Attendees: Simon Norris (Acting Chair),Stephen Alambritis, Laurence Longe, Mike Hardwick, Peter Curwen (HMT), Ian Menzies-Conacher, Philip Baker QC, Mike Templeman, Professor John Hasseldine, David Cruickshank, Derek Allen, Peter Gravestock and John Burey (Acting Secretary)
Invitees: HMRC and HMT: Patrick Clarke, Stephen Banyard,
Linda Whewell,
Tom Evans, Mark Holden, Carolyn Parmeter and Rachel Button.
Apologies: Dave Hartnett, Francesca Lagerberg, Chas Roy-Chowdhury,
Penny Hamilton, Roderick Cordara QC, Anthony Leonard QC and
Richard Exell OBE
1. HMRC had met with some Committee members and representatives of other bodies to discuss the Criminal Investigation consultation launched on 17th January ’07. The Director of HMRC’s Business Customer Unit was present to discuss developments in the move towards Lord Carter’s proposals for Electronic Filing and on the progress of New Interventions.
2. The Director of HMRC’s Business Customer Unit had led the Fresh Start approach for HMRC in response to concerns raised by agents that the intervention pilots were being ‘pushed through’ without proper consultation.
3. Fresh Start had begun with a workshop as a move towards developing a new relationship between agents and HMRC. This was being taken forward in several streams: Better help and assistance to new business, Using and sharing risk, improving communications, Greater reliance on quality assurance and making improvements to the current processes. Learning from these streams would feed into the developing work on the Powers Review.
4. The Committee said that these developments addressed many of the points
raised at the previous meeting. They pointed out that there were also issues
about the way in which HMRC dealt with larger business concerns (less relevant
for agents) and that there was room for improvement there too.
5. The Committee questioned whether the voluntary nature of the pilots meant that ultimately HMRC was seeking new powers. HMRC explained that this would be explored in the Powers Review consultation on compliance assurance planned for the spring.
6. HMRC said they were working with 4 external agents as members of an editorial board and were pulling together the learning from the intervention pilots and planned to publish results. A member of the Powers Review was providing input into that document as a member of the editorial team.
7. HMRC outlined developments since the last Committee meeting where concerns
had been raised about: customer focus, consideration of the international
experience, the non IT literate, and small employers. Views had also been
expressed about the need for incentives, a transitional period, the distinction
between filing in the wrong format (not ‘E’) and more serious
failures and the potential to damage customer relationships if HMRC “rejected”
paper.
8. HMRC had met with many members of the Consultative Committee, or their
representatives, to discuss their concerns and they had proved very useful.
9. HMRC reiterated their commitment to customer focus and outlined the steps that were being taken to deliver this in the context of the Carter proposals. These included:
10. HMRC stressed that they were committed to helping business make a smooth
transition to online services and have in place a programme of customer support
to help business get it right and begin to realise the benefits. HMRC had
additional staff to help with customer service, especially agents registering
for and starting to use the online services. It was essential for the delivery
of the programme that HMRC work collaboratively with agents and others on
its design.
11. HMRC pointed out that for 2008 the focus would be on large and medium size business and newly registered VAT traders. Being conscious of the concerns raised in respect of individuals and the smallest businesses and employers who may not be IT literate, self assessment will not be mandated until at least 2012. There will be a staged process towards this.
12. HMRC explained that bearing in mind the feedback given to them, mandated businesses that were still filing on paper would be identified on a quarterly cycle. HMRC had developed a “three misses and you are in” approach to online filing in respect of in-year PAYE. This would initially involve reminders and guidance offered as to how to file online so that any problems could be identified and addressed. Where the failure to file online continued until the end of the fourth quarter, only then would a penalty be levied, but again with additional offers of support from HMRC. There was a clear message that the Government expected business to move to online filing and do so at the right times. This approach was developed as consistent with the principles of better regulation and the Powers Review penalties design framework set out as part of this review. HMRC were now in a better place in terms of these proposals.
13. HMRC reminded the Committee that the penalty regime aimed to change taxpayer
behaviour. SA on behalf of the Federation of Small Businesses was concerned,
these arrangements mainly assisted existing rather than new business. A good
audit committee should pick up errors involving relatively small amounts.
Another member of the Committee confirmed that penalties were disclosable
at audit committees so they should be aware of small penalties, for example
for failure to file VAT returns online.
15. HMRC thanked the Committee for their contributions to the discussion.
16. HMRC introduced this paper but advised that the publication of a consultation document was a matter for Ministers to decide.
17. The Committee were pleased that the effectiveness and adequacy of the existing safeguards featured in this paper. But asked that consideration should be given to the timing and cost involved in producing a result and whether the possibility of a judicial review could be introduced as part of the process. HMRC explained that this was outside the scope of this particular review and a matter for the DCA.
18. The Committee asked about the relationship of information powers (for example Section 20 TMA) and sought assurance that they would be considered either as part of this review or elsewhere. HMRC explained that this was outside the scope of the review of safeguards but that the Review of Powers would explore the issues around information powers at a later point in its programme.
19. HMRC explained that they had followed up the consultation document published in August 2006 with a series of meetings with interested parties. Out of this a number of issues and concerns had emerged:
These issues had all been addressed in the consultation document issued on 19 January 2007. HMRC hoped to be able to produce a joint statement of practice between itself and the independent prosecutors to address the cross-border issues. On avoidance HMRC had made it clear that criminal powers are not relevant unless a criminal offence has taken place. Finally HMRC had dropped the proposals on fingerprinting and the application of the provisions to “crimes not yet committed” in England and Wales.
20. A further round of consultation meetings had since been undertaken including in Scotland.
21. HMRC were grateful for the contributions made by various representative bodies at the one-to-one meetings that had been held. These consultations were very useful and had raised several issues that had not come out of the earlier consultations. There was good progress towards developing this package.
22. The Committee thought this was a job well done by HMRC in terms of addressing the areas of concerns that had been previously outlined. The Committee asked if it was possible to set out in Statutory Instruments who was authorised to use criminal investigation powers. HMRC explained that it might be appropriate to set out what the qualifying conditions are for the use of these powers.
Action point: HMRC to set out the qualifying conditions under which criminal investigation powers could be used for the Consultative Committee.
23. The Committee said that the concerns previously raised had largely been met, however there was an issue around the use of language in certain parts of the consultation document where for example the powers were described as being available to an “elite corps of people”. They asked who policed these people. HMRC explained that the rules here were the same as for the police and that these safeguards were similar and applied to HMRC in exactly the same way as for other organisations.
24. A member of the Committee remained concerned about HMRC investigating criminal activity and hoped that the position could be reviewed in the next few years. However, many of the concerns raised in the past had been addressed by HMRC. The area remaining was when those staff members moved from criminal investigations to other parts of HMRC activity and the fact that they may find that their behavioural response to taxpayers had altered. The only way around this was to have criminal investigations as part of a separate organisation. Also there was insufficient clarity about the overlap and boundary between civil and criminal investigations and the decision-making process for deciding at what point to move an investigation from one to another.
25. The Committee asked for a list of offences that HMRC may pursue as criminal
26. The Committee referred to the number of Custody Suites mentioned in the
consultative document: “in the range of up to 700”. HMRC confirmed
that this referred to the number put through in a given period rather than
the total number that could be held in HMRC Custody Suites.
27. The Committee referred to professional and legal privilege, said that the time has now come to extend this to other professions dealing with tax. They asked that this be considered either as part of the safeguards review and/or in review of information powers to come. HMRC explained that the review was not proposing to look at the matter of professional or legal privilege as this was for the DCA, who have looked at this a few years ago.
28. HMRC explained that, regarding the boundary between serious and civil crime, there are clear codes of practice for these. The pursuit of tax investigation matters down the civil route meant that the criminal route was automatically given up. Only where a new offence is established can the criminal investigation route be opened up again and is then specific to the new offence being investigated.
Action point: HMRC to produce a list of criminal activities that it had a right to investigate
29. HMRC updated the Consultative Committee on developments since publication of the documents on 19 December 2000. The documents reflected responses to the earlier consultations, comments from the Consultative Committee and a series of workshops in the autumn of 2006 and the Deliberative Events with taxpayers. A conscious effort had been made to ensure that the penalties structure seemed fairer and was more effective in changing taxpayer behaviour. Responses to the consultations so far had been positive, although there were concerns about the absence of indicative penalty levels. The consultation was being supplemented by a series of meetings with representative bodies which had been very helpful in addressing any misconceptions about the proposals. HMRC had gathered a number of useful suggestions that perhaps might not have been captured on paper and some practical suggestions about how the new system could work.
30. The Committee endorsed these points but were concerned about the proposals for dealing with losses and that further work was needed on some terms and in particular the definitions around ‘failure to take reasonable care’. HMRC agreed that there was further work to be done and thanked those who had contributed so far. HMRC looked forward to further contributions in this and other areas of this phase of the work on penalties for incorrect returns.
31. The Committee agreed that the idea of a suspended penalty was good, but would require some developing and that a process of informally resolving disputes would be difficult.
32. The Committee said that the group relief issue was one with which they sympathised and sought clarification that no penalties would be charged where there were overall losses. HMRC confirmed that any penalty would be charged on the same basis as for losses in a single entity.
33. The Committee reiterated that the penalty levels to be charged were required in order to make sense of the overall proposals. They added that the draft clauses themselves were well prepared and read well. HMRC agreed that more work needed to be done on the practical implications of suspended penalties.
34. HMRC reminded the Committee that they were responsible for getting the framework right and listening to people’s views and that the matter of the penalty levels was a matter for Ministers.
35. The Committee asked how the new regime would be monitored. HMRC explained that work had already begun on instructing how to monitor the change in behaviour. There was also the possibility of an independent oversight panel to monitor this process.
Action point: HMRC to give further thought to the process of suspended penalties and refer back to the Consultative Committee
36. The focus on the next Committee meeting would be on safeguards and compliance assurance (interventions).
Next Meeting Thursday 15th March 2007 – HMT Boardroom 1HGR
