Written evidence from HM Revenue and Customs
QUESTIONS ASKED
BY STEPHEN
BARCLAY:
1. A note on the cost
yield ratio for the £900 million new investment being made
to allow a comparison with the current 15:1 and 14:1 ratios of
the specialist and local compliance teams. Also in respect of
the £900 million investment the expected split in terms of
how much of the £900 million will be spent pursuing (a) individuals
(b) small firms and (c) large corporations (I appreciate the Department
may not have specific commitments on these three areas but it
must have working assumptions.) (Q13)
Cost yield ratios for £900 million
HMRC is expected to produce just over £13 billion
in intervention yield in 2010-11. The objective is to increase
that by £7 billion extra revenues a year by 2014-15. The
£917 million is the aggregate investment between 2011-12
and 2014-15. Since we will build up to the £7 billion in
cumulative steps, we calculate the comparable aggregate revenue
figure is £18 billion giving a return on investment of around
20:1 across HMRC. This figure includes the work of our Large Business
and Criminal Investigation Directorates as well as deterrent impact.
Split of the £900 million investment funding
The investment is designed to tackle various areas
of the tax gap. The biggest share of tax gap, around 50% of the
total, is down to SMEs (turnover of up to £30 million). 25%
is from large businesses and 12.5% each from individuals and losses
from criminal attack.
Around 65% of the investment funding will be focussed
on the mass market and tax evasion. This reflects the need to
increase coverage of the 4.8 million customers in this sector.
Mass market refers to small and medium size enterprises, most
individuals and the hidden economy. We are looking for a return
an investment of around £4 billion a year by 2014-15.
Around 5% will be focussed on large businesses and
wealthy individuals. This builds on the existing one-to-one client
relationship model in this sector that has contributed over half
of the ongoing £13 billion intervention yield. The expected
return is around £1 billion a year by 2014-15.
The remaining funding will be spent on a range of
interventions designed to tackle organised crime and collect more
debt.
2. Confirmation as to
the amount of outstanding debt owed by large corporations and
a list of the 20 largest corporations and the money that is owed
as HMRC understands it, and what this relates to. In particular,
I want to understand the amount of money owed by large corporations
and how much of the £900 million is being targeted in pursuing
them.
HMRC has a statutory duty of confidentiality as set
out in section 18 of the Commissioners for Revenue and Customs
Act 2005 and is therefore unable to provide the information relating
to the "20 largest corporations" or confirm or deny
whether they do have outstanding tax debts.
There is a proportion of the £900 million allocated
to debt and this is covered in the answer to the question on the
split of investment funding.
3. The oldest five cases
currently being pursued by (a) the specialist enforcement team
and (b) the local compliance team, and an explanation as to what
those cases relate to and how long they have been running from
the first piece of work conducted by HMRC.
(Q73)
The cases are listed below. All Specialist Investigation
(SI) cases were commenced under the pre-merger process for investigation
of fraud (Hansard).
Hansard was replaced by the current Civil Investigation
of Fraud (CIF) regime with effect from 1 September 2005. The few
remaining Hansard cases are therefore now at least five years
old. They are those proving most difficult to conclude. Hansard
procedure has never been used by Local Compliance.
CIF (and previously Hansard) investigations normally
take place after referral from elsewhere in HMRC. SI also identify
cases direct. The date of the first piece of work conducted often
pre-dates the start of an investigation under Hansard or CIF by
several months. Our current SI database records the formal start
of an investigation under either Hansard or CIF procedure and
not the earlier date. We have used the formal start date of the
Hansard or CIF process to identify the oldest cases. In CIF cases
we have provided the date the original enquiry was opened. In
Hansard cases we have provided the date SI first became involved
in the enquiry.
While there have been some HMRC delays when investigating
some of these old cases, this is a minor factor. The length of
time taken to conclude them is predominately because it is a disputed
process, often involving legal action.
The five oldest fraud investigation cases in SI and
Local Compliance are as follows:
Specialist Investigations
All of the oldest civil fraud investigations are
those started under Hansard. 60 Hansard cases remain open in total,
representing around 11% of SI's Hansard and civil investigation
of fraud cases combined. We expect to have concluded most of the
Hansard cases by the end of September 2011.
CASE 1:
Date case opened under "Hansard" procedure—29
June 2001
Date of original SI action—1 March 2001
Involves multiple UK and offshore companies. Civil
action between the parties and their trustees as well as some
HMRC and customer delay have lengthened the case. A negotiated
conclusion has not proved possible. Assessments have been issued
in respect of all outstanding duties. Any appeals will be taken
immediately to the First Tier Tribunal. We expect the case to
close by 30 September 2011 but that could be delayed if the customer
appeals.
CASE 2:
Date case opened under "Hansard" procedure—6
March 2002
Date of original SI action—12 September 2000
Customer has disclosed untaxed offshore investments.
A complex case with a lack of co-operation by the customer and/or
his appointed advisor. HMRC has used formal information powers
to progress matters. There have been some HMRC delays. HMRC has
taken steps to have the case heard by the First Tier Tribunal.
A Directions Hearing was put in place for late 2010 but the customer
and his advisor resisted. A meeting has been arranged which aims
either to agree a route to settlement or the content of directions
for the Tribunal Service to provide for a date for a substantive
hearing. The case is not expected to close until June 2012.
CASE 3:
Date case opened under "Hansard" procedure—10
June 2002
Date of original SI action—26 March 2002
Case involves individuals and corporates. Tax irregularities
partially conceded on challenge but customer entered an avoidance
scheme creating artificial losses to wipe out the liabilities,
then entered two further avoidance schemes. The customer moved
offshore during the enquiry, severely hampering negotiations.
There have been a number of complaints and Freedom of Information
requests. Case now proceeding to formal litigation. Anticipated
closure date of 31 December 2011, although litigation in cases
of this type can take several years.
CASE 4:
Date case opened under "Hansard" procedure—12
June 2002
Date of original SI action—24 May 2002
Involves the estate of a deceased customer with offshore
interests. Funds held by an offshore lawyer who refused to recognise
the authority of the UK administrator. The administrator spent
several years trying to resolve matters but then died. Legal action
to replace the administrator has taken considerable time to resolve.
Further court orders are needed to establish legal jurisdiction
and until these issues are resolved there is no prospect of the
case settling. HMRC can exert little influence in this process.
We estimate conclusion during 2011-12 but this will depend on
external legal proceedings.
CASE 5:
Date case opened under "Hansard" procedure—28
October 2002
Date of original SI action—15 February 2002
Formal Tribunal proceedings are underway but successive
hearings have been adjourned due to ill-health or unavailability
of the customer. To try and break the impasse, HMRC issued a letter
to the First Tier Tribunal in October 2010 asking if it would
be prepared to accept written submissions rather than a full hearing.
The Tribunal is putting this to the other party. Settlement anticipated
by 31 May 2011.
Local Compliance
All the oldest civil fraud investigations are those
started under the new CIF regime.
CASE 1:
Date case opened under CIF procedure—20 September
2006
Date of original HMRC enquiry—16 January 2006
Customers are suspected of conducting a UK trade
via offshore nominees. None have co-operated. HMRC has used formal
information powers and exchange of information agreements to obtain
further information. We expect to identify additional UK tax liabilities
but early resolution by agreement remains unlikely so the case
is expected to progress through the Tribunal system.
Case 2:
Date case opened under CIF procedure—5 October
2006
Date of original HMRC enquiry—6 January 2004
The customer made piecemeal disclosure of a variety
of irregularities in their tax returns. HMRC had evidence to suggest
the disclosures were materially incomplete. HMRC has issued assessments
to finalise the case. The customer has the right to appeal to
tribunal or seek an internal review. Case remains current until
the dispute resolution process has taken its course or time to
lodge an appeal expires.
CASE 3:
Date case opened under CIF procedure—18 October
2006
Date of original HMRC enquiry—22 March 2006
An initial disclosure report was found to be defective
and needed more investigation. The customer has since become insolvent
and is likely to be made bankrupt. HMRC has issued formal decisions
and assessments which are in line with prior agreements. The customer
has the right to appeal. The case remains open until that right
expires at the end of February 2011.
CASE 4:
Date case opened under CIF procedure—26 October
2006
Date of original HMRC enquiry—14 March 2006
HMRC has evidence indicating offshore assets and
unpaid taxes. The customer has denied any wrongdoing, providing
uncorroborated explanations for both the source of the funds and
the purpose to which they were put. If true, there would be no
UK tax consequences. HMRC has used formal information powers and
forensic examination of documents to substantiate the case. Likely
to require a tribunal hearing although the agents have requested
a meeting to discuss matters.
CASE 5:
Date case opened under CIF procedure—15 December
2006
Date of original HMRC enquiry—27 March 2006
HMRC has evidence of untaxed extractions from company
accounts. The directors did not co-operate, transferred the business
to another company, and continued to operate. Both companies were
later put into liquidation. HMRC used formal information powers
to quantify the full extent of irregularities in both companies
and were able to demonstrate fraudulent conduct. Based on that
evidence the companies' tax liabilities were transferred to the
directors/secretary personally. Appeals were lodged after which
a formal independent case review upheld the assessments. The liabilities
are now final. That has led to the personal bankruptcies of the
individuals involved. Case remains open while HMRC assist the
Trustee in Bankruptcy to identify the individuals' assets.
4. What is the cost/yield ratio in terms of
the amounts collected by debt collection agencies? (Q79-81)
The DCA contract pricing structure is for a percentage
commission to be paid in respect of the amount of debt collected.
If no debt is recovered then no payments are made. The cost/yield
ratio will be equivalent to the percentage commission rate charged
and these rates are, as the Exchequer Secretary confirmed to the
house in a written answer on 29 November 2010, commercially confidential
and it would not be appropriate to disclose them. (Official report
Col 643W 29/11/10)
What is the total amount of debt handed over to
debt collection agencies and how much has been collected by them
since it started?
Between 23 June 2009 and 11 January 2010 (2009-10)
debts of £11,571,460 were referred to DCAs. As at 28 January
2011 £4,685,535 (40.5%) had already been paid or secured
in a Time to Pay arrangement. Theses were debts being handled
as part of the original pilot exercise.
On reactivation of the programme after the June budget
announcement, between 27 July 2010 and 14 January 2011 (2010-11)
debts of £214,380,733 have been referred. As at 28 January
2011 £57,125,995 (26.6%) has been paid or secured in a Time
to Pay arrangement.
It is important to bear in mind that these are snapshot
figures. Amounts of debt referred and recoveries secured change
on an almost daily basis, sometimes by significant amounts.
What is the maximum amount of commission charged
by Debt Collection Agencies?
As the Exchequer Secretary confirmed to the house
in a written answer on 29 November 2010 (Official report Col 643W
29/11/10), the commission rates payable are commercially confidential
and it would not be appropriate to disclose them.
I can however confirm that between 31 July 2009 and
31 January 2011 HMRC has paid a total of £2,462,769 to DCAs
in respect of commission charges.
The committee may however be interested to know that
HMRC began a formal competitive open procurement exercise in January
2011 for a new, cross government framework agreement for Debt
Collection Agency services. The exercise was advertised in the
Official Journal of the European Union (OJEU) on 28 January 2011
and can be viewed at:
http://ted.europa.eu/udl?uri=TED:NOTICE:30619-2011:TEXT:EN:HTML"
Is there a cap on commissions and if so at what
level?
There has not been a cap on commissions for either
the pilot or the 2010-11 programme but the requirement for the
new framework agreement reserves the right to cap commission for
particular packages or individual debts.
5. I'm trying to understand this: when I was
looking at the 2008-09 figures, under "Other remissions"
it said £386 million. Then in 2009-10 that had gone up to
£647 million. Could you just clarify what those figures are
driving at and why the figure has moved in that way? (Q 83)
The HMRC Trust Statement reports Revenue Losses figures
in Note 8.2; losses are categorised as either remissions or write-offs.
Remissions are debts capable of recovery but HMRC has decided
not to pursue the liability, for example, on the grounds of value
for money or official error. Write-offs are debts that are considered
to be irrecoverable because there is no practical means for pursuing
the liability.
The 2009-10 Trust Statement reported a remissions
total of £647 million, an increase from the £386 million
reported for 2008-09. The increase of £261 million between
2008-09 and 2009-10 was mainly due to a bulk remission of £133
million in respect of 162,293 tax credit overpayments. This related
to aged debts that were considered irrecoverable and not cost
effective to pursue. The remainder of the increase was made up
of general increases in remissions across all taxes.
February 2011
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