Examination of Witnesses (Questions 60-79)
HM REVENUE AND
CUSTOMS
14 OCTOBER 2009
Q60 Mr Mitchell: But you do not have
any estimate of how much has been lost through these schemes and
through tax havens, do you?
Mr Harra: We do work to assess
the gaps in all our taxes, and that includes—
Q61 Mr Mitchell: You cannot tell
us what the gap is.
Mr Harra: We certainly publish
results for our indirect taxes, where we have robust measures,
and that includes avoidance as well as other types of non compliance.
Q62 Mr Mitchell: Can you tell us
how much of the fall in revenues is due to an increased use of
these schemes?
Mr Harra: We do not have a figure
for use of avoidance schemes specifically. We look at all our
heads of duty and try to learn as much as we can about how much
the gap is on that head of duty and what the nature of the gap
is in terms of the nature of the risk that we have to confront.
But avoidance certainly is a big priority for us, hence the anti-avoidance
strategy measure.
Q63 Mr Mitchell: But it could be
that a substantial proportion of a fall in tax revenues is due
to big corporations getting wise, like News International or for
that matter Google, and using these kinds of schemes to reduce
their tax commitments, could it not?
Mr Harra: We do have a disclosure
regime which makes it mandatory for us to be informed whether
schemes of that nature are being used and, therefore, it gives
us an opportunity to respond very, very rapidly to them; for example,
by closing them down through legislation, as well as by tackling
them case by case. There is clearly a risk there and it is a risk
that we are absolutely on top of.
Q64 Mr Mitchell: We have these three
accountancy houses selling schemes to companies and corporations
how to pay less tax the easy way. Are they required to register
those schemes when they devise them?
Mr Harra: Yes, the promoters of
schemes are required to register them with us and tell us that
they are promoting them, and then the users of those schemes are
generally required to notify us when they make their tax return
if they have used a registered scheme.
Q65 Mr Mitchell: So when a deviser
of one of those brilliant schemes comes to you and says, "I
have devised this and I want to register it with you", do
you then crawl all over it to find out what you can do to stop
it?
Mr Harra: Absolutely. The key
step in our anti-avoidance strategy is to try to stop them upstream
by taking rapid legislative action if that is what is required.
If we believe a scheme does not work, we will publicly say, "If
you use this scheme we will challenge it. We do not believe it
works." But if we think that we can take immediate legislative
action, then that is what we do.
Q66 Mr Mitchell: Are you expecting
that you will be able to reduce the amount of revenue lost through
the use of these schemes and the use of tax havens?
Mr Harra: Yes, that remains our
priority.
Q67 Mr Mitchell: It may remain a
priority but will you be able to do it?
Mr Harra: As I say, since 2005
we estimate we have already done that to the extent of £11
billion, and we will continue to focus on it.
Q68 Mr Mitchell: Would it be useful
if we had something like the Australians have, a general avoidance
rule, so that a scheme devised just to avoid taxes could be struck
down?
Mr Harra: A general anti-avoidance
rule is something that has been looked at from time to time and
it is something that we keep under review, but it is not something
that we—
Q69 Mr Mitchell: We keep lots of
things under review. Is there any serious intention to produce
such a general avoidance rule?
Mr Harra: There has been no announcement
made that we are going to do that, and I would not be the person
to make that announcement. But it is something that we keep under
review, and if we think it is what we need in order to fight avoidance,
then certainly that is what we would seek.
Q70 Mr Mitchell: I will keep that
answer under review. Let us move on to something else. It strikes
me that you must be losing the war against the big accountancy
houses. They have lots of more highly-paid clever brains, some
of them poached from the Revenue. Are you well enough staffed
and are your staff well enough trained to attract the talent and
the ability to increase the tax haul or to defeat these schemes?
Ms Strathie: HMRC works from the
basis of the tax gap. That is what we are there for and we do
that in a number of different ways. We have forecasts of expected
tax from policy set by government and we focus on the gap. The
forecast in revenues is lower for many obvious reasons of where
we are. It is important that we start with tax as our business.
We are the UK tax authority and therefore that is our primary
core skill. One of the areas we have been focusing on in our own
people strategy is building our tax professionalism. We do that
in a number of ways, with very technical training but, also, by
bringing people in from the private sector and having an exchange
where people are going out, particularly with the big four companies.
We have 17,000 tax professionals. I cannot say, amongst all of
the people-challenges and all of the challenges I face in HMRC,
that attracting talent is one of my problems at the moment.
Q71 Mr Mitchell: You cannot, but
is losing talent a problem?
Ms Strathie: No, it is not.
Q72 Mr Mitchell: Do you not think
the big accountancy houses are better resourced with more highly
paid staff than you are?
Ms Strathie: We have very different
jobs. I have staff paid at all sorts of rates. But bear in mind
where unemployment is at the moment, where we are in the recession.
A brain drain from HMRC is not a current problem.
Q73 Mr Mitchell: Would I be right
in saying that in times of recession you need more staff and more
skilled staff because of problems of failure?—because of
evasion and avoidance and general dodging, but problems of insolvency
and failure.
Ms Strathie: You need more capability.
You have more fronts to fight on. The capability does not always
come in human form. Our approach is risk-based. We have developed
many, many risk tools, and more are in development at the moment.
Being clear about what the segmentation of our customers shows
us allows us to work out how we intervene with those different
groups, whether they are personal tax, business tax, benefits
and credits. At the end of the day it does not all come down to
people. We are still very much an in-sourced organisation and
a very large battalion, but we would expect to continue to downsize,
as we have been for the last few years.
Q74 Mr Mitchell: In this current
situation—and I think the problem is going to get worse—why
are you closing offices to make efficiency savings? I understand
that paragraph 2.20 is an appalling story about the effect of
the closures at Bristol and Manchester. Only three staff from
Manchester and Bristol transferred to Birmingham. I can understand
that. Who the hell would want to go to Birmingham? It has resulted
in a loss of human experience, and then all the files have to
be transferred and the staff in Birmingham had to familiarise
themselves with the transferred inquiries. The time spent on inquires
got longer and longer, so there was a disruption on compliance
cases.
Ms Strathie: I go back to the
challenge we face with modernising and delivering services, to
the challenge of skill loss when you do it.
Q75 Mr Mitchell: If it ain't broke,
don't fix it. You have a settled regime that is working in Manchester
and you mess it up.
Ms Strathie: We have a finite
pot of resources and we want to get best value for the taxpayer
base at the end of the day. There are ongoing efficiencies to
be made. I believe we will make them. If you are talking about
the land tax centralisation there, that has in the end shown that
we can deliver the service online. Customers like it because 83%
of them file online—and they are not mandated to do so—and
the staffing levels come down from over 400 to about 135. That
is a challenge. It is very difficult when you have to move from
locations, but offices are in the main no longer required for
us to deliver the range of services we have with the telephone
and the electronic channels.
Mr Mitchell: Thank you very much.
Chairman: The last question is from John
Pugh.
Q76 Dr Pugh: I would like to follow
through on a couple of things Mr Mitchell said. I have noted that
he asked you whether you had enough people involved in anti-avoidance
measures. I have tabled a question to the Treasury about this
and they have answered rather blandly—possibly you have
answered it for them—that these people are scattered all
over departments and it is impossible to designate some people
as anti-avoidance specialists. If somebody were to put to you
that there are fewer now than ever or fewer now than last year,
could you refute this? Presumably if you do not know how many
people are involved in it, you cannot say there are fewer, can
you?
Ms Strathie: I do not start with
the point of view that this is all about the number of people
you have. In the longer-term, we will demonstrate that we can
do a lot more with less people because we deploy different techniques.
Q77 Dr Pugh: So you may have fewer
people.
Ms Strathie: You said on a specific
area. Avoidance is pretty broad. I am saying to you that this
is not a case of me sitting here and saying, "In HMRC, in
every area, people and more people is the answer." Some of
our work is very labour intensive and we will never be able to
do without people. Some of that is not even particularly highly
skilled work; it is about those people who need help in order
to comply.
Q78 Dr Pugh: To be fair, it is not
putting to bed the suspicion that there are not enough people
involved, is it? Nothing you have said so far and put on the record
would remove that suspicion.
Ms Strathie: My straight answer
to avoidance or any other area is that we have enough people in
HMRC—indeed we probably have more people than you would
ideally want because of the rate of change that we would need
to effect as we reduce our workforce and bring onboard better
targeted risk-based approaches.
Q79 Dr Pugh: Following through on
Mr Harra's answer to Mr Mitchell on the anti-avoidance rule, you
said you are helped by getting timely legislation. Legislation
does not come around all that often really—even with this
Government. Would it be the case that you would need fewer people
if there were a general anti-avoidance law? You would not then
need specialists to deal with the individual type and variation
of avoidance, would you?
Mr Harra: As I say, it has been
looked at before.
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