Posts Tagged ‘HMRC’

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The sheep thing

November 27, 2015

Have a look in Hansard at the debate about the HMRC closures:

Chris Stephens

Many MPs and tax experts support the view that a visible and local HMRC presence is essential to maintaining ​confidence in the tax system. Does he not believe that the measures that have been announced by HMRC will open the way for more tax avoidance?

Mr Gauke
No, I do not. As I have made clear, the number of HMRC officers has been falling since its creation in 2005, including over the past five years, and we have seen the closure of inquiry centres, as has been touched on, but HMRC’s success in dealing with tax avoidance and evasion over that period has been marked and has improved. The truth is that HMRC deals with tax avoidance and evasion principally through sophisticated data analysis and by bringing together highly skilled people. The more that we can do of that, the bigger the difference we will make.

There are several issues raised by the prospective closure of HMRC’s network of offices, and it does no-one any favours if we braid them together and pretend they’re all one and the same.

First of all there’s the argument that “tax avoidance and evasion” are fought “principally through sophisticated data analysis”.  I have no recent practical experience of whether or not that’s true – the last time I looked at a set of accounts in anger, the dispute was over whether an inspector’s judgement was more effective than a “package” of data sent from a remote analysis unit.  At the time it wasn’t, but I strongly suspect the balance has swung the other way and this is the way most cases will be broken in the future, particularly the larger ones.

But that isn’t the same argument as this one: “Many MPs and tax experts support the view that a visible and local HMRC presence is essential to maintaining ​confidence in the tax system.”  A remote analysis unit can’t do that job.

It’s an oversimplification, but think of it this way.  HMRC exists to serve us, the taxpaying public, by bringing in the money which funds public services.  They do that to a large extend by administering the tax system so that we, the taxpaying public, can pay our taxes.  That sounds like tautology but in fact it’s a profound truth.  I want to pay my taxes.  I want to pay the right amount at the right time.  I want to do it with the least amount of contact with HMRC possible, but if I *do* need to speak to them, I want them to be there, where I can get at them, to be contactable, and to be courteous, authoritative and knowledgeable when I speak to them.  And – as a taxpayer – I want them to come down in righteous wrath on the people who don’t do that.

There are two constituencies to be served, in other words.  The avoiders and evaders might well best be tackled by specialist accounts factories in remote locations: the first time an evader needs to contact HMRC is when they knock on their door with a warrant.  The rest of us, however, need an entirely different kind of service: local, accessible, friendly, helpful.  Treat avoiders and evaders like regular taxpayers and you may “nudge” some of them into normalising their relationship with taxes and behaving like the regular taxpayers they’re being taken for.  Treat regular taxpayers like avoiders and evaders, however, and you risk them saying to themselves, well, may as well be hanged for a sheep as a lamb…

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Why closing all* the HMRC offices is a bad, bad, bad idea

November 18, 2015

*all but 13

HMRC announced last Thursday that their “modernisation” programme now requires them to close all their “expensive, isolated and outdated offices” and bring their remaining staff together in 13 “regional centres”.

This is a bad idea for so many, many reasons.  Here are a few of them.

  • HMRC as a national network used to have a mix of people who worked locally (who would notice a new business starting up or a conspicuous show of unexplained wealth) and people who were moved around the country for promotion (so the standards of service were national).  In the new plan, whole swathes of the country will have no physical HMRC presence.
  • Regional centres where someone spends their whole career have the potential to develop into fiefdoms with their own customs and practices – a national system becomes a postcode lottery.
  • A national system with regular staff mobility has an in-built anti-corruption apparatus**. A static regional team will need another bureaucracy of inspection and quality standard-setting.
  • As the PCS points out, there was no public consultation or parliamentary discussion of the plans. HMRC is a non-ministerial department but that doesn’t mean it can behave like a private company and arrange its affairs to suit itself rather than the public it services.  Obviously we need a tax administration fit for a twenty first century tax system… but who decided this was it?

There are also a couple of missed opportunities in the announcement

  • “The new regional centres will bring our staff together in more modern and cost-effective buildings in areas with lower rents”  I spent the last two or three years of my HMRC career living in Sheffield and working in London.  Because 90% of what almost any HMRC employee does can be done on a computer, and the computer could be located anywhere.  If HMRC invested in a decent network of secure laptops they could let large numbers of their staff work from home: do staff need to be concentrated in accounts factories to do their jobs?
  • The locations have been announced.  The buildings to be used in each location … haven’t.  Good luck with negotiating those “lower rents”, then!

 

**see for example Christopher Hood The Art of the State (p162) on the “gaming machine model of organisational design in traditional tax bureaucracy”

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State of play

September 16, 2015

So there are fourteen open consultations listed as relating to HMRC on the gov.uk website today.  If you filter instead for the “tax and revenue” policy area (all departments) the total comes up as 18 – four from the Treasury.  Query: why are some tax consultations badged from the Treasury and some from HMRC?  Answers on a postcard…

The first is a review of travel and subsistence rules.  It was published under the coalition government, in July 2014, but says that it closes at quarter to midnight on 1st May 2016.  I find this rather improbable, and I wish gov.uk would have a look at it.

You have until 30th September to respond on the taxation of performance linked rewards paid to asset managers, employment intermediaries and tax relief for travel and subsistence, ISA qualifying investments and crowd funding, and the IR35 discussion document

You need to get motoring to respond to the implementation of the Personal Savings Allowance and the deduction of income tax from interest in peer to peer lending which both close on 18th September.  The other handful all have closing dates in October.

But I could have read and perhaps responded to one of them in the time I’ve taken today trying to identify which one to prioritise.  Because apparently listing consultations with a visible closure date and/or in the order in which they close remains beyond the wit of a twenty first century government.  Or, as I said on Facebook yesterday, you’d almost imagine they didn’t want responses from Jo Public.

 

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Schadenfreude

July 16, 2015

I shouldn’t laugh, but I used to be the person in charge of project managing and proof-reading OOTLAR (the Overview of Tax Legislation and Rates) document.  I took voluntary redundancy, which of course implies that the post was abolished.  I’m not suggesting this means that no-one proof read OOTLAR for the Summer Budget but I had to laugh when I got to page 102 and found the fonts starting to wander.  The second paragraph of the impact on business for the reform of Vehicle Excise Duty is clearly in a different font than the rest of the document.  While I can’t of course say what happens inside 100 Parliament Street now, in my day that kind of error would have meant a last minute change to the document by the Treasury (because of course you couldn’t have HMRC and HMT – in the same building – being on the same computer system) .

What other last minute changes can we infer?  Well there’s a heinous page break at Insurance Premium Tax (pages 104-105) where the table of impacts loses its first two rows and becomes hard to read, and, oh look, there are the small and micro business impact and the monitoring and evaluation sections in the different font again.

My favourite one, though, is the table of impacts for the Simplification of HMRC debtor and creditor interest rates at pages 121-122 where the impacts are not quite blank but certainly empty of meaningful content.  Robust estimates of the exchequer impact are not available.  The measure is not expected to have any economic impacts.  There is no impact on individuals, households or families.  There are no equality impacts and a negligible impact on businesses and civil society organisations, no operational impact on HMRC and no other impacts.  Well why the bloody hell are you doing it in the first place then???  The point of a TIIN is supposed to be to explain what you are doing, why you are doing it at all, and why you are doing it in this particular way.  The policy rationale for this particular change is given in this lovely paragraph:

The measure ensures that rates of interest payable on tax-related debts to which HMRC is a party are all contained within tax legislation.  It also reduces the rates of interest on tax-related judgement debts owed by or to HMRC to an appropriate level given prevailing interest rates.

To which I respond: WFT?

(No, seriously, if you know why they introduced this one at all, please enlighten me in the comments!)

 

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Saving £80million

June 9, 2015

The in-year budget review announcement that a further £80million is to be cut from HMRC’s budget may have passed you by. After all, the argument has been made that spending £1 on HMRC staffing brings in £25 or more of unpaid tax  so you would think that the overriding priority of deficit reduction would imply more rather than less spending on tax collection. However if all we are thinking about is costs, well, perhaps all it takes is a little thinking outside of the box.

5 ways to save £80m from HMRC

1. Reinstate 174 paper

When I started my career, tax inspectors did their calculations with pen and paper, not computer. It would cost a few thousand pounds to give every tax inspector a pad of lined “174 paper” – ruled for double entry bookkeeping – and a pencil. And, if you look at the items on this file of April’s spending  it looks as if turning off the “desktop managed serv” – which I take to be the routine desktop “managed services” available on all HMRC computers – could start us off with a few million of savings.

2. Turn off the phones

No-one answers them anyway. Or at least they aren’t meeting (table 3.1) their own “unambitious and inadequate target“. So stop doing something expensive that you’re doing badly. Turn off the phonelines altogether. And while we’re on the subject…

3. Stop answering mail

HMRC is rubbish at acknowledging, tracking, filing and above all answering pieces of post from the public.  They can’t even produce the correspondence in court. So again they should stop doing something expensive when they’re doing it badly. People can just email…

Oh. Well, they can use Googlemail on their…

Oh. Well everyone has an iPad somewhere. The staff can use googlemail on their own computers. Just THINK how much money the department would save!

4. Stop employing staff

No, hear me out. Not all of them, obviously. Just the ones that do customer service work. With no computers to work on, no phones to answer and no post to deal with, why not? Make all the customer service staff redundant and they can set up small businesses that do emailing and online tax returns for pensioners and other computerisation refuseniks for a small fee – to be paid by the customer, obviously. So HMRC won’t need customer service staff AND we’ll gain hundreds of new small businesses, thus boosting the economy!

5. You know, really, with all this self assessment, the system practically runs itself. Give all the remaining staff a year’s unpaid leave & sort out any errors the following year. Savings? £2,267.7 million (“Total net costs” table 3 page 135 here)

Easy! £80 million? Pah! If the government don’t mind how much revenue they collect and only care how much they save, well, as you can see, it’s easy peasy, and £80 million is another unambitious and inadequate target…

 

 

 

 

 

 

[Personal note: I’m off for a spot of surgery tomorrow so I won’t be around for a while.  See you on the flip side!]

[And another update on June 15th: I’m now out of hospital after rather more extensive surgery than originally indicated.  A five day stay rather than two.  Ow!  But progressing in leaps and bounds… well, incremental steps anyway.  God bless the NHS!]

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Prosecuting tax evasion is hard. Because, evidence.

February 14, 2015

Prosecuting tax evasion is hard.  Or at least, I imagine it is.  Because in all my time in the Inland Revenue and HMRC, I was never involved in a prosecution case.

Prosecutions are dealt with by a separate bit of the department.  Because, evidence.

Say I looked at a set of accounts and asked for some backing documents and then someone sent me a document that was a forgery.  Should they have been prosecuted?

Say it was an appeal: say they told me they’d appealed.  Say the thing they sent me was backdated to make it look like they’d appealed in time, and I spotted it was a forgery – could prove it was a forgery, in fact, because it referred to a thing that hadn’t happened at the purported date of the document.  Should they have been prosecuted?

What would their defence have been?  We actually did send in the appeal on time, but we couldn’t put our hands on it when you asked us?  A junior member of staff made a copy from our computer files but obviously they shouldn’t have done it and we’re very sorry, but that doesn’t alter the fact that we made the appeal in time and the dog ate our copy and why can’t you find YOUR copy, HMRC?  Is your filing system SO chaotic?

Say failing to make the appeal on time would have cost them £100.  Should they have been prosecuted for a measly hundred quid?  Would that have been worth the cost of prosecution in the first place?

Would the forged document even have been admissible as evidence?  We hadn’t had any conversations under PACE, they hadn’t had legal advice when they spoke to me, I hadn’t had any training in PACE except for the basic “this thing exists, you have to get it right, so refer to prosecutions if you think you’ve found something that needs this kind of handling” training.

It’s not as easy as it first sounds… except….

Well, except that obviously an overworked prosecution section has to prioritise.  Say they are so under resourced they can only take cases where there’s a million quid of tax at stake: would you even waste their time asking them about a forged document that £100 hangs on?

What should have happened, in an ideal world?

Well, shouldn’t there have been a prosecution unit attached to every team?  Resourced to investigate the smaller cases, under PACE, with a view to prosecution?  To prosecuting the tax cheats (and I mean the direct tax cheats, not the fag smugglers and VAT dodgers on the “most wanted” list) with the same kind of limits as the benefit cheats?

Instead of me arguing with them about their accounts and a district inspector shouting at them about the attempted forgery, maybe their accounts should have been examined with a view to prosecution and they should have been hauled in and interviewed under PACE.  It still might not have been a serious enough case to be worth prosecuting, but there’s a space between a hundred quid and a million where, surely, there ought to be some equivalence between the limits we set on benefit fraud and the ones we set on tax fraud?

Wouldn’t that bring in 25 times more than it would cost to run?  Why aren’t we doing that?

[Edited 14/2/15 because the headline should have read “evasion”, not “avoidance”.  Thank you, twitter! *beats head on desk*]

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Small firms impact: not waving but drowning [Part 2 of 4]

February 5, 2015

A TIIN is supposed to answer seven questions.  (They are here in the TIIN instructions – the TIIN instructions still aren’t published by HMRC – and why not??? – but let’s assume the basic principle is still the same as “in my day”.)

The questions are:

What are you doing?

Why are you doing it?

Why are you doing it this way?

What will it cost/raise?

What will it cost the customer?

What will it cost the department?

Are there any other impacts?

“Why are you doing it” is a powerful question in the “better regulation” mindset, which basically reflects a worldview in which regulation is a Bad Thing in and of itself.  The idea is that regulation is nothing more than Red Tape, which would be Strangling Business unless it was itself regulated.  “Why are you doing it (at all)” is really the question, if you think that having no regulation at all is the ideal.

So why is the government doing MOSS at all?  Well let’s see.  The policy objective field of the TIIN (still on page A111) is where the answer ought to be, and it says:

Policy objective The measure will make business to consumer (B2C) supplies of BTE services taxable where they are consumed, thereby removing an incentive for businesses to locate offshore. This will level the playing field for UK BTE suppliers and is consistent with the Government’s aim of fairness in the tax system. The MOSS business simplification scheme is intended to reduce the administrative burdens and costs associated with this rule change and multiple VAT registrations for BTE suppliers, particularly for small and medium enterprises (SMEs).

Translated into English, I think this means there are two objectives:

  1. The main objective is to stop big companies from gaming the system by setting up shop somewhere with a low VAT rate.  Instead of VAT being charged where the supplier is located, from January 2015 it is charged (for electronic services like e-books) where the customer is located.  So small companies should have a more “level… playing field… consistent with the Government’s aim of fairness…”
  2. Because this change comes with associated costs for small companies, there will also be the “mini one stop shop”, the MOSS, which stops you having to register for VAT separately in each member state and instead handles it all in once place, the place the seller is located.

Now, I think the objectives are good ones in themselves.  Let’s make it easier for authors to sell their own works, for craftswomen to sell their own knitting patterns, for musicians to sell their own tunes, directly to the customer without having to lose a slice of their profits to a multinational selling for them.  And, yes, let’s keep the administration as simple as possible.

So what went wrong?

Let’s go back to the TIIN, to the summary of impacts that starts at the bottom of page A112.

Screenshot 2015-02-05 14.14.50

The first line shows you how much money the government expects to get as a result of this change.  The numbers are in millions of pounds, and the plus sign means the government expects to get this much tax in from the change.

The first few months of 2015 are still in the 2014-15 tax year (the tax year runs from 6th April one year to 5th April the next year).  So between January 1st and April 5th 2015 the UK government estimates it will make £70 million in VAT from the changes.  In a full year, it thinks it will make an extra £300 million plus, with the numbers rising over time.

I think we can all agree three hundred million is a sum worth having.  For the government, it’s the cost of, say, the entire NHS radiotherapy service (table 9 page 28, 2011-12 figures).  But look at this: “The MOSS element of the measure is expected to have a negligible impact on the Exchequer.”

Now, I understand “negligible” in an impact assessment to mean “less than £100,000 across the entire affected population”, which is what it used to mean in 2012 when I was last working for the government.  But have a think about that.  The entire farrago of MOSS is expected to bring in less than a hundred grand?  Seriously?

Because one of the seven questions written into the tax original impact assessment proposals, and which was still there when I obtained the TIIN instructions and published them on my blog, is

why are you doing it this way???

Why the hell are you imposing this business-busting system on people from whom you expect to raise peanuts, when you’re still going to get the moolah you want from the big businesses it’s really aimed at?  Is this really the only way?

Option appraisal is one of the key elements of impact assessment methodology: generating and assessing all the possible ways of solving a possible policy issue and then choosing the best one, even if it’s the option to “do nothing” – that’s how governments tell themselves they solve problems.

So where is the options appraisal in this TIIN?

Don’t bother to look.  It isn’t there.

Look instead at the assessment of the economic impact.

This measure should have positive economic impacts by minimising distortions to the location of the economic activity and increasing competition between large and smaller suppliers within the sectors affected.

Well perhaps it “should”.  In an ideal world it would.  But in this imperfect world, HMRC completely overlooked the one-woman kitchen-table microbusiness and introduced a system which, far from “minimising distortions” and “increasing competition” will in fact wipe out the micro businesses or else drive them into the arms of the very businesses whose behaviour caused the policy problem in the first place.

A proper options appraisal might have included:

  • excluding micro businesses from the regulation altogether
  • allowing a longer lead in time before the regulation affected small and micro businesses
  • unilaterally setting a threshold below which the regulations do not apply
  • making payment processors legally responsible for operating the regulation
  • devising a MOSS which itself operated as a payment processor for micro businesses (instead of a paypal or worldpay etc button you could have a MOSS button – your money would come to you VIA the government, but come to you guaranteed VAT-compliant)

There might have been good reasons for and against any or all of these.  But if you don’t ask the right questions of the right people, well, you’ll never know, will you?