Examination of Witnesses (Questions 80-99)
HM REVENUE AND
CUSTOMS
14 OCTOBER 2009
Q80 Dr Pugh: Did the assessment say
you needed fewer or more people in that scenario?
Mr Harra: I think the assessment
was that we have never introduced it because we have never concluded
that—
Q81 Dr Pugh: You do not seem to know
a great deal about it. I am merely asking you, if you had a general
anti-avoidance rule, if you would need fewer people to stamp down
on avoidance. It is a serious issue this.
Mr Harra: I cannot answer it because
we would have to be sure that it worked. If it worked, you might
need fewer people, but if it did not work, you would not.
Ms Strathie: You have to take
a balanced risk of when avoidance is pushed towards evasion or
the flexibility and mobility of the tax base to just up and leave
the UK on that. Tax is global. A general rule in the UK does not
take you very far.
Q82 Dr Pugh: Okay. In my notes here
it says that the total taxes and duties collected and receivable
were £435.7 billion. Collected and receivable presumably
means what you expect to get in and identify. You cannot be absolutely
certain what the figure is, can you, in any one year? In my notes
it says "In 2008-09, total taxes and duties collected and
receivable were £435.7 billion." I am really asking
you what does that expression "collected and receivable"
mean?
Mr Thorpe: We can help with that.
Not all of that has been collected. That is an accruals-based
measure. That is monies that are expected to be collected which
relate to tax assessments which relate to 2008-09. Particularly
on self-assessment and corporation tax, that is money yet to flow
into the Exchequer.
Q83 Dr Pugh: Okay. Following through,
the other figure given there is £27.7 billion tax debt. That
is presumably money identified that you do not so far have.
Mr Harra: That is in the department's
systems, yes. That is increasing debtors.
Q84 Dr Pugh: Of which £11.2
billion is going to be written off. At the end of the day, you
are not going to get it. Have I understood that?
Mr Harra: That is a provision
for doubtful collection, yes.
Q85 Dr Pugh: How does that compare
with bad debt provision in other regimes, if I might put it like
that, or in local authorities? Is it in percentage terms tolerable
or higher than expected?
Mr Ardron: It is difficult to
make an international comparison because the UK is one of the
few countries that does produce the trust statements on an accruals
basis. You can look at, say, the Republic of Ireland. The revenue
commissioners there produce a kind of trust statement, but it
is on a cash basis, and it will not disclose the debtors, creditors
and accruals that you get in this financial reporting regime.
Q86 Dr Pugh: Presumably it excludes
any sums not identified but due which you simply did not know
about in the first place—stuff that is not objective successful
tax evasion and so on. Do you have a figure or a guesstimate for
that?
Mr Ardron: The tax gap? No. As
Mr Harra said the Chancellor publishes estimates of tax losses
for the tax gap as part of his Pre-Budget Statement. The department
approves a volume which will give, in particular for the indirect
taxes like excise, VAT and so on, accurate estimates for the tax
losses. In the case of excise, those estimates are quite old because
the data which is required to do that measurement is not readily
available. For the direct taxes, I think Mr Harra has indicated
that it is more difficult to do estimates.
Mr Harra: It is certainly our
policy to publish tax gaps if we can come up with a robust measure
of them. That is more difficult in the case of direct taxes than
indirect taxes, although we do a lot of work in direct taxes.
Q87 Dr Pugh: Following through on
that, to go to some specifics, on the hydrocarbons I noted the
conclusion that the department is aiming at getting the illicit
market share down to 4.4% and doing quite well. Is that job done?
Is there very little you can practically do to get that any lower?
Mr Summersgill: It is a good job.
There is more potentially that can be done, particularly through
use of the latest technologies and so on, when it comes to road
fuel testing and so on.
Q88 Dr Pugh: But the difference would
be relatively small, would it not? This is actually quite successful.
Mr Summersgill: Yes. I think when
you get to the departmental level there will be a question of
where to put your bucks to get the best bang and diminishing marginal
return, effectively.
Q89 Dr Pugh: The other thing I want
to ask about is stamp duty land taxation. Obviously there are
enormous variations within the housing market. I do get the impression
there, though, that you have squeezed as hard as you can, except
in the commercial sector. Am I right in assuming that?
Ms Strathie: I think we have.
This has been quite a long and difficult journey, but I think
that we have, notwithstanding that we see some change at the moment
because of the recession.
Q90 Dr Pugh: On R11, at paragraph
2.21, mention is made of two large commercial transactions accounting
for £8.6 million of the yield. Does that indicate that in
fact the biggest problem with this particular form of taxation
is in the commercial sector and with a few significant culprits?
Mr Harra: Yes, that is right.
We believe the risk in relation to stamp duty land tax is largely
avoidance, and has been largely in commercial property—although
we are extending the anti-avoidance disclosure regime to very
large residential property transactions as well after this year.
Q91 Dr Pugh: But they are not obliged,
are they, to tell you in advance of an avoidance technique for
this form of taxation?
Mr Harra: The promoters of avoidance
schemes for commercial property have been obliged for several
years now to notify us of the schemes that they are marketing,
and that is being extended now to expensive residential properties
as well.
Chairman: Richard Bacon has a supplementary
question.
Mr Bacon: I would like to pursue
further, really for my own edification, this question of evasion
and avoidance. We talked earlier, and you just then, Mr Harra,
about avoidance and anti-avoidance schemes. Ms Strathie referred
to the fact that one would somehow tend toward evasion. When I
was a schoolboy and about to join the Conservative Party in the
mid 1970s I thought I understood clearly the difference between
evasion and avoidance. I remember the Rossminster case
in 1976.
Chairman: You took an interest
in this when you were a schoolboy!
Q92 Mr Bacon: I am afraid I did.
I was clear about the distinction: evasion was a criminal offence
and avoidance was permissible. Indeed, the judge was very clear
in that very famous case, that companies had no duty so to arrange
their affairs to maximise their tax liability. I seem to remember
being on the Finance Bill when the anti-avoidance legislation
as far as schemes were concerned was pushed through. Mr Harra
you said you then take rapid legislative action to spot an error.
We are saying that you, the Government (that is to say the HMRC
and ministers together), come up with the policy and the law,
and that is it. People try to work within that, then you find
you do not like what they are doing and so take, in your words,
"rapid legislative action". Where do you draw the line
between legitimate avoidance and what you have called the kind
of avoidance that you want to get at through anti-avoidance schemes?
Because a large corporate is going to have a large complex business
and is going to have at any one time a variety of options available
to it, with the limited resources that it has, and it will say:
"Option 1, 2 and 3 will have the following consequences in
marketing terms, in growth in business terms, in risk terms and
in tax terms" and it will be one of the considerations that
they use. They might quite plausibly say, "We'll go for option
2, because although we like option 3 in a number of respects,
it will cause us to pay more tax." At that point they are
engaged, plainly, in tax avoidance, are they not?
Ms Strathie: Yes.
Q93 Mr Bacon: Where does the line
get drawn?
Mr Harra: Debating societies could
probably endlessly debate where the boundary between tax planning
and tax avoidance is. I perhaps shortcut it when I said that we
could instantly introduce legislation, because, needless to say,
we advise ministers and ministers decide whether they wish to
or whether they do not.
Q94 Mr Bacon: You did not say instantly,
you said—
Mr Harra: Rapid.
Q95 Mr Bacon: — "rapid
legislative change".
Mr Harra: In the case of the anti-avoidance
disclosure scheme, we have identified what we believe are the
badges of avoidance as opposed to acceptable tax planning. That
is for the purposes of ensuring that promoters notify us of those
schemes. We then consider (i) do they work under the existing
legislation and—if we believe that they may—(ii) is
it within the policy intent of the legislation or is it frustrating
the policy intent? Then we advise ministers, "Do you want
to do anything about this?" Thanks to that disclosure scheme,
we have the ability, where we need to respond, to do so very rapidly,
before large numbers of users use the scheme and we end up fighting
them through the courts—which is very expensive.
Q96 Mr Bacon: If you were a person
interested in avoiding tax in the way that you describe, you would
not "buy" a scheme and the so-called promoter of the
schemes would not "sell" it to you. You would, as the
would-be user of such a scheme, find out all about it and then
go and use it, avoiding the registration on both sides that you
talked about, would you not? Would that not be the obvious reaction
to your regime?
Mr Harra: There are quite stiff
penalties if anyone tries to do that. It is mandatory to register
these schemes and if a promoter fails to do so then—
Q97 Mr Bacon: I am sorry to go on
about this, but how do you show that they have used one of "these
schemes" if they have done something that is quite similar
to what a scheme would have done without ever having registered
it?
Mr Harra: I cannot give a detailed
answer to that. I repeat what I said: we have published what we
regard as the badges of schemes that need to be registered—features
which, if they are present in what you are doing, mean that you
need to register what you are doing with us.
Q98 Chairman: Thank you. That concludes
our hearing. Obviously the figures we are talking about here are
enormous. As John Pugh has reminded us, in 2008-09, total taxes
and duties collected and receivable were £435 thousand million.
That is some £21 billion lower than in 2007-08. The £435
billion includes £27 billion in tax debtors; that is £2.7
billion (11% higher) than the previous year. Of the £27 billion
HMRC has made a provision for bad and doubtful debts of £11
billion, which is up £3.3 million on the previous year and
an equivalent to 40% of tax debtors. This is at a time when enormous
new liabilities have been taken on from government. As the Comptroller
and Auditor General says, this is the engine room of government.
One does not need to use emotive terms like "crisis".
This system is clearly under a great deal of stress. In the very
first question I asked you, Ms Strathie, about this 40% of total
debt unlikely to be collected, I asked you what steps you are
taking to get your management of tax debt under control. I am
not convinced that you have given us sufficiently robust answers
in the hour and a half of this session, so we will now go away
and, with the help of the National Audit Office, write our report
and try to help you resolve this very serious problem. Do you
wish to make a final comment?
Ms Strathie: Yes, I do. I still
go back to what I have said, that at the end of the day HMRC does
recover almost all debt. We write off less than 1% at the end
of it, and whilst we have made that provision in our accounts
because there is a recession and we think it is prudent to do
so, we do not believe that that figure is a total fiscal risk.
We believe that there is much more to do in debt collection. We
believe we can build on what we have done and we do believe that
if we do not take the steps we are, that debt will increase significantly
during the recession.
Chairman: Thank you very much. That concludes
our hearing.
| 
