THE REPORT by the Treasury Select Committee on the administration of HM Revenue & Customs earlier this year pulled no punches. It told of “serious dissatisfaction”, “unacceptable difficulties” in dealing with phone calls and “endemic ” delays in responding to post, among other criticisms.
With this in mind, it was slightly disappointing – although maybe not surprising – that the government’s response to the report, published yesterday, was slightly bland and written in civil service speak.
Despite this, there were some areas of interest for tax advisors in the response – although not all positive. What have we learned from the government’s response?
HMRC can say sorry – sort of
Accountancy Age broke the story this year that HM Revenue & Customs had been sending letters to taxpayers that threatened to auction their goods unless the taxpayer took action to organise their tax affairs. However, in many of these cases, the taxpayer owed no money.
In a case of slight contrition, HMRC accepted the criticism. “In some cases earlier in 2011, letters were sent which were inappropriate to the circumstances to a number of individual customers,” it said. “The department has in each instance apologised for its mistake and has gone on to improve its quality assurance processes and the wording of the letters.”
Richard Mannion, national tax director at Smith & Williamson, comments: “Bearing in mind that the response is written in civil service language this is about as close as it gets to saying ‘sorry – we got this wrong’.”
This might be indicative of at least an acknowledgment that most taxpayers are law-abiding. There is a “fine balance between chasing recalcitrant taxpayers vigorously and shooting the innocent before asking questions”, Mannion adds.
There is no plan B for real-time information…yet
A big concern for the committee, as well as businesses and the tax profession, was that the timetable for real time information was too tight. The MPs said that there needed to be one year’s testing of the system before it is widely implemented. In fairness to HMRC, it was able to respond that it has extended the testing period, from nine months to 12, ending in April 2013 for an October 2013 deadline.
But the committee’s other suggestions – that contingency plans are needed and that the implementation is externally audited by the National Audit Office – were not as well received. HMRC said that the RTI programme had invited independent scrutiny through Cabinet Office bodies at six monthly intervals and will be reviewed by the NAO as part of its annual audit.
This arguably does not go as far as the committee wanted. The MPs’ original report emphasised the importance of the programme and called on quarterly updates from the NAO – presumably not meaning that it should form part of the annual audit.
Perhaps more worryingly, HMRC said that it would formulate a contingency once issues are highlighted in the pilot. This suggests that the government is not thinking about contingency now. As Mannion says, “past experience of major changes to technology in HMRC indicates that a Plan B is essential this time around”. The response that the pilot will show whether it is necessary “sounds like a lukewarm answer to me”.
The government is reluctant to review tax making procedures
The only recommendation that the government rejected outright was that the policy for formulating tax legislation should be reviewed. The suggestion from the committee was that “the time has come” to consider whether the Treasury should have sole responsibility for making tax policy, with HMRC only focused on policy maintenance.
The government responded that no such review was needed: the partnership is kept under regular review; the two departments work in conjunction with one another; the consultation process has been extended; and both departments are working with the Office of Tax Simplification – although, of course, the OTS is only concerned with existing tax legislation, and not making new legislation.
But the main point made by the committee was the problem of legislation that is impractical to operate on the ground and the government should see if the split between the Treasury’s and HMRC’s duties could be more efficient. “The response does not seem to answer that point at all,” Mannion says.
Stephen Herring, tax partner at BDO, suggests that the government is right to maintain the distinction between policy on the Treasury side and policy maintenance and enforcement on HMRC’s side. “Be careful what you ask for as you might get it and regret it later,” he says.
Still too much commitment to online filing
An issue that the committee seemed to feel strongly about was the move to online filing and its potential to alienate parts of the population, an issue covered in depth by Accountancy Age. The MPs called on HMRC to “always ensure it has robust, well-advertised alternatives in place for those who cannot submit online”.
HMRC only partially accepted this recommendation. It put forward its case for moving the majority of filing online, a case that few advisors disagree with. However, it only committed to “assist” the move to digital transactions. Crucially, it did not say it had shifted its stance to allow vulnerable people to continue to undertake paper filing.
Kelly Sizer, technical officer for the Low Incomes Tax Reform Group, the original recommendations from the committee echoed what the group had been saying. However, the response seems to suggest that everyone would be capable of online filing with a degree of assistance. There are still two consultations out on online filing, the deadline which ends on Monday, she adds. The response to this will be a reflection of the government’s latest thinking.
John Whiting, tax director at CIoT, says there is a lack of “real acceptance of the fact that there are small businesses (and of course individuals) who really will struggle to file electronically”. This is not, as the government’s response seems to claim, solely because of a lack of broadband facilities, but because of physical disabilities in some cases.
Ironically, the response suggests there is still a reluctance to use email, mainly because of security threats.
Failure to acknowledge less money equals worse service
The original document said there was “near unanimity” among witnesses that less funding would necessarily mean a decline in service standards. The taxman’s claim that it was able to save £1.1bn without a negative impact on performance “lacked credibility”, the report said.
HMRC “noted” the conclusions, but continued with its line that efficiency savings “should not have a negative impact on the department’s performance”.
The government response said that it has introduced two “performance indicators” to reflect service standards: first, whether “customers find us straightforward to deal with”; second, “the cost to customers of dealing with us”.
Advisors have been unimpressed. Mannion says it would be difficult to measure the tests with any degree of accuracy, with the first indicator in particular being quite “airy fairy”. Herring says that basing the results on percentages of satisfied taxpayers was not the best indicator. “I would introduce a panel who telephone regularly and make qualitative as well as quantitative responses. Otherwise the question ‘what is the basic rate of tax?’ counts the same as ‘how do I reclaim my tax and national insurance overpayments?’, ” he says.
Civil service speak will win out
The majority of this we already knew. But the committee’s original report was a strong critique of the Revenue and was based on evidence from a wide range of sources, most of whom spoke with one voice. The committee has been given extra bite, with its chair Andrew Tyrie having to win an election, the first one to do so, thereby giving it greater legitimacy. A Treasury committee inquiry and report have become influential.
In this case, once getting through the civil service speak, it was interesting to see HMRC remaining bullish on many points: RTI was going to be a success, service standards are being maintained and online filing was still going to be universal.
The committee, and the Public Accounts Committee, seem to have HMRC in their sights. If HMRC is proved wrong on any of these issues, it will not be a surprise for Parliament to open a very public and potentially embarrassing inquiry.
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