Large Business Advisory Board

Minutes of the meeting on Monday 24 September 2007

9.00 am - 10.10 am,
Room GE24, 100 Parliament Street

Chair: Paul Gray HMRC (Chairman)

Attendees

Richard Lapthorne - Cable & Wireless
Julian Heslop - GlaxoSmithKline
Rudy Markham - Unilever
Ken Lever - Tomkins
Douglas Flint - HSBC
Dave Hartnett - HMRC (Director-General)
Stephen Banyard HMRC - (Business Customer Unit)
Peter Wharrad - HMRC (Business Customer Unit)
Melanie Dawes - HMRC (Large Business Service)
Geoff Lloyd - HMRC (CT & VAT)
Alison Smith - HMRC (Business Customer Unit)
Peter Curwen - HM Treasury

Secretariat

Judith Knott HMRC (Business Customer Unit)
Angela Brown HMRC (Business Customer Unit)

Apologies

Richard Lambert CBI

Agenda items

1. Welcome and introductions

Paul Gray welcomed members and advised that the purpose of the meeting was to take stock of progress on the Review of Links across its four intrinsic themes: certainty, risk management, clarity and speedy resolution of issues, prior to publication at Pre-Budget Report 07 (PBR).

2. Review of Links – assessment of progress

The programme is on target to deliver all 14 proposals, in line with HMRC’s commitment at Pre-Budget Report 06.

Assessment of progress

Implementation has focused on delivering real change as an outcome for business, rather than on delivering 14 individual projects. Formal consultation on clearances and advance agreements, and on transfer pricing, ran for 12 weeks with broad support from business. Responses will be published alongside PBR. The new Advance Agreements Unit will be operational from PBR. There is evidence from a recent survey (full results of which are due to be published around the end of the year) that Relationship Managers are beginning to deliver improvements in the customer experience, and the concept is now being extended to certain businesses in Local Compliance. Implementation of the Risk Framework, published at Budget 07 could result in as many as 40 per cent of customers classified as low risk during 2008.

This has been a year of preparation within the Large Business Service; work has focused on resolving small issues, and redeploying resource to deal with higher risk cases, clearances and real time working. There are three main areas of implementation activity:

1. Consultation internally and externally on the detail and impact of the risk framework. A change programme ‘PaceSetter’ is being rolled out to staff across key business units, involving them directly in the design of new processes and protocols. There is recognition that collaborative working across internal business units could be improved.

2. Cross tax targets have been introduced – 75 per cent of current low risk issues will be resolved by March 2008 (45 per cent achieved at August 2007). Coupled with new performance management incentives on the required skills and behaviours, senior managers and staff will have much clearer view of what is required from them.

3. Senior leaders have attended workshops over the summer to discuss and plan for a new cultural environment, and ensure consistency across teams. A language specialist will be helping customer facing staff improve the tone of internal and external communications.

Comments on the PBR publication from business:

It is early days to comment on overall delivery, in terms of outcome across the four themes.
HMRC has achieved more than expected, but mustn’t underestimate the importance of engaging the hearts and minds of staff.
The programme should have an external communications strategy that ensures positive messages are constantly in the press – small bad news stories can undermine the whole project.
The programme should also have an internal communications strategy so that successes and appropriate behaviours are celebrated.
The document is well constructed, but HMRC should allow some leeway to adapt its plans, and allow itself the freedom to evolve. It is better to be less prescriptive and allow some scope for the detail to develop. Setting clear measures will highlight the successes and failures.
Adhering to rigid numerical targets could affect HMRC’s ability to encourage and celebrate the right behaviours.
Some EU fiscal authorities are adopting similar aspects of the new relationship, but if too many are working towards the same objectives then equilibrium may only be reached at the lowest common denominator. Those EU authorities with a smaller domestic tax base than the UK are watching with interest and becoming more flexible. The US is now much more engaged on the issues that are unattractive to business in their regime. Over the last ten years a healthy economy has meant that the US didn’t need to focus on these areas so intensely, but the continuing aggressive nature of some of its customers is necessitating a changing of stance. Global Tax Directors can make a useful contribution to this debate, as they will take a pragmatic approach across the piece rather than the purely technical view.

Risks to successful delivery

The main risks affecting delivery are around creating the right cultural environment and also some mistrust from business about HMRC’s motives for change. Would engagement at Board level address this?

Business side suggested having more engagement with Audit Committee Chairman over a company’s risk profile, rather than Boards per se, and taking advice from them on how best to progress dialogue on contentious issues. Boards will be reluctant to make a decision without their normal advisors present. HMRC could consider placing technical staff in customer facing roles during busy times, so they get practical experience of managing the relationship.

Paul Gray summarised members’ comments:

content with the emerging shape of the programme
pleasantly surprised that HMRC has achieved so much in ten months
still a long way to go
not to oversell in the document – be slightly more cautious
internal cultural challenge – approach should be adaptable to ensure delivery

3. Departmental Strategic Objectives (DSOs)

Public Service Agreements (PSAs) will now set priorities and objectives at Government level and will be delivered by departments working together. There will be significantly fewer PSAs and they will be supported across departments by DSOs. HMRC has three DSOs which it will be publishing at Pre-Budget Report 2007, as part of the Comprehensive Spending Review. These will set out what HMRC is going to deliver over the next three years for the funding it receives:

DSO1 - improve the extent to which individuals and businesses pay the tax due and receive the credits and payments to which they are entitled
DSO2 - improve customers’ experience of HMRC and improve the UK business environment
DSO3 - reduce the risk of illicit import and export of material that might harm the UK’s physical and social wellbeing

The underlying framework of activities to deliver these DSOs puts the customer at the heart of everything the Department does, using the principles of customer focus to understand behaviour and influence customers to move from one end of the ‘compliance spectrum’ (avoidance/evasion) to the other (paying the right tax at the right time). This enabling agenda fits well with the Review of Links objectives.

There are three intrinsic pieces of work designed to improve the working relationship with business and contribute primarily towards DSO2 – the Administrative Burden target (10 per cent reduction), the Review of Links, and BusinessLink.gov (a cross government ‘one stop shop’ website that HMRC now has responsibility for).

The individual activities that make up the framework have been designed to ensure DSO1 and DSO2 are delivered interdependently. For example, the Review of Links Risk Proposal 4 delivers DSO1 by focusing resource on high risk businesses, and delivers DSO2 by enabling these customers to become low risk and by reducing the number of interventions with existing low risk customers.

Business side were concerned that DSO 1 will be seen as having precedence, simply because of the order in which presented. If HMRC is using overall receipts as an indicator of success, then staff will be inclined to deliver DSO1 as a priority. HMRC should make sure its messages to staff are clear and contain sufficient detail to ensure they know exactly what they are expected to deliver. Concern was also expressed that HMRC will focus on delivering the wider Government framework, and lose sight of the changing needs of its customers.

4. AOB

HMRC advised that following the OECD declaration in September 2006 the UK had been taking forward a study on the role of tax intermediaries with a view to a better understanding of the role they play in tax administration and to identify strategies for strengthening the relationship.

The study has, with almost unanimous support from the 32 member countries, been plotting out a set of options for managing the tripartite relationship between business, intermediaries and tax authorities that will include setting out the crucial role which Boards and CFOs can play in actively managing the tax relationship and the performance they want from their advisors. The key factors to enhancing this tripartite relationship are disclosure, transparency, collaboration and proportionality.

The UK currently chairs the OECD Forum on Tax Administration and this is a good opportunity to promote an agenda that supports both the Review of Links and the DSO objectives. The study team will remain constructively engaged with business leaders and welcomes their input.

Business side were comfortable with this but requested that further background detail is circulated and that messages to Boards and CFOs are kept succinct.