Written evidence from HM Revenue & Customs

Q138: Stephen Barclay: Suspicious Activity Reports (SARs)

Stephen Barclay asked about a specific case identified by Stewart Jackson and whether there had been a suspicious activity report on the case.

It is not always appropriate to divulge operational matters in relation to criminal investigations, however given it is a matter of court record, HMRC can confirm that it received two SARs in relation to the case from SOCA during the course of this investigation.

HMRC accesses and reviews SARs that are submitted by the reporting industry that are of interest to HMRC using various techniques, including matching SARs Intelligence to the HMRC CONNECT system. This enables the department to profile a greater number of SARs, allowing early identification of threats and better targeted interventions. The department provides feedback concerning the success of the use of SARs across HMRC business to the NCA in anonymised cases, and this is shared twice a year with the reporting industry.

Q153: Chair: Overdue Tax Collected

The chair of the Committee asked about the overdue tax and duties (debt) figure against which HMRC collected £37.9 billion in 2011–12 and £34.5 billion in 2012–13. The fall in this measure should be seen in the context of a fall over the two years in the total overdue debt due for collection.

There was less overdue tax flowing into the debt system in 2012–13: £42.5 billion versus £47.9 billion: part of a continuing trend.

Of the debt which was available for collection (including £13.3 billion uncollected debt carried forward from the previous year) 70% was collected in cash compared with 67% in 2011–12.

Cash collected per capita fell by 6% to £6.34 million in 2012–13 as we took the opportunity of reduced debt flow to focus "spare" resource on collecting older, smaller value debts.

(Cash collected per capita is cumulative receipts per annual average FTE in Debt Management.)




Total net revenue collected






Opening debt balance



New debt during the year



Overdue debt for collection



  less discharges



REAL overdue debt for collection



  of which debt collected



  of which written off



  of which remitted



Cash collected as % of real overdue debt



Q188: Mr Bacon: Costs of the Construction Industry Scheme (CIS)

CIS is an HMRC-administered tax compliance scheme for businesses in the construction industry. This is an industry that traditionally attracts a large itinerant workforce and often involves a "cash-in-hand" approach, resulting in a potentially significant loss to the Exchequer of payments of tax and NICs. As a result, since 1972 there has been a dedicated compliance scheme in place, in one form or another, to monitor payments made between "contractors" and "subcontractors".

The current scheme, introduced in 2007, brought a number of changes to improve tax compliance and to relieve some of the administrative burdens on the industry that had been associated with the previous schemes. The new scheme removed the former requirement on contractors to complete payment vouchers and for subcontractors to have to present personalised CIS identity cards before payment could be made. It also introduced a single monthly return for contractors to replace the previous voucher system and, for the first time, introduced various non-mandatory e-filing facilities. These included on-line verification of subcontractors’ tax payment status and on-line completion of CIS contractor returns.

An estimate of the basic running costs of administering the scheme for the current year (201314) is £12, 500,000. This figure includes IT, print and postage and staff costs.

A Regulatory Impact Assessment of the Scheme in March 2004 estimated the costs to HMRC of around £32 million per annum by 2009–10. This estimate will have reduced substantially due to the following improvements since its introduction:

¾ CIS has been centralised since 2009. Originally, it was managed in many small units around the country but is now concentrated in Newry with a much smaller unit in Hull.

¾ In 2010, a project to rationalise the use of IT across HMRC was undertaken. It looked at CIS and a number of subsidiary services were trimmed from the IT running costs, most notably the pre-2007 CIS computer system which was still running alongside the new one (for compliance purposes).

¾ The contractors’ pack, which HMRC issues to about 22,000 new contractors each year, has been rationalised significantly to save costs and is now much reduced in size, thus saving on output and postage costs. In addition, the number of contractors using the paper filing method has reduced by 50% since 2007, with a consequent reduction in processing costs at our Liverpool processing centre. The CIS includes about 160,000 contractors and about 849,000 subcontractors at any one time. Some contractors are also subcontractors.

HMRC plans further improvements in its administration of the CIS scheme within its SR10 efficiency plans, mostly in terms of process re-engineering.

At the PAC hearing on 16 October 2013, Mr Bacon mentioned figures of £32 million, £50 million and £100 million as potential costs of administering the scheme.

<?oasys [pf10p0] ?>Our enquiry into the origin of these figures concludes that they originate from the Regulatory Impact Assessment for the current scheme in March 2004 which shows an estimated annual cost to the industry of the pre-2007 scheme of £52 million and concludes that the current scheme will save industry £22 million, costing £30 million per annum. These figures are the cost to the industry and not the HMRC costs of administering the scheme.

We believe that £100 million industry costs quoted by Mr Bacon originate from the July 2009 HMT/HMRC Consultation Document "False self-employment in construction: taxation of workers" which quotes "Using the Standard Cost Model the ongoing administrative burden [to the industry] of CIS is estimated at around £100 million per annum (2005 prices)". At the hearing, Mr Bacon also quoted an IPSOS/MORI poll which was commissioned by HMRC in October 2010. Chapter 4 from the report concludes:


4.1 Chapter overview and summary

In this section, we describe the overall view that the research audience holds about CIS, including why they think such a system operates and their general perceptions of tax compliance issues:

Headline figures-compliance

¾ 36% of respondents spontaneously say that CIS exists to ensure income tax gets paid.

¾ 81% of respondents think that CIS is effective in ensuring that construction businesses pay income tax.

¾ 79% of respondents feel that CIS helps them feel confident that construction businesses are complying with their tax obligations,

Headline figures-administrative burden

¾ Around half of contractors and dual-role businesses (52% and 49% respectively) agree that CIS is a burden, compared to slightly over a third (35%) of subcontractors. However, slightly more subcontractors (49%) disagree than agree that CIS administration is a burden on their business.

Headline figures-trust

¾ (53%) feel the industry is honest and disagree with the notion that construction businesses will always find a way to avoid paying tax.

¾ (51%) think that the existence of CIS shows that HMRC does not trust the construction industry.

¾ (57%) think that it is uncommon for businesses to deliberately avoid taxes.

As indicated in the headline figures box, CIS is mostly successful in meeting one of its policy aims: improving compliance with tax obligations. It has also demonstrated a degree of success in reducing the regulatory burden, as shown within the changing face of CIS section (p.50), although CIS is still a burden for some (41%), the changes have reduced the administrative burden for many businesses: nearly two-thirds (65%) of those who used the old scheme think that the new system is simpler and 57% say it takes less time to administer.

CIS is particularly successful in relation to compliance-four in five respondents agree that the scheme is effective in ensuring construction businesses pay income tax and that it makes them feel confident the construction businesses are complying with their tax obligations.

Q209: Chair: Additional information for the Committee concerning customers who need additional support.

HMRC has been piloting a new service for customers who need extra help getting their tax or entitlements right. The pilot is currently taking place in the north east of England and as part of that pilot HMRC has closed its 13 Enquiry Centres in that region.

The new service currently being piloted provides specialist help for these customers, either by phone or by a mobile team of face-to-face advisers.

Customers initially make contact with HMRC through our Contact Centre service. Customers identified as needing extra help by our Contact Centre advisers will be quickly transferred to a team of Extra Support Telephone Advisers who will spend more time with the customer on the call, will take ownership of the case, and will and see it through to completion. If the case cannot be dealt with over the telephone they will hand the customer over to an Extra Support Mobile Adviser team to arrange a face to face appointment at a public venue convenient for the customer, or at the customer’s home. This approach would replace the current network of Enquiry Centres.

<?oasys [pf10p0] ?>In addition, customers may also be referred directly to our Extra Support Telephone Advisors by one of our Voluntary and Community Sector (VCS) partners. An Extra Support Telephone Advisor will also be able to decide that a customer query is best dealt with by a VCS organisation and will give the customer the information they need to decide on the most appropriate organisation to approach.

A decision on whether to roll out this new service across the United Kingdom will be taken in January 2014.

Lin Homer
Chief Executive & Permanent Secretary

29 November 2013

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Prepared 17th December 2013