The administration and effectiveness of HMRC

Written evidence submitted by CBI

Introduction

The CBI is the UK’s leading business organisation, speaking for some 240,000 businesses that together employ around a third of the private sector workforce. With offices across the UK as well as representation in Brussels, Washington, Beijing and Delhi the CBI communicates the British business voice around the world.

General Comments

We welcome the opportunity to submit written evidence to the Inquiry into the administration and effectiveness of HMRC.

Answers to the Inquiry Specific Questions

1 HMRC’s performance as an organisation and whether it is delivering its key aims

a Business priorities for a good working relationship with HMRC were discussed at length with HMRC in the run up to their 2006 Review of Links with Large Business.

b Business and HMRC have continued to work closely together to deliver the Review’s principles.

c Problems identified by business on HMRC’s performance are:

i Lack of appreciation of taxpayers’ compliance costs as a key factor in the UK’s international competitiveness [1] .

ii Lack of commercial awareness in HMRC staff and ability to recognise materiality.

iii Lack of authority at CRM level to manage the HMRC team (often located in different offices/specialisms)

iv Lack of continuity of relationship (understanding of sector/individual businesses) – too rapid turnover of key staff.

v In many situations involving smaller quoted and private companies, there is now no pre-appointed HMRC officer as a point of contact to deal with issues and queries. Cases are only allocated from a central pool of Tax Inspectors and the person selected is determined by availability against a timetable when the enquiry period is about to close.

vi There is very poor co-ordination between specialist districts that are called in to handle specific issues, eg between Capital Taxes Office and the Inspector examining the corporation tax returns.

vii The interaction between HMRC and the Treasury does not seem to work very well. Policy does not seem to take proper account of implementation difficulties. This suggests there are insufficient HMRC specialists with the relevant knowledge. Recent examples include the remittance basis changes and the original rules on pensions tax relief.

2 What the implications are of HMRC’s spending review settlement

a There is a danger of too much attention on exceptional avoidance with consequent lack of resources available for dealing with the vast majority of "would be" compliant taxpayers.

b However, HMRC needs to have sufficient resources to tackle evasion fraud and the black economy. The continual linking of evasion and tax avoidance in statements by politicians/treasury/HMRC probably hinders the fight against illegal activity. Tackling avoidance needs a different skill set to those dealing with fraud and evasion.

c There is a general perception that HMRC are under resourced, leading to cutbacks that simply displace the work involved without increasing efficiency eg withdrawal of form P86 to obtain information on foreign employees coming to the UK. Another illustration concerning telephone queries on newly issued tax codes has been the use of recorded messages asking callers to call back later as HMRC staff were too busy.

3 Whether HMRC is able to deliver the Government’s aims on tax compliance

a Government aims on tax compliance must be seen in the wider context of bringing the UK tax system into the 21st century.

b Compliance will be greatly enhanced by reforms which produce rational and understandable tax rules. These would also produce greater common understanding between HMRC and taxpayers.

4 Whether PAYE reform is necessary

a Business has long called for the rationalisation of PAYE and NIC.

b Progress on this rationalisation should not have to await the outcome of any attempt to change PAYE procedures.

c PAYE reform should focus on reducing PAYE burdens for both employers and employees rather than shifting administrative burdens from HMRC onto business. For further detail see our response to HMRC’S Review on "Improving the Operation of Pay as You Earn (PAYE)" Consultation of July 2010 – attached.

d A major difficulty with PAYE is the time it takes HMRC to issue code numbers eg 3 to 6 months for NT Code numbers. Providing PAYE information in real time is not going to help if HMRC will not respond swiftly. HMRC already get P45s etc electronically. The submission of data is not always the issue. Real Time Information will put a greater expectation of a swift response on HMRC and currently they cannot deliver this. When computer systems are introduced they do not seem to cover the difficult areas eg expats.

e Any attempt to deem workers to be within PAYE (eg construction industry) should be abandoned.

5 What HMRC’s priorities should be for the future?

a The ongoing priority should be the continuous dialogue with business on principles and practices which can enhance UK competitiveness. This should ensure that the UK can be and remain one step ahead of competitor jurisdictions.

b Mechanisms should be found to resolve practical difficulties on a fast track basis as necessary.

c Improvement of HMRC’s website to make it reflect user needs.

d Acceptance that flexibility is needed to reflect differences in working practices and operational needs between types/sizes of business.

e Taxpayers should be able to e-communicate with HMRC if they so wish.

f HMRC should form part of a three-part relationship with HMT and business in examining tax proposals and reforms to ensure practicality.

g Compliance cost assessments must become meaningful and should always precede decision making by Ministers.

December 2010