Minutes of Consultative Committee Meeting
of 26 June 2006

Attendees

Dave Hartnett (Chair), Peter Curwen, John Hasseldine, Stephen Alambritis, David Cruickshank, Mike Hardwick, Penny Hamilton, Liz Lathwood, Derek Allen, Peter Gravestock, Francesca Lagerberg, Philip Baker QC OBE

HMRC: Simon Norris, Tom Evans, David McIntyre, Juliet Roche, Jane Frost, Roger Halson, Helen Latham, Henry Bell, Jo McKenzie, John Shuker, John Burey, Simon Galloway (Secretary)

Apologies

Lawrence Longe, Chas Roy-Chowdhury, Richard Exell OBE, Anthony Leonard QC, Roderick Cordara QC

Contents

Minutes and Action Points from 4th April Meeting

It was agreed to supply the Committee with copies of the Irish tax defaulters list at the next meeting so that some background information could be provided at the same time.

FL and PH confirmed they had met with HMRC to discuss the interaction of the New Management Act and Powers Review work. HMRC agreed to to issue a summary note of that meeting to the group.

HMRC reported back some of the emerging themes from responses to the March Consultation Document:

  • Broad support for the principles and direction HMRC is taking.
  • Significant interest in a Taxpayer’s Charter, Taxpayer Bill of Rights or similar statement of rights and obligations of HMRC and taxpayers.
  • Broad support for penalty proposals but concern around the boundaries for categories – how this might be managed in practice -and for the notion of ‘taking an unreasonable tax position’.
  • General support for the new interventions in principle but doubt as to whether they will actually make a positive difference to taxpayers in practice.
  • Concern over the lack of time between the close of the consultation and the proposed start of new interventions.
  • Adopting PACE seen as generally appropriate, provided access is only to relevant provisions.

FL listed the ICAEW following areas of concern:

  • Interventions – it was disappointing HMRC was looking to start new interventions before it can pick up on responses to its consultation. It was recognised that there were pressures relating to parliamentary time and the Finance Bill but this was not a reason. The result of this was negative publicity and perceptions, which was a shame in light of the hard work that has gone on in this Committee and elsewhere.
  • The change of the Consultation Document after publication without attendant publicity to include a sentence on when new interventions would be trialled was very disappointing.
  • Support for a taxpayer’s charter, but an observation that a charter itself is not necessarily the right vehicle – a Bill of Rights or might be more suitable.
  • Concern that the spectrum approach in the framework model is contradicted by the use of boxes.
  • Concern that the advisor strategy work is carrying on at the same pace as the work of the powers review. Were these being managed so that one does not race ahead of the other?

PH on behalf of the CIOT and SA on behalf of the Federation of Small Business echoed many of the points made by the ICAEW, and indicated a depth of feeling on interventions in particular.

The CIOT also called for an independent commission to look at Rights and Powers.

HMRC apologised to the Committee over the changing of the condoc. The additional text had been evident in earlier draft versions to the published document, but had been missed for publication because of a mix-up in version control. A covering note should have been issued when the change was made. HMRC apologised for not doing this.

On the timing issue, HMRC understood the concerns raised but had already reacted to some comments and would be looking carefully at all of them.

The Committee and HMRC agreed that the majority of the compliance spectrum should in principle be green to reflect that most people do comply with their obligations, and tapered to reflect the small number at the most serious red end of the spectrum. HMRC did not intend the illustration to be taken as a detailed proportional depiction of compliance behaviour.

The Committee agreed that there was insufficient discussion in the condoc of safeguards. HMRC did not mean to underplay their importance. The condoc had been written on the implicit assumption each power would come with its own safeguard, but apologised that this had not been made clear.

The Committee was concerned that those who want to comply are able to get the information they need to help them to do so and that call centres alone could not be relied upon for this.

HMRC was asked not to lose sight of the fact that many current powers are considered to work well already. The Committee suggested that the HMRC should be concentrating on what does currently work and how the department might better build up mutual trust with advisers.

Revenue and Customs Prosecution Office Powers (RCPO)

14. The Committee discussed the guidance intended for HMRC officers implementing RCPO powers and invited comments. HMRC thanked the Committee for their views.

Influencing Taxpayer Behaviour, The Interventions Sequence and Information Powers

The Committee emphasised the need to distinguish between those who make honest mistakes whilst trying their best to pay the right amount of tax and those who are less honest. The Committee also emphasised the need for HMRC to make it easier for the compliant to comply.

Several Committee members expressed the view that a transaction based inspection power applied to direct taxes would be problematic. Variations in size and nature of business mean that transaction recording and accounting treatment can vary. Also a transaction for an individual can be harder to define than for a small business.

The Committee strongly agreed with the proposition that values and trust in the tax authority were key, and indicated they would like to see the detail on powers to tackle evasion.

The Committee asked why HMRC would like to make earlier interventions in Income Tax than they do currently? Was it too difficult to wait for a return to be submitted? HMRC replied that this can take two years by which time a taxpayer they might have been able to help may already be in a penalty provision.

There was a general agreement amongst the Committee that if any real time inspection power were to focus on record keeping then it would be more likely to work but there was no consensus in favour of the intervention itself.

The Committee asked HMRC to give due consideration to the relationship with advisers and asked HMRC to bring tax credits into this work, suggesting that it would be contradictory and problematic not to do so.

The Committee observed that staff training would be key to the success of and changes to interventions and information powers, but they had seen little on this to date.

The Committee reasserted its view that it would be better to join the work being done on powers with that of the New Management Act. Members expressed concern that it might be thought that the committee had endorsed HMRC proposals when they have not had the opportunity to consider them in depth. Time constraints and the volume of output precluded this for many members. HMRC noted the concerns and agreed to do whatever it could to mitigate them.

The Committee also expressed a concern that the issues around interventions and information powers could be subject to criticisms of ‘levelling up’ unless the case for change was made clear. HMRC confirmed that it was not conducting a levelling up exercise but that the intention was to harmonise powers across a number of taxes.according to need.

Section 765 Income and Corporation Taxes Act

SN summarised HM Treasury’s recent consultation with business. The consultation had concluded that nothing should be done at present to alter S765 ICTA as none of the alternatives were considered desirable, especially as broader consideration was being given to the way foreign profits are taxed.

DC, who had been involved in the work on S765, confirmed this was the outcome but emphasised that some consultees had been of the view that the existence of a criminal sanction discredits the tax system and that it should have been removed immediately.

Putting the customer at the heart of HMRC

For the final item of the meeting, the Committee were joined by the new Director of HMRC’s Individuals Customer Unit, Jane Frost, and by Roger Halson of the Small & Medium Enterprise and Employers Customer Unit. Their purpose in appearing before the Committee was to ask for their views on what HMRC needs to do, and how to prioritise what it does, to help deliver effective customer service. HMRC were grateful to receive the Committee’s feedback.

The following points were made by the Committee:

  • There was discomfort at use of the word ‘customer’ by HMRC. However, the Committee agreed that HMRC needed to improve its commercial awareness and perspective and that this term was helpful to this end internally. HMRC noted it was aware of the difficulty this term could cause but it had yet to come up with a better alternative (accepting that 'taxpayers’ in some cases was not appropriate). It would welcome suggestions to consider.
  • FL suggested that ICAEW members priorities and preferences would be to have an efficient service from HMRC and to have as little to do with them as possible.
  • The Committee asked that tax credit claims should be more closely linked with the payment end of HMRC.
  • The Committee and HMRC agreed that it was a priority for HMRC to develop a robust means of assessing customer satisfaction.
  • The Committee asked HMRC to think again about its customer contact and to improve the options for getting in touch with the department to get help. Some concerns were expressed about the effectiveness of call centres.

Jane and Roger thanked the Committee for their time and views and assured them that their views would inform the work ahead.

AOB

None.

Next Meeting

Next meeting - Monday 24th July 2006. Members can telephone or meet separately with the HMRC team if they cannot make any meeting.