Forum to oversee implementation of new powers

Minutes of meeting 14 October 2009

Room G/16, 1 Horse Guards Road

Attendees:

Paul Aplin (ICAEW Tax Faculty) (PA)
David Cruickshank (ICAS) (DC)
Naomi Ferguson (HMRC) (NF)
Dave Hartnett Chair (HMRC) (DH)
Guy Hooper (HMRC) (GH)
Andrew Hubbard (CIoT) (AH)
Anthony Inglese (HMRC) (AI)
Robert Maas (IIT) (RM)
Simon Norris (HMRC) (SN)
Nigel Popplewell (Law Society) (NP)
Chas Roy-Chowdhury (ACCA) (CR-C)
Neil Smiley (HMRC) (NS)
Simon Sweetman (FSB) (SS)
Donald Toon (HMRC) (DT)
Robin Williamson (LITRG) (RW)
Angela Roach (HMRC) (Secretary to the Forum)

Apologies:

Mike Eland (HMRC)
Ian Menzies-Conacher (CBI)

Introduction

  1. DH welcomed members of the Forum to the meeting.

Action points from last meeting

  1. DH referred to comments he had made at the previous meeting on 30 June 2009 and confirmed that oversight of the new Charter would be for another Forum. A separate meeting would be arranged with a rotating Chair and discussions were currently taking place to decide who would be the appropriate organisations to attend. DH thanked Forum members for their views.

Unrepresented Taxpayers’ sub-group minutes of meeting on 12 August 2009

  1. SN said that it was a productive meeting and various issues were being taken forward, in concert with John Andrews. Forum members had no comments to make on these minutes.

New Tribunals and the review process

  1. DH introduced this item and thanked RM for his helpful views which would interact with GH’s presentation.
  2. GH gave Forum members an update on the new tribunals and internal review process covering the key changes and how the new processes had affected HMRC operationally. GH emphasised that the Review of Powers, Deterrents and Safeguards consultations showed that many taxpayers wanted a simple, cheap and informal process for resolving disputes including an opportunity to have their decision reviewed by someone separate from the caseworker and line management. This finding informed the new internal review process.
  3. GH said under the new process the reviewing officer would review the decision, including making sure it was properly made and legally correct. They would ensure the decision was proportionate and take into account whether the case was worth defending at a Tribunal. If any substantial new material was submitted to the reviewing officer it would be referred back to the caseworker to rework and a time extension would be agreed with the taxpayer. HMRC had developed a Clearing House process to allow the smooth transition of cases between HMRC and the Ministry of Justice. Learning/training products were in place before the go live date. Internal and external guidance products were also delivered in good time for implementation. These products had benefited from the input of external stakeholders. GH thanked LITRG for their advice on letters for unrepresented taxpayers.
  4. GH emphasised that given the significance and cross-cutting nature of the changes to processes it would be unreasonable not to expect teething problems. NS said one of the early problems within HMRC was getting the files/cases to the reviewers in good time. GH was pleased to reassure Forum members that no significant problems had emerged to date.
  5. GH highlighted that RM had recommended a Consultation Forum to be set up with external members to look at the detailed operation of Internal Reviews and HMRC’s appeal handling. GH was able to reassure RM that HMRC viewed this suggestion positively and agreed it was important to get the views of externals to inform the operation of the new process. HMRC were currently discussing this issue and would subsequently inform the Forum of the way forward. GH thanked RM for his contribution.
  6. Forum members made the following comments:
  • RW asked if there was any mechanism whereby reviewers could feedback learning points to the caseworker. NS endorsed this and stressed HMRC encouraged learning points, including where bad practice was identified, to be fed back from the reviewer to the caseworker. GH confirmed that although the guidance did not encourage frequent, routine communication between the reviewer and caseworker (to maintain the appropriate separation between reviewers and caseworkers), learning points were passed on, often via managers, and this was very much encouraged within HMRC.
  • AH added that the standard letters did not make it clear to the adviser whether, when HMRC invited them to a meeting, it meant the formal process had started. AH recommended that the standard letters should be looked at because they appeared very ‘clunky’ if a case went to the Tribunal.
  • NP pointed out that the internal process was split between indirect and direct taxes and questioned if this was right considering HMRC’s aim to align powers/processes as much as possible. GH assured that this point would be kept under review but it was difficult to change any processes at such an early stage.
  • RM said reviewers should only send cases back to the caseworker if they could not make a sensible decision, making sure to keep the taxpayer informed. He felt there were situations where HMRC officers misunderstood the facts and highlighted there was a danger that cases, which had dragged on for say two years, would continue further if additional information was sent back to HMRC caseworkers. RM stressed if HMRC did not appear to be delivering, taxpayers would not use the system. AH said that the evidence he had seen made him believe that the internal process was worth doing. NP added that he had received very little feedback from Law Society members, which was a positive indicator, and DC also confirmed he had had very little feedback too from members of the Institute of Chartered Accountants Scotland (ICAS). GH emphasised that the guidance made it clear when a case should go back to the caseworker and the taxpayer would be allowed extra time. He added that if the taxpayer wanted to send in a summary of where they thought the case was up to, the reviewing officer would take this into account. But if the taxpayer sent say an additional box of records the case would have to be referred back to the caseworker.
  • AH pointed out that it was important in some cases to reach an agreement before a closure notice was issued. When professional advice was sought for those difficult cases it wasn’t good for the agent when cases were prolonged. RM added that a lot of people agree with the decision but needed reassurance that a caseworker had not got an ‘axe to grind’.
  • NP said that the reviewers carried out a review and considered a case on its own merits unless new evidence emerged. He favoured, when HMRC published figures, that these cases were identified and split into the appropriate categories. GH confirmed that he would consider this.
  • DC added that any qualitative review should highlight how many cases had been resolved. DC questioned why when new facts emerged the reviewing officer could not take them into account. GH reiterated that providing these were not completely new facts it could be done. DH expressed concern if there were a lot of new facts, particularly if the caseworker had missed them, it would prolong the case which would not be right. NP pointed out that the taxpayer should be putting all the facts up front. RM advised that some taxpayers did not know which facts were relevant. DC added that sometimes relationships broke down. RW recommended looking at the Department of Work and Pensions’ internal review system which resolved a lot of cases over the telephone which would be particularly suited to unrepresented taxpayers.
  • DH said there were lots of views from Forum members and agreed to bring this discussion back to the next meeting.

AP1: GH would arrange for the standard letters to be reviewed.
AP2: GH would consider publishing numbers of cases within categories.
AP3: AR to put Tribunal and internal review process on the agenda for the next meeting for further discussion.

Round table views/feedback

  1. NS highlighted that at the time of the last meeting very few staff had come into contact with the new penalties except the specialist VAT teams which dealt with pre-credibility checks. By now most teams should have had some limited exposure to the new compliance checks and Tribunals and the VAT assurance teams were now becoming involved in the new penalties. NS informed Forum members there were various sources of information which informed senior managers how the new powers were going such as the statistics, survey work and an open forum for representatives to contribute views from the front line.
  2. NS referred to new compliance checks for the period April until 31 August 2009 and pointed out that across HMRC 652 authorisation requests were sent to Authorisation Officers and of those 487 were granted and 151 rejected (the difference being those deferred, pending or withdrawn). The bulk of these were unannounced visits involving the most serious cases. (This data did not include the information notices served on 308 banks.) RM thought these figures were positive as they showed HMRC were thinking and not just rubber stamping decisions. SS felt the unannounced visits figures were high. NF reiterated that they related to the more serious cases and SN added that the figures had in fact fallen compared to pre-April.
  3. NS highlighted that of these authorisations rejected the main reasons were insufficient evidence (88), preferable or alternative course of action available (40) and not relevant/proportionate (20). NS said this indicated that the safeguard of having trained authorising officers in place was working. It was early days for pre-return check work as there had only been 12 instances across HMRC. There had so far been 135 cases where a taxpayer had failed to comply with an information notice and a penalty had been authorised.
  4. NS referred to the new penalties and confirmed that the main issue for HMRC staff was the bureaucracy of the internal processes. It appeared that there had perhaps been too much caution when translating the legislation into operational processes, and so the internal arrangements are perceived as overly cumbersome. A lot of work was going on to address this problem, whilst ensuring that taxpayers’ safeguards such as appropriate authorisation were maintained. NF said HMRC needed to find out what the problem was and whether there was any impact on the customer.
  5. NS referred to statistics which showed that 732 cases of error had been reported of which 699 had been settled without penalty which was lower than might have been expected. NS confirmed these were primarily VAT cases rather than direct tax. RM was reassured that there were 209 cases where it was accepted mistakes had been made. RW asked if figures could be sorted into represented and unrepresented. NF confirmed that this would not be possible and could only be achieved by doing a sample check. This request would have to be justified as the data was not readily available and at present as there were so few cases in the system and such a high proportion of these being VAT cases, it would not yet be possible to take a meaningful sample. NF added once the case flow system was fully operative statistics would be more reliable. She stressed that it was important for HMRC to understand the figures and this would hopefully be achievable after 12 months. The current manually prepared figures had to carry a warning that they might not be 100 per cent accurate.
  6. AH queried the lack of deliberate cases and pointed out that it was important to have statistics over the range of behaviours. SN confirmed that deliberate cases would take longer to come through.
  7. AH added that he had visited local branches of Chartered Institute of Taxation (CIOT) where two things were highlighted. Firstly, members were unsure whether requests for information from HMRC meant the launch of an enquiry or not. Secondly, informal use of the information power brought problems for agents as an informal approach would invalidate the tax investigation insurance cover. DC supported this view adding he had received views that Schedule 36 inspection powers which covered VAT visits were also drifting into other areas and confused the taxpayer. Also, at times HMRC had given incorrect advice, for example, that the taxpayer did not need to be represented. Taxpayers were also unclear what was classed as ‘statutory records’. DC emphasised there needed to be clarity for the future. SS added that there had been a situation where HMRC had conveyed they were doing an aspect enquiry and then looked at the whole business. SN said the rump of the enquiry system was still within Schedule 36 of the Finance Act 2008 and this was something which needed to be reviewed. DH added that HMRC should be clear what business records they required. So it was essential to have any feedback about such incidents from Forum members.
  8. RW referred to the Unrepresented Taxpayers’ sub-group meeting on 12 August 2009 where it was discussed that it was important for HMRC, not only to get the right tax, but they should also advise the taxpayer about the right reliefs and tax credits they should receive. It was recommended that this advice should be included in basic training. SN confirmed that this issue was being considered within HMRC.
  9. AH observed that the new tribunals sat in fewer locations for example, Cardiff was the only centre for South Wales. Challenging an information notice could involve a journey of up to three hours to get to the office.
  10. NS mentioned that he had contacted the Local Compliance Complaints Team who confirmed that there had only been five complaint cases in relation to new powers, penalties and safeguards received since 1 April 2009.
  11. NP raised Legal Professional Privilege (LPP) and asked for this issue to be tabled for the next Forum meeting as the taxpayer needed to know what their position was. DH advised that it would be better to discuss this issue at the Lawyer and Accountants Forum. NP pointed out that LPP would affect Stamp Duty Land Tax and HMRC factsheets should make a reference to it. RM added that the factsheets should also mention that the new powers should be ‘reasonable’. DH agreed to put this on the agenda for the next meeting and suggested that AI invite a colleague who specialised in LPP to attend.

AP4: NF to review system for statistics collation in approximately 12 months’ time.
AP5: SN to review the rump of the enquiry system in Schedule 36 of the Finance Act 2008.
AP6: AR to check the action point for the Unrepresented Taxpayers’ Subgroup meeting covering HMRC staff training re reliefs and tax credits.
AP7: AR to contact AI to arrange a LPP specialist colleague to attend the next meeting.

AOB: None

Next Meeting:

Wednesday 10 February 2010, 14:00-16:30
Room: G16, 1 Horse Guards Road