HM Revenue and Customs: Improving the Processing and Collection of Tax: Income Tax, Corporation Tax, Stamp Duty Land Tax and Tax Credits - Public Accounts Committee Contents

Examination of Witnesses (Questions 60-79)


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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