Administration and effectiveness of HMRC – written evidence

Written evidence submitted by The Association of Taxation Technicians (ATT)

EXECUTIVE SUMMARY

Performance and delivery of key aims

The ATT believes that the performance of HMRC is below that which could be expected from a fully funded Government department and this leads to a failure to deliver all of the key aims of HMRC.

Implications of the spending review settlement

The ATT considers that the spending review settlement, resulting as it will in reduced staff numbers, will only exacerbate the situation.

Ability of HMRC to deliver the Government’s Aims on Tax Compliance

The reduction in experienced staff over the past few years, coupled with the proposed further decrease in numbers will make it extremely difficult for HMRC to deliver the Government’s aims on tax compliance.

PAYE Reform

The introduction of the new NPS computer system brought its own teething problems, but needs to be allowed to settle-in and prove its worth. Further tinkering with the system, plus the fundamental change which is proposed, may bring further problems to the system before any real improvements are seen.

HMRC’s priorities for the future

HMRC has a wide and diverse brief. It has been overwhelmed by changes imposed on it. It needs time to consolidate and ensure all its systems are working correctly before any further changes are undertaken. It also needs to ensure that its staff are well trained, have better job satisfaction than at present and consider revisions to its method of operation to achieve those goals.

PERFORMANCE & DELIVERY OF KEY AIMS

1. In its vision statement HMRC refers to "Customers". Customers can go to another provider, but a taxpayer cannot unless they emigrate. How does this vision fit with customer experience? There is little point in projecting professionalism, but allowing the basic infra structure to fail through lack of funding for staff and training.

2. One of the main problems experienced currently is the inability to contact someone at HMRC who can solve the problem or help the taxpayer. Agents have a dedicated Help Line in relation to the Self Assessment system which generally works well but within the limits of the training given to Call Centre staff. Taxpayers do not have the same facility, it can take a considerable period of time for the telephone to be answered, only to be faced with a recorded message extolling the virtue of the website, but frequently cutting taxpayers off. Calls in relation to corporation tax are similarly difficult. For employers and agents acting as payroll bureaux, there can be an even greater problem. Callers are kept waiting for a considerable time, often the call centre staff are unable to help requiring a letter to be sent when the delay in answering is even more significant.

The following examples illustrate this situation:-

· The National Insurance Office, Residency Section, suggest a faxed request for a ruling on contribution liability on foreign contracts. A faxed response can take up to three months. It follows that decisions have to be taken based on the understanding at the time which may prove to be inaccurate. Lack of assistance in these circumstances could be a contributory factor in relation to under declaration reported in the recent NAO report.

· CAR Residency declines to give individual rulings on residence, telephone contact is difficult and although e-mails are acknowledged and a response promised in 5 working days, this does not happen. A request for clearance in relation to payments on termination of employment can take up to five months, by which time the payment has been made.

3. Many professionals mourn the passing of the local Inspector who would be able to offer advice far more speedily and although the local account manager initiative may go some way to alleviating the problem each account manager is expected to cover a considerable area and some areas have had no support for some time.

4. Continuing the theme of communication, the HMRC website "What’s New" section is excellent for real time news, but other searches can produce out of date information and often the search engine is unable to locate the specific guidance sought even though the search parameter is explicit. There are problems with regard to the Self Assessment statement of account for individual taxpayers, particularly in relation to repayments, where often it states that there is a repayment due even though it has not been made in accordance with the request already submitted or it shows that the repayment has been made but the cheque has not actually been issued.

5. Another area of concern is the registration of agents to act for taxpayers. Although it is possible to do this on line, this has some drawbacks and many agents prefer to submit a paper form 64-8. This work was centralised in the CAA Team at Longbenton in the interests of efficiency compared to the forms being submitted to the office dealing with the taxpayer. Unfortunately, the turnaround times for these registrations is again considerably in excess of that predicted by HMRC.

6. The above examples fairly demonstrate the current poor performance of HMRC dealing with many aspects of correspondence submitted. This must be due, in part at least, to cuts in staff numbers and any further cuts will only make the position worse.

7. The average taxpayer assumes that when HMRC tells him something, or issues a Notice of Coding, it will be correct. When he receives a self assessment calculation, he has a right to assume its accuracy. The following are typical examples :-

· The pensioner taxpayer who forgot to show the tax paid against his pension on his paper Return. No reference to the PAYE record can have been made by the processor at HMRC, as the SA Calculation as issued showed a £2000 underpayment, the exact amount paid under PAYE. This is not an isolated incident.

· The typical Mondeo Man, with company car and fuel: Forms P11D are submitted by the agent in May, with exactly the same car details. The taxpayer receives a new code in January, assumes the agent has a copy, and is very happy that he has £70 a month less tax to pay. Agent reviews the liability at the end of the year, phones HMRC to ascertain the reason for the new code, and is told it is based on P11D.

· HMRC routinely issues a one and a half page letter indicating that it now thinks annual Returns are not necessary. The letter does say that changes may require a Return. Mondeo Man however will only see the first paragraph and act accordingly.

8. In view of the economic crisis HMRC introduced a system of "Time to Pay" arrangements. Originally, this worked well in the sense that HMRC were very flexible with these arrangements. This does not appear to be the case now as it is now more difficult to agree such arrangements. Also, liaison between the Debt Management and Banking Section with other sections of HMRC is not working well as the following examples demonstrate:-

· A Return completed with a Remittance Basis Charge and subsequently amended, held in the unopened post at CAR Residency. Staff were unable to access, and cannot accept a faxed copy. Debt Management Unit threatened legal collection action. Only the intervention of the line manager at CAR Residency got a one month extension. How would a non represented taxpayer have fared?

· A recent case which obviously has other circumstances attached to it, involved a payroll bureau which owed HMRC, but which also had cash in another account with HMRC. Legal Department erroneously placed a Creditors Notice in the local newspaper, resulting in embarrassment, and lost reputation for the payroll bureau. This is not an isolated case.

IMPLICATIONS OF HMRC’s SPENDING REVIEW SETTLEMENT

9. Many of the failings described above are caused by lack of resource. The introduction of the Self Assessment system approximately fifteen years ago changed the responsibility of calculating the taxpayers liability from the then Inland Revenue to the taxpayer. The old systems which at that time were familiar to Inland Revenue staff and tax agents were discarded and great reliance placed upon computerised systems. These changes should have produced significant efficiencies and cost reductions. Unfortunately, cuts were made in anticipation and not as a result of the efficiencies achieved resulting in the loss of many experienced tax staff at all levels. Part of the problem appears to emanate from poor appreciation by software writers of the diverse nature of the needs of HMRC and its customer base. Changes were introduced without adequate testing resulting in failures of the system at critical times. HMRC does not appear to learn from prior mistakes and appears set on introducing a further change to the PAYE system before allowing the new NPS system to bed down so that initial teething problems can all be eliminated and the system prove its worth.

10. Self Assessment Returns are subjected to a "process now check later" system which means that a repayment may be made without a "sanity" check. Entries in the "Additional Information Boxes" of Returns are not reviewed when the Return is processed causing later amendments. This may be due in part to the software not flagging up the additional information, or lack of staff to process at the time.

11. Software may be commissioned to extract information from Returns and calculate a tax code for PAYE. The fact that this results in many instances of incorrect code numbers may again be in part a software failure but also a lack of understanding by HMRC staff. For example, an individual with two code numbers, one giving full age allowance, only available if income does not exceed £22,900, and code DO meaning tax at 40%, which only applies for taxable incomes in excess of £37,400. The basic lack of attention to detail was demonstrated in the main issue of code numbers early in 2010 when it became apparent that old data had not been cleansed from the system prior to implementation, the NPS system.

12. It is accepted by all that tax is not simple and if further Budget cuts are suffered by HMRC the funds to ensure the systems are efficient, or made efficient, will not be available.

CAN HMRC DELIVER THE GOVERNMENT’S AIMS ON TAX COMPLIANCE

13. The first question to ask is what is the Government’s view of "Tax Compliance"? There used to be a clear division between tax avoidance, which was completely legal, and tax evasion, which was and always will be illegal. The term "avoision" is used to describe this blurred position.

14. In ‘Tax Policy Making: A New Approach, (June 2010),’ the Government sets out the measures it intends to take to prevent abuse of legislation. Given that the Complex Tax Return Unit has been replaced by the High Net Worth Individuals Unit, with fewer staff, and fewer taxpayers covered, it is difficult to see how HMRC, with present and projected resources, will be able to effect compliance and police the income tax, corporate tax and VAT taxpayer base to extinguish this perceived abuse.

15. The recent announcements with regard to the number of reconciliations prepared by the new NPS system covering approximately 6,000,000 taxpayers for the years 2008/09 and 2009/10 and the further admission by HMRC that there were approximately a further 18,000,000 unreconciled cases for earlier years demonstrates that HMRC has been unable to carry out the necessary reconciliations on an annual basis. The only reason for this must be a lack of resources, be it experienced staff or computer backed facilities. Experience of the recent reconciliations is fairly limited at the present time, but many of those seen to date are either totally incorrect or reflect earlier errors by HMRC.

IS PAYE REFORM NECESSARY?

16. The ATT has already made a detailed submission in relation to the proposals set out in the paper by HMRC suggesting PAYE reform some time ago. It is accepted that, when the PAYE system was introduced in the 1940s, the employment market in the UK was very different from that which applies today. The work force then tended to remain in the same employment for many years and only had one employment at a time. Today, there are many more job changes than previously and many people with more than one source of income subject to tax under PAYE. The fact that PAYE operates by reference to the taxpayers National Insurance number means that if an individual does not have a National Insurance number they may never get into the system in the first place. If the National Insurance number was critical to all activities in the UK, as the social security number is in the USA, it would be easier to ensure that all employees are registered with the PAYE system.

17. The HMRC proposals with regard to the reform of PAYE are radical, but we believe it will be extremely costly to implement and, whilst the provision of "real time information" could be of assistance to HMRC in detecting benefit fraud, the cost to employers in providing this information, in both time and money, could be extensive. We are also concerned, in view of previous performance, that HMRC’s systems will be unable to cope with the amount of data which they would receive on a weekly, monthly or even irregular basis of all payments to staff.

18. The second half of the proposals by HMRC refer to a centralised deductions unit where HMRC would be responsible for all of the calculations and payment of wages and salaries to all employees in the UK. Whilst it is agreed that the BACs system is currently used by many employers, it is certainly not used by all and, if this was to be adopted as the only method of payment of salaries and wages, is there evidence that the system could cope? The paper does not provide any evidence in support for this proposal.

19. We recommended in our response to HMRC that no further change to the PAYE system should be considered at the present time as the most recent change, the introduction of the NPS system in mid 2009, needs the time to bed down and prove its worth before any further changes are considered.

HMRC’s PRIORITIES FOR THE FUTURE

20. The brief of HMRC is very diverse, being the major collector of governmental funds as well as being responsible for paying tax credits to those on "modest" incomes. A collect with one hand and pay out with the other syndrome. Praise is due to many HMRC staff trying their best to cope with the system but frequently without the support and job satisfaction that they deserve. The changes introduced in working practices have removed much of the job satisfaction previously available to front line staff and the pressures put upon them are such that staff moral is at an all time low. The ATT believes that many front line staff are not sufficiently trained in tax to understand the questions or problems posed, in particular by experienced tax agents, which only adds to the frustration of dealing with HMRC. The policy of moving work around the country to where staff are available may seem attractive within HMRC’s terms, but the lack of consistency of the individual within HMRC dealing with a particular matter causes frustration to tax agents, inefficiencies within HMRC, extra costs for HMRC and contributes to the poor staff moral at the present time.

21. The priorities for the future must be to consolidate and avoid further changes, to improve staff knowledge and staff training so that their understanding of the system is not just simply pressing the button on a computer and provide a means of improving staff moral. Much of this is down to work practices, some of which we believe could be refined at no actual cost to HMRC, but the improvements which would follow in efficiencies and staff moral would actually prove to be a cost saving. It seems that the functions of the required software could be improved if software writers work side by side with experienced personnel so that the software fits into the jigsaw puzzle that the taxpayer diversity and complications of the tax system present much better than it appears to do at present. There would also need to be more rigorous testing of software before it actually went live.

22. Reference has been made previously to turnaround times for HMRC dealing with various items of correspondence. This must be addressed urgently as delays in responding to correspondence can be critical in some instances but in any event delays in dealing with correspondence involve, for example, a delay in changing a code number which could result in excessive tax being deducted for some considerable time or, alternatively a repayment actually due being delayed.

23. The ATT is concerned that these priorities will not be met by HMRC if there are further cuts in resources as the present shortcomings will not be adequately dealt with as the staff numbers will not be sufficient to catch up with the work which HMRC has failed to do properly over a number of years. HMRC cannot afford to lose any staff, let alone experienced staff who seem to be the ones who go when a redundancy programme is implemented.

CONCLUSION

HMRC is an extremely complex organisation, it is the major collector of funds for the Government and, therefore, for Government to impose further cuts is likely to be counter-productive if HMRC are unable to operate efficiently and effectively. Further major changes such as are proposed within the PAYE system should at least be deferred.

November 2010