Examination of Witnesses (Questions 40-59)
HM REVENUE AND
CUSTOMS
28 JANUARY 2008
Q40 Mr Touhig: I understand that,
but I am asking how did you get into that where 58% of those you
were chasing were going to bring you 1% as far as tax revenue
was concerned?
Mr Hartnett: We were not sufficiently
rigorous in applying the application of resource to risk in a
central way and we have increased the rigour of our management
approach.
Q41 Mr Touhig: The Large Business
Service employees state that the likely retirement of one-quarter
of staff over the next ten years is a key risk to the unit's ability
to meet its objectives. What are you doing to ensure that you
have staff who have got knowledge, experience and understanding
of the industry in this key service?
Mr Hartnett: A number of different
things, Mr Touhig. First, we are about to bring into the business
the largest number of recently qualified tax inspectors, if I
can put it that way, that we have ever brought in in one go. We
arranged for them to be trained and developed in-house. We second
some out to learn how business works. We have people coming to
teach us and, as employees, we hire people who have retired from
major accounting and law firms to help us develop our people.
Q42 Mr Touhig: So you do not think
that is going to be a problem? Your staff have identified it as
a key risk but you believe you are addressing it?
Mr Hartnett: We believe we are
on to this risk.
Q43 Mr Touhig: Why have you cut back
on-the-job training for frontline tax specialists?
Mr Hartnett: The particular programme
there is the international course. We decided a better approach
to international tax issues was for people to learn on the job
from our own experts, from the people we bring in, and the centrally
managed course that we sent people on was less effective than
doing it at the desk.
Q44 Mr Touhig: The Report tells us
that a third of your tax specialists and client relationship managers
feel their training is not good enough to give them confidence
for their role. You certainly have a problem there, do you not?
Mr Hartnett: We recognise that
issue and we have invested a lot more in it. I will ask Melanie
if she would not mind commenting on this because she has led that
work.
Ms Dawes: It is important for
us to be clear that this is a big challenge for us to keep our
skills up in the face of an ever more complex tax environment,
globalisation, a big change in the global economy, so to that
extent this is something that we are always going to have to take
very seriously and is always going to require additional investment.
On the international point, as Dave said, we have switched our
approach there. As well as having more of an emphasis on on-the-job
training, we are increasingly creating specialist roles. We have
got quite a large group now of international issue specialists
within the Large Business Service whose sole job is to work in
that area and we have training to back that up. We have very recently
created new transfer pricing posts. We have 16 specialists joining
the Large Business Service just to do transfer pricing with, again,
a training package attached. Our staff have received this very
well. It is the kind of very detailed, very technical investment
in them that they recognise and value. It is an ever more specialised
approach rather than more generic training.
Q45 Mr Touhig: This is important
because it is clear if this does not happen then companies are
going to run rings round you, yes?
Ms Dawes: Yes.
Q46 Mr Touhig: Mr Hartnett was rather
concerned when I asked him about tax avoidance earlier, but if
you do have companies that are involved in highly creative ways
to avoid paying tax then you have got to have people as skilled
and as creative in order to combat that, have you not?
Mr Hartnett: That is absolutely
right.
Q47 Mr Touhig: What is your training
budget?
Mr Hartnett: We will have to let
you know, I am afraid I do not have that with me.[3]
Ms Dawes: I do not know the figure
for that.
Q48 Chairman: Can I just ask one
supplementary, which is quite important. Maybe you can answer
this, Melanie Dawes. Whenever we raise an issue we are told that
things are getting better and all the rest of it, but we did look
at this in terms of Corporation Tax in local offices three years
ago. Were you around three years ago, I do not know?
Ms Dawes: I personally was not,
no.
Q49 Chairman: It was the same story,
40% of inquiries produced no additional Corporation Tax. I just
wonder whether you are actually making a lot of progress or whether
what you have told us today is prepared for this Committee, we
had the same story three years ago and we will have the same story
in three years' time, and whether this tax is just not too complex?
Mr Hartnett: I do not think that
is right, Chairman.
Q50 Chairman: It is very complex.
It is a very difficult tax, is it not?
Mr Hartnett: I do not think it
is right, Chairman. If I turn to the review of three years ago
that was smaller companies below FTSE 350-plus and we have made
improvements there by stratifying our approach, by bringing in
better risk assessment systems, but we will never be able to guarantee
that every risk we examine leads to tax yield because it is risk,
not tax sat there waiting to be collected. The numbers that Melanie
gave you earlier demonstrate that we are making a real improvement
in relation to the work of the Large Business Service. Although
the yield from the inquiries can be lumpy year-on-year, more one
year and less in another year, there is a trend over the last
three years in terms of absolute yield of rising yield. I think
we are getting better.
Q51 Mr Bacon: I would like to start
by asking Melanie Dawes, it says in your biography that you co-ordinated
the first Treasury assessment against the five Treasury tests
for UK membership of the single currency. Is that right?
Ms Dawes: Yes, it is.
Q52 Mr Bacon: I would just like to
say you did a great job, thank you very much.
Ms Dawes: Thank you very much.
Q53 Mr Bacon: Could I ask you another
question about transfer pricing which you just alluded to. You
just said you have taken on an extra 16 staff?
Ms Dawes: Yes.
Q54 Mr Bacon: On transfer pricing
specialist posts. By the way, how many is that? How many people
are there in total? You are the General Business Service and your
colleague, Freda Chaloner, is the Large Business Service, how
many staff are there in each one in total doing this?
Ms Dawes: In the Large Business
Service we have 600 staff working on Corporation Tax but we also
have specialists working in other roles in the Department. For
example, we have nearly 350 specialists in our CT and VAT Directorate
and another 100 in anti-avoidance. We also have lawyers and investigators
across the Department.
Q55 Mr Bacon: On top of the 600?
Ms Dawes: Yes.
Q56 Mr Bacon: They could be called
upon by any part of the service, either the Large Business Service
or the General?
Ms Dawes: Yes, and some of them
work on indirect tax as well.
Q57 Mr Bacon: So you have got 600
on the Large Business Service, how many on the General Business
Service?
Ms Dawes: In the area dealing
with small and medium-sized enterprises we have around 12,000
staff, I believe. That is working on individuals and small and
medium-sized enterprises. I would have to confirm the precise
figure but it is of that order of magnitude.
Q58 Mr Bacon: You are already as
a matter of necessity devoting, in terms of employment cost, a
much bigger proportion of your effort towards the long tail, and
I suppose that is inevitable, than you are to the top, as well
as within that top 600 devoting a lot of it to the smaller take
rather than the big take, are you not?
Ms Dawes: That figure I gave you
of 12,000 is across all the taxes and for all taxpayers, that
is our entire compliance effort. Outside the very small number
of large business customers come via the Large Business Service.
Q59 Mr Bacon: Can we go back to transfer
pricing. You said you have just taken on 16 specialists in transfer
pricing, when was that?
Ms Dawes: Those people are actually
taking up post in the next three months.
3 Note by Witness: The Department's total training
budget was £69.3m in 2006/07, which provides for a combination
of in-house delivery and the procurement of specialist external
training. Actual figures for 2007-08 are not yet available. Back
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