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 80-99)


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.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2009
Prepared 10 December 2009