Examination of Witnesses (Questions 60-79)
HM REVENUE AND
CUSTOMS
11 JUNE 2008
Q60 Dr Pugh: And in percentage terms?
Mr Hartnett: That is very difficult.
It is like guessing the complete unknown.
Q61 Dr Pugh: Well, suppose I were
to say that 80% of the people you are looking at you think are
small time offenders rather than big time?
Mr Hartnett: That would be a very
fair start.
Q62 Dr Pugh: 69 cases ended up in
prosecutions in 2006/7 and it cost on average £30,000 I think
per case per prosecution. Can you give us some idea of what the
breakdown in cost is of that £30,000, if that is the figure?
If it costs you £30,000 to prosecute somebody and you are
only looking at recovering £11,000 taxation, I think these
were the figures in the report, and you clearly will not get all
of that back as a result of prosecution, you could almost make
the case saying it is hardly worth doing apart from its deterrent
effect on other people, and you may not be encouraged to do it
on those sorts of figures. Of that £30,000 you are paying
to prosecute somebody, in a sense, what are you paying for? Is
that lawyers' fees?
Mr Norgrove: That includes lawyers'
fees, yes, and our own staff time is included in that.
Q63 Dr Pugh: How does that compare
with a DWP prosecution, because obviously they can be very expensive
too?
Mr Norgrove: Ours would be considerably
more expensive than theirs.
Q64 Dr Pugh: Twice? Three times?
Mr Norgrove: I could not hazard
a guess but our cases are considerably more complex and take longer,
so I would say it is a factor of at least three but I would be
guessing.
Mr Hartnett: If I could come in,
there is a figure here for DWP prosecution as an indication but
ours would be higher because a comparable figure would not be
just a hidden economy figure, it would be all-our prosecution
work, and some of our cases are some of the biggest and most complicated
cases in the country.
Q65 Dr Pugh: In terms of the cases
you take to completion as opposed to those you prosecute over,
have you compared them head to head with DWP? Are they proportionately
again more expensive?
Mr Hartnett: I am not quite sure
what you mean.
Q66 Dr Pugh: Well, DWP will close
an investigation at a certain point and it will then have cost
so much; you will close an investigation at a certain point and
it will cost so much; so I am wondering what the head-to-head
comparison looks like?
Mr Hartnett: Cost yield for us
is much higher.
Q67 Dr Pugh: When you prosecute, or make
a decision to go for prosecution, what kind of threshold needs
to be crossed? Do you need to be looking at a substantial sum
for recovery, or do you just simply need to know there is an offence
there and there is no other way of resolving it?
Mr Hartnett: Can I return to the
previous question? When I say cost yield is much higher I mean
that our yield for cost is higher; I do not mean the cost is higher.
Q68 Dr Pugh: Of course, yes.
Mr Hartnett: We look at number
of things. We have a very clear criminal investigation policy,[5]
which is on our website, which ranges from the nature of the offence
through to the role of the individual. A judge or a lawyer involved
in tax is much more likely to be referred for[6]
prosecution by us for tax fraud than someone who is not in that
sort of special position, but we do look at monetary levels as
well. I was saying to the Chairman earlier on that some of our
criminal prosecution work is quite complicated and that complication
does not necessarily depend on the amount of money involved, so
we have set ourselves a sort of working threshold of £10,000
to consider criminal investigation but we will come below that
where it is appropriate because we have to provide deterrence
across the whole system.
Q69 Dr Pugh: Going on to the subject
of data matching which has been raised already, you can only do
that within a database and, clearly, it is a question of what
is in your database, or, to put it a different way, it depends
on what your database is linked to. Are you linked up to any other
databases? For example, the DWP one?
Mr Hartnett: We provide datasets
to DWP; they provide datasets to us.
Q70 Dr Pugh: On individuals?
Mr Hartnett: No, on groups, but
our basic database is all taxpayers, all payers of national insurance,
all claimants of tax credits. When we are doing data matching
we try to put all our databases for individuals into the hopper,
if I can keep describing it as that, with third party information
as well, to see what links come out.
Q71 Dr Pugh: I want to follow up
a point made by Mr Dunne about the abolition of local tax offices.
One thing local tax offices will have is local knowledge, and
you obviously are putting your money on some data matching exercise
and quite clearly, if you do all your effort in that direction,
that will be hopefully where you pick up the prosecutions, or
whether the case is for further investigation, but clearly it
is not an either/or, is it? You can do both. You can have local
knowledge where you will find out about that nail bar that does
not appear to be paying any taxation, and you will also be able
to do the data matching as well?
Mr Hartnett: Well, to a point
--
Q72 Dr Pugh: Well, the nail bar is
not going to be on your database but it may well be recognised
by the local tax office.
Mr Hartnett: That is the key issue,
and we are much more likely—and more effectively and more
cheaply—to pick up the nail bar by analysing the Yellow
Pages or other advertising material and finding electronically
that the nail bar is not on our database, than by waiting for
one of our people to walk past it.
Q73 Dr Pugh: So do you get many referrals
from the local office?
Mr Hartnett: Nothing like as much.
We used to be dependent on that for cases and dependent on information,
perhaps, from the banks as well. Today we are matching electronically,
we might match a thousand nail bars or try and match a thousand
nail bars to our databases in five minutes, or something like
that.
Q74 Dr Pugh: We will look for some
evidence of that in the fullness of time. I once went to the police
headquarters in Liverpool where they were concerned with migrant
workers and the agencies that employed them, and they found the
most successful way of tracking where things were going wrong
was to look at people's tax affairs, but whereas in this establishment
I looked at, you had the police sitting there with their computers,
DWP sitting there with their computers and Customs people, Inland
Revenue were not playing at all and were standing aloof from the
whole process, although they could be extraordinarily useful to
it. Has that attitude changed?
Mr Hartnett: With great respect
it was not an attitude. Parliament has set us very strict rules
of confidentiality and we cannot simply pass information across
unless there is a statutory gateway or some other authority. We
want to co-operate with others. The gangmasters' licensing work,
which is where a lot of these immigrants work, we are a big collaborator
in now, and we are allowed to do that and it is very successful.
Q75 Dr Pugh: If somebody comes to
you to work on your house and they say: "I can do it for
a lot less if you pay me cash in hand", and they explain
to you very clearly that their reasons are they do not wish to
pay tax, is the customer committing any kind of offence?
Mr Hartnett: I cannot think of
a statutory tax offence that the customer is committing. I am
not a lawyer, but I imagine a lawyer might be able to make a case
for it being a conspiracy.
Q76 Dr Pugh: Lastly, there are certain
areas, the entertainment industry, building sites, landlords and
so on, which obviously are key evasion type areas and we are all
very familiar with them. Do you have dedicated teams that specialise
within specific areas that know, say, the entertainment industry
pretty well?
Mr Hartnett: Yes, we do. We have
specialist teams dealing with television, dealing with footballers,
dealing with all sorts of other entertainers. We have a specialist
scheme for the construction industry, and we have people who are
absolute experts in dealing with compliance risk in the construction
industry.
Q77 Mr Davidson: Can I clarify this,
please? How much is £2 billion in the estimated cost worth
in terms of a penny in income tax? Is that tuppence? A penny?
A ha'penny? How much is raised by a penny on income tax?
Mr Hartnett: I do not think I
know the answer, as I sit here.
Q78 Mr Davidson: That is reassuring,
because the NAO assured me you would!
Mr Hartnett: I am embarrassed.
Q79 Mr Davidson: I am sure you can
tell us, just to try and relate to it what the price is. On the
question of publicity, you mentioned earlier on 57 barristers
and a number of medical consultants and, indeed, if you were able
to tell us that they were all Oxbridge public schoolboys then
that would confirm all my prejudices at one time, but are you
producing lists of the 57 barristers? Can you send us lists, for
example, of these people who have committed such an offence?
Mr Hartnett: We have our own lists
but I am back to where I was with Dr Pugh earlier on, that we
cannot publish those because people are entitled to confidentiality.
5 Note by witness: We have a criminal investigation
rather than prosecution policy as HMRC are no longer a prosecuting
authority. Back
6
Note by witness: We have a criminal investigation rather than
prosecution policy as HMRC are no longer a prosecuting authority. Back
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