Public Accounts CommitteeWritten evidence from HM Revenue and Customs

1. Q30 Chair: You have 770 large businesses and the figure that we had from you last year—I accept that it was a potential figure and not the nth number—was £25 billion outstanding. That was the figure that the NAO had in its Report last year. How many of those 770 large businesses had a parent company outside the UK?

The number of companies managed by the Large Business Service has increased and it currently has 783 customers, of which 371 have non-UK parents.

2. Q34 Chair: About half, okay. You treat them all fairly, but is it also true that there has not been one litigation against a large business since 2004? Am I wrong in that? I hope that you are going to tell me that I am.

The department has taken litigation action against a number of large businesses and refers the Committee to the written evidence that was provided on 13 July, 2012 (Q.162–168) following the PAC Hearing on 27 June 2012: Tax Disputes:

“There are currently just over 1,000 instances of litigation involving taxpayers defined by HMRC as “large businesses” (turnover exceeding £30 million or more than 250 employees).

We estimate the number of large corporates involved in litigation to be 600 (a number of these are involved in more than one of the instances of litigation referred to above).

In the very largest business cases (the 770 dealt with by the Large Business Service), our systems also show approximately 750 issues under enquiry where the issue is similar to one already in litigation in another case. In such cases businesses often do not enter into litigation but resolve the enquiry by agreement following a decision by the Courts on the point of principle in a similar case.

HMRC currently wins about two-thirds of its disputes with large businesses at Tribunal and in the five years to 2010–11 roughly a quarter of Large Business Service compliance yield (£6 billion) came from litigation.

In his oral evidence to the Committee on 27 June 2012, Jim Harra said that there are currently just over 4,000 live litigation cases in HMRC’s solicitor’s office. We have checked this figure and in fact there are 8,154 live litigation items of litigation. Of these items just over 1,000 involve taxpayers defined as “large businesses”.”

3. Q46 Austin Mitchell: Can you tell us how many of the big corporations are handling their tax affairs through offshore tax havens?

HMRC’s Large Business Service deals with the tax affairs of the 783 largest businesses in the UK.

Most of these businesses are multinationals with complex international structures, including operations in both countries with lower tax rates than the UK and countries with higher rates.

As part of HMRC’s business risk review process, our Large Business Customer Relationship managers obtain a detailed understanding of each group’s corporate structure, including their presence in lower tax jurisdictions. This information informs the tax risk assessment and the selection of areas for investigation.

HMRC applies corporation tax rules, such as the transfer pricing rules and the controlled foreign company rules, to ensure that the correct profits are charged to corporation tax in the UK.

VAT operates differently from corporation tax, and is normally charged in the country where the customer is located. Until 2015, when the rules will change, a significant exception to this general rule is the supply of electronic services. HMRC has robustly challenged suppliers of electronic services to UK customers who claim to have re-organised their corporate structures to take advantage of lower VAT rates in other EU countries. See HM Revenue & Customs: Spotlight I VAT: Relocation of telecommunication service providers, Internet service providers and broadcasters (9 February 2011).

In the year ended 31 March 2012, HMRC’s Large Business Service recovered £5 billion additional revenues from the 783 large businesses it deals with. Approximately 1/3 of this came from the investigation of international tax risks, such as transfer pricing and controlled foreign companies. HMRC recovered £4.7 billion additional revenues from transfer pricing enquiries in the five years to 31 March 2012

4. Q105 Chair: Okay. I get that, but can you tell us, or will you write to us, about how many cases you do not pursue through debt collection agencies, but you may pursue through the courts? You do not know how many cases you have against the top businesses at the moment, do you? You talked about some of your successes, but you have not got a list.

See response to 2 above.

5. Q131 Mr Bacon: Sorry, that was not my question. My question is about individual records. It says 1.5 million individual records; my question is how many individual records you have got now, if it was 1.5 million at the end of May?

At the end of Stage 2 the number of employee records at that time was around 2 million (1,977,426) reported by 1882 PAYE schemes. Stage 3 of the pilot started on 6 November and at the end of day 1 the total individual records had increased to 2,128,426 employments, being reported by a total of 6,827 PAYE schemes.

6. Q171 Mr Bacon: What I would like to know is this. Perhaps you do not have this answer, but lots of work goes on in the DWP—and, I imagine, also in HMRC—that is based on estimates, worked examples and extrapolation. Do you have any figure for the number of people who simply do not claim tax credits at all, because they want to have nothing to do with it, because they are fearful that they will end up in a situation where they are overpaid, even though they are entitled?

The latest published take-up statistics for 2009–10, which are available on the HMRC website, show that around 2.7 million households (1.4 million families with children and 1.3 million households without children) were eligible for, but did not claim, tax credits.

The 2010–11 estimates will be published on 12 December 2012.

7. Q175 Mr Jackson: Can I ask you about the specific issue of child tax credits? My constituents get slightly concerned when they hear about the number of child tax credits that are going to EU citizens whose children do not reside in the UK and are likely never to reside in the UK. You will say that is a relatively small amount.

What concerns me slightly is that until recently you have not collected—or rather the Treasury has not been willing to divulge even that it attempts to estimate the number. I just wonder whether you collect data on that. Would you know how many, what countries and on what basis and, more importantly, what is the practicality of checking the veracity of those claims?

The Committee’s attention is drawn to the written answers given by the Exchequer Secretary to the Treasury to the Hon. Member for Dover on 25 October 2012 (Official Report Column 1022W).

“Out of a total of approximately 5.2 million families currently receiving the child tax credit for almost 9.3 million children, at 30 September 2012 there were 3,447 ongoing awards of the child tax credit under EC Regulation 883/2004, in respect of 5,962 children living in another member state. This equates to around 0.06% of all child tax credit awards.

Information about the value of child tax credit awarded by the UK under EC Regulation 883/2004 is available only at disproportionate costs. This is because under the priority rules in that regulation not all awards of UK family benefits are made at full UK rates.”

In addition to the risk-based checks applied to all claims for tax credits, HMRC undertakes additional checks where a claim is made to which EC Regulation 883/2004 may apply. In co-operation with the relevant authorities in the Member State where the family resides, we check to confirm the composition of that family, whether a migrant worker’s spouse is working in that other Member State and whether that other State’s family benefits are in payment. HMRC does not make payments of child tax credit (or child benefit) until the authorities in the other Member State have provided the necessary information. These are well-established procedures which apply across the EEA, involving the use of standard forms by the authorities of all Member States. There are EU plans for electronic exchange of information between all Member States (Electronic Exchange of Social Security Information programme) which, once implemented, will make these checks easier and faster.

8. Q179 Chair: This one is on PAYE—the reconciliation on PAYE. Your latest figure is £53.7 million for the tax that has been lost through various things—money coming in too late and getting money out of people late. You are also raising the level at which you pursue people. What is the final total? If you have finished all these reconciliations, what is the final total of moneys lost to the Exchequer because of the mess in which this reconciliation occurred over time?

In the previous report on HMRC Accounts, we advised that we remitted 28,000 claims amounting to £41 million in respect of Extra Statutory Concession Article 19 (ESC A19) for the period September 2010 to June 2011. For 2011–12 a further £12.7 million was remitted during the period from July 2011 to March 2012. Therefore, latest figures of £53.7 million remitted refer to the total amount of revenue foregone from September 2010 to March 2013. This covers the whole period of processing Pay As You Earn (PAYE) since the introduction of the new PAYE computer system, called the National Insurance and PAYE System (NPS).

£12.7 million is a considerable reduction on ESC A19 remittances compared to 2010–11 and this trend will continue because we are more up to date with PAYE processing.

In respect of the question about total monies lost to the Exchequer due to the activity necessary to introduce and stabilise NPS and bring PAYE up to date, the department has not changed its previously shared estimates and continues to estimate the revenues foregone for the application of the £300 PAYE tolerance for years 2008–09 and 2009–10 as £160 million, and a further £166 million for the extension of the £300 tolerance applied to 2007–08 underpayments. In addition, as previously stated, £100 million was foregone from the diversion of resources to recovery work from 2006–07 underpayment cases.

Total Income Tax remissions were £756 million for 2011–12 but this figure also includes all underpayments under the tolerance threshold worked during 2011–12 across all PAYE work (both current and legacy) and across all tax years.

16 November 2012

Prepared 3rd December 2012