Examination of Witnesses (Questions 100-115)
HM REVENUE AND
CUSTOMS
11 JUNE 2008
Q100 Mr Davidson: And in what circumstances
do you have the opportunity to go back in previous years?
Mr Hartnett: For direct taxes[11],
if there is—and this is about to change—negligence
or fraud, we can go back twenty years. That is about to change
so that for negligence we can go back six years, but for fraud
we can still go back for twenty.
Q101 Mr Davidson: So that in any situation
where somebody was, maybe, caught with a large bundle of cash,
if it was forfeited under the criminal legislation and so on that
would give you the opportunity to go back twenty years, would
it?
Mr Hartnett: Yes, provided we
can find a source to tax it. If someone simply had a big bundle
of cash, the big bundle of cash could come from a bank robbery,
we would not be seeking to tax that if we knew that is what it
was, but if they were a trader we would want to tax it.
Q102 Mr Mitchell: In paragraph 5.4,
the Australian Taxation Office is targeting people and using data
matching techniques to identify people in cash-based businesses
who lead a wealthy lifestyle, such as owning luxury cars and boats
which appear unsupported by the income declared. Why do you not
do that?
Mr Hartnett: We do.
Q103 Mr Mitchell: On what sort of
scale?
Mr Hartnett: We are constantly
looking for information about the registration of yachts and smaller
boats; our compliance people might wander around a harbour and
take a note of all the larger sized boats and trace them, and,
if I may put it somewhat colourfully, into the hopper it goes
so that we can match it. Helicopters, planes—
Q104 Mr Mitchell: So does your information
come from the snitching line—
Mr Hartnett: No, not for this.
Q105 Mr Mitchell: —or does
it come from inspection?
Mr Hartnett: We will seek to obtain
information mainly from harbour masters, from buying commercially
available data—all sorts of things like that.
Q106 Mr Mitchell: So if my constituents
ring up and tell you I am leading an extravagant lifestyle on
MPs' pay—
Mr Hartnett: I am going to believe
them!
Q107 Mr Bacon: You just mentioned
tax inspectors wandering around harbours, which conjures up a
marvellous image. Will they be looking like a caricature of the
Man from the Ministry, or are they wandering around in sailing
gear, or are they in bowler hats?
Mr Hartnett: We do not do bowler
hats and umbrellas any more, and I hope they are relaxed and doing
a good job and doing it really professionally.
Q108 Mr Bacon: You did not answer
my question.
Mr Hartnett: Well, I do not think
they will be dressed as matelots with striped shirts! They would
stand out.
Q109 Mr Davidson: Coming back to
the question of the court case you mentioned where the responsibilities
of lawyers and accountants were changed. Have you sought a change
in legislation that would put you back to the situation where
you thought you were?
Mr Hartnett: Mr Davidson, the
court case was not with us, it was a court case brought by the
professional bodies, and I think reversing it would take us into
the very difficult area of legal professional privilege, and whilst
we do get involved in issues around the issue of professional
privilege I think it is owned by the Ministry of Justice so it
would have to start there. Maybe it is another Department but
I think that is where it is.
Q110 Mr Davidson: That was a "no",
then?
Mr Hartnett: That was a helpful
no.
Q111 Mr Davidson: I just want to
be clear.
Mr Hartnett: We cannot go back
in there. It was not us, and I do not think we have an option
to take a case in this area.
Q112 Mr Davidson: No, sorry, I am
not saying take the case. It is a question of whether or not there
are powers that you would like that you have not got that you
have asked the system to consider giving you. That is what I am
seeking to clarify.
Mr Hartnett: We are in the middle
of the Government legislating modern powers for HMRC. The two
old Departments had quite different powers; we are neither levelling
up or down. We have consultation with all sorts of people. We
are trying to provide a new suite of powers, but dealing with
that issue is not part of it.
Q113 Chairman: Mr Hartnett, has a
builder or tradesman ever said to you: "This will cost you
so much, Guv, but if you gave me cash I can do it cheaper"?
Mr Hartnett: The last time it
happened I paid by cheque.
Q114 Chairman: But in the real world
we know this goes on all the time. Do you have an opinion on this?
Do you think that above a de minimis level we should be
required to pay by cheque or by card for such services?
Mr Hartnett: Can I just go at
a slight tangent for a second to be helpful? The former Commissioner
of the Internal Revenue Services in the United States believed
fervently that, over a threshold of maybe $5,000, anyone paying
cash for services, whatever the circumstances, professional or
private, should deduct tax and account for it to the IRS. Now,
that feels to me like a pretty horrific prospect in terms of compliance
costs for citizens and the like. I am firmly in the camp that
believes we need to get better at detection, deterrence and at
raising awareness, and some of our help lines and hotlines are
going in that direction. That would be my personal opinion of
the way forward.
Q115 Mr Bacon: Mr Hartnett, I hate
to miss an opportunity to ask you about how the settlement with
EDS is going? The quarterly payments?
Mr Hartnett: I have had meetings
in the last two or three weeks with both EDS and our lawyers.
It continues, Mr Bacon, I am afraid, not to go as well as we had
hoped. I think EDS probably feel they are not winning the contracts
that they planned to win, but both I in the past and Mr Gray have
said that our patience is not infinite, and that is where we stand
at the minute.
Chairman: Thank you, Mr Hartnett. That
concludes our hearing.
11 Note by witness: Currently the regimes are different
for direct and indirect tax. In both cases if there is fraud we
can go back 20 years. If we have negligence, we can go back 20
years in direct tax cases. If we do not have negligence or fraud
in a direct tax case then we can go back 6 years. In indirect
taxes there aren't negligence penalties, only penalties for error.
With the new aligned time limits, which we expect to come into
after 1 April 2010, we will be normally be able to go back 4 years
for direct tax and VAT. Where tax is lost due to a failure to
take reasonable care for direct tax, we will be able to go back
6 years rather than the current 20. Where tax is lost deliberately,
or due to a failure to notify HMRC of liability to tax or use
of a disclosable avoidance scheme, we will continue to be able
to go back 20 years for direct taxes and VAT . Back
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