust Fund. The areas of research being carried out into the take up of CTF and areas planned. How the Department aims to target the most vulnerable groups who are in most need? [Q141][16]

  More detailed information about the Child Trust Fund will be published next year. Firstly, we will have constituency level information about the number of vouchers issued and the number of accounts opened by parents. Secondly, we will be doing a detailed distributional analysis of the data, looking at take up of the Child Trust Fund by income group. This will help us to decide who best to target for help with the Child Trust Fund. Following the provider annual returns next year we will also be able to assess the relative characteristics of parents that have and have not come forward as registered contacts for those accounts which have been allocated by HMRC.

  We are continuing in our marketing activity to raise awareness of the CTF and encourage parents both to open their child's account, and to contribute to it once they have done so.

  We plan to continue with communications activity targeting new and expectant parents. For example, we provide information in Bounty packs (given out to new mums in hospital) and advertise in natal clinics, parenting magazines and on selected parenting websites. We are also in the process of introducing a direct mail reminder to parents who are late in using their CTF voucher.

  From 15-20 January we will be holding CTF Week, led by celebrity mum Sheree Murphy. This aims to raise awareness of the CTF and support parents to engage with their children's accounts. It will include activity in partnership with the Voluntary and Community Sector, a burst of radio advertising and targeted press advertising.

  To target harder to reach groups we are working in partnership with voluntary and community organisations and developing links to make information available to those parents who need extra support with the CTF.

  We continue to evaluate our marketing activity and the information provided to parents. We have revised the Child Trust Fund information pack and website following feedback from parents to make them easier to understand and use.

December 2006

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