Examination of Witnesses (Questions 309
- 319)
TUESDAY 17 APRIL 2007
MR MIKE
ELAND, MR
TONY WALKER
AND MR
RICHARD BROWN
Q309 Chairman: Welcome
to you and thank you very much for coming. I have a slight feeling
of Groundhog Day since almost the last faces I saw before I went
away for two months were those of HM Revenue and Customs, but
it is very good of you to come back because this is a difficult
inquiry and there are questions we wish to revisit as well as
new questions which have occurred to us as we went on. We sent
you some questions ahead of time, thank you for your message,
and we all have Annex A of your letter of 27 February before us.
We have of course very slightly changed the questions and I am
afraid we have decided not to ask about HMRC's cash flow because
it is not particularly germane to the inquiry, but we do now wish
to ask a new question on the issue of how this fraud is going
to migrate or your views on the possibility of the fraud migrating
and where to, for which I am afraid you may be unprepared, but
we hope you can do your best with that.
Mr Eland: Yes, of course.
Q310 Chairman:
We have also eliminated much of the bit where we ask you whether
you have got the sense God gave you to join SOCA, so we will actually
not ask that; we think your answer must be obvious. Against that
background, we also recognise that you may not be able to produce
answers to everything if it is getting in the way of your ongoing
operations, but actually I do not believe our questions are of
that nature. I will start please with the first question: have
you been able to estimate the costs to business in the relevant
sectors of introducing the reverse charge mechanism which will
come in in June 2007?
Mr Eland: We are currently working with the
industry on preparing a proper, full regulatory impact assessment
which will give those costs and we intend to publish that alongside
the one remaining bit of legislation that is necessary. It is
secondary legislation which will be published early next month,
so Parliament, before it finally decides on the reverse charge,
will have that information available.
Q311 Chairman:
Are you offering businesses help and support as they prepare for
change?
Mr Eland: Yes, we are. We have had a number
of discussions with them in actually designing the reverse charge
to help shape it in a way that minimises administrative costs.
We have also held a series of workshops and so on to answer questions,
give guidance to some of the trade representatives. When the reverse
charge is actually introduced, we have a dedicated resource that
is aimed at educational support to taxpayers who are dealing with
any change to the tax system and part of their programme for next
year will be helping people who are dealing with the reverse charge,
so we will be offering that range of support and obviously guidance
and so on as well. We have also said in the publicity that we
have been putting out around the reverse charge that we will adopt
a light touch towards compliance activity in the first year of
the reverse charge, so we will not be going round looking for
people who have made mistakes and trying to impose penalties and
that sort of thing, but we will be trying to help them get it
right.
Q312 Chairman:
Providing you assume them to be honest?
Mr Eland: Yes, obviously that is right, but
we hope that the reverse charge will actually, because it effectively
makes the fraud impossible, clear out fraudulent operators from
the system.
Q313 Chairman:
Yes, I see, so there just will not be any of those left.
Mr Eland: There is no benefit to them in continuing
to trade.
Q314 Chairman:
You are presumably going to be using quite a lot of resources
on assistance to trade?
Mr Eland: Yes.
Q315 Chairman:
Presumably you have taken those resources from somewhere?
Mr Eland: There are several hundred staff that
are, we call them, `the targeted education group' where their
regular day job is to help taxpayers with new legislation or new
businesses coming into the system. They are a dedicated group
that have a turnover of that type of work, so we will not be diverting
any resource away from the verification campaign in order to carry
out that activity, but it will be a separate block of existing
resource.
Q316 Chairman:
A separate body of people?
Mr Eland: Yes.
Q317 Chairman:
So the 1,500-plus you have engaged in various bits of verification
will still be deployed?
Mr Eland: That will continue until that exercise
is completed.
Chairman: I am not going to ask the question
about migration of fraud because Lord Kerr is going to take that
one later.
Q318 Lord Kerr of Kinlochard:
Could I ask a question about the derogation and about Ed Balls'
written answer reporting on the successful achievement of the
derogation? Reading his answer, he said that in discussion some
changes were made: the derogation will be for two years rather
than the three that were originally sought, but presumably it
is renewable; the scope will be restricted to mobile phones and
computer chips; the de minimis level will be raised; and some
changes to VAT accounting rules would not be made. How do you
assess that compared to what you wanted? Is it 60 per cent, 70
per cent, 80 per cent or 90 per cent as effective as what you
wanted?
Mr Eland: I think it is largely in the 90 per
cent range of what we wanted. Clearly we accept that it is going
to need a review in two years' time and some of the changes in
the levels of everything we are content with. I do not know if
you want to add anything, Richard.
Mr Brown: No, that is fine.
Q319 Lord Blackwell:
I just wondered how clear you think the definitions of these will
be to the trades involved to the extent that a phone is a camera
is an email machine and a computer chip may be a chip which has
other functions on it. Will it be very clear to people what is
in and what is outside?
Mr Eland: We have been having discussions now
with the industry since January last year when this was first
mooted and I think we have gone through some of those types of
questions with them, so my understanding is that we do have a
fairly clear idea and a common understanding. I think in any tax
system that relies on definitions and so on, you are always going
to get clearly some potential things at the margins and we would
clarify those in the course of the first year of operation, I
would hope. As I say, we have made it quite clear that for the
first year of operation we intend to operate a light touch and
try and help people get it right rather than zoom in on an error,
saying, "You've got it wrong and we are going to impose a
penalty".
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