Large Corporates Forum (LCF) meeting 7 December 2006

Attendees:

Corporates:

British Retail Consortium - Raina Miles
RBS - Graham Halstead
ConocoPhillips (UK) Ltd - Chris Gautrey
Tesco - Tim Voak
Rolls Royce - Mike Sufrin
Diageo - Jill Kyne
XL Group of Companies - Mervyn Skeet
Capita - Sharon Bowen
ICI - Philip Gillett
Ford - Peter Neale-Smith
Orange - Barry Cannings
Rentokil - Chris Filby
Unilever - Brian Chapman
UBS - Peter McFie

Speakers:

John Connors - Large Business and Employers Customer Unit (LBECU)
David Allen - National Audit Office
Stuart Keenay - Large Business Service
Melanie Dawes - Incoming Director, Large Business Service

HMRC:

David Garlick -Director Large Business Service (Chair)
Andrea Hargreaves -LBS (Secretariat)
Ian Stewart -LBS
John Johnston -LBS
Andy Williams -LBS
Iain Macniven - LBECU

Minutes/Matters Arising

The minutes of the last meeting were agreed and there were no matters arising.
Action Point 2/May – A report on the Review of LCF has been produced and placed into the LCF Shared Workspace - Completed.
Action Point 1/September – The presentation of the overall structure of LBS was deferred to the next meeting due to the publication of the Review of Links and its impact on some areas, in particular, the Resolution of Issues that clarifies the accountabilities of Sector Leaders and Client Relationship Managers (CRMs); an area that members were particularly keen to understand – Taken Forward.

Welcome and Update
David Garlick

David welcomed Melanie Dawes to the meeting. Melanie will take over as Director of the Large Business Service from David next week. All members introduced themselves then David provided an update on the following:

Reorganisation of HMRC - Paul Gray remains as HMRC’s Acting-Chair and is proactively taking the Department forward. Office closures and further reductions in staff numbers have recently been announced. By 2010, 300 offices will close and by 2011 a total of 25,000 staff reductions will be made. The staff reductions equate to 25 per cent of HMRC numbers. In addition, posts continue to move out of London and the South East as a result of ‘Lyons’. The closure of offices will impact the LBS which could in turn impact on business; an observation already highlighted by a member of the Forum. LBS will manage these changes carefully and consult with business.
Operating Model/Review of Links – The Operating Model is still bedding in; progress is being made but there is still much for LBS to do to ensure the objectives of the Model are met. The Review of Links was published in November and builds on the Operating Model concept; HMRC will be held to account for the delivery of recommendations. The enormity of the task is not underestimated and, with the changes already in train, the implementation of this Review are challenging.
The future of LCF – It is currently assumed that the LCF has a future role. The structure, objectives and its fit with other departmental forums will be continually reviewed to ensure that it adds value.
Current LBS activity – David highlighted some areas that were currently under review within LBS:

• Operational Support – Ensuring Business Teams had the right support people in the right place. A paper is currently out for consultation with staff.
• Audit – A review to ensure that audits are correctly focused, undertaking appropriate activities and the role of audits is understood by Business Teams
• Employer Compliance – An internal review of how LBS Employer Compliance people work is underway; this is in addition to a departmental review of which LBS plays an active part.
• Geographical Restructuring – A paper giving potential locations of sectors was currently out for consultation with staff. This was to be discussed later in the LCF.

Review of Links with Large Business
John Connors, LBECU

The Review of Links with Large Business report was published on 17 November 2006. There are 14 recommendations, some of which build on what is currently done, particularly in the LBS. There are challenges on delivery and there will be no overnight successes; it will be a long iterative process as new procedures and processes are developed and implemented. HMRC will continue to engage with business, including maintaining the good links with the LCF and other Forums to ensure the success of implementation and delivery of efficiencies and improvements. Each of the 14 recommendations, which operate to different timescales, has been allocated to a lead Director who will be accountable for delivery; while LBS will be impacted by all, Melanie has lead responsibility for three of them.

Melanie confirmed that LBS was unique in that they were impacted by all of the recommendations and that she very much saw the Review as the LBS Strategic Framework. The Review is consistent with the Operating Model but provides further direction for LBS in key areas such as risk, the Rulings process, Client Relationship Managers (CRMs) and customer feedback. There are also new areas such as the Pre and Post Transaction Rulings which will support further real-time working and allow us to do fewer Corporation Tax enquiries. LBS will need to build better Management Information Systems (MIS), approach work differently and get better measure of customer feedback. LBS hope LCF will be involved in how to measure feedback as well as the wider areas. The Review also recommends significant further investment in the skills of HMRC people and we want to work with business to develop activities to help HMRC achieve this especially in developing commercial awareness, for example, through secondments and joint training.

LBS is affected by all of the recommendations but is directly leading on three:

• Proposal No Four – providing the risk framework for HMRC’s large business work – we will be publishing a paper with the Budget
• Proposal No Seven - Resolution of Issues - clarity on the roles and responsibilities of CRMs and Sector Leaders, and how contentious issues will be resolved
• Proposal No Eight - Aged Issues – senior management taking responsibility for enquiries that remain unsettled after 18 months.

While LCF would be involved in the developments of the three LBS specific recommendations, it was hoped that they would also feed into the broader recommendations in particular:

• How and who HMRC should consult on the recommendations - it would be impractical to ask all businesses, or the LCF, to be involved in all 14 recommendations, particularly given the relatively short timeframes but HMRC needs to ensure that it gets it right as far as possible.
• Customer Feedback – One of the recommendations is to get thorough, honest feedback from large business about its relationship with HMRC and how this could be improved.
• Commercial Awareness – there is a strong desire within HMRC to be more commercially aware. HMRC want to work with business on this.

Examples were given to highlight some other issues falling out of the recommendations:

• Advance Rulings - mentions ‘significant issues’ – how do you define ‘significant’? £100m and £250 million were cited. What does it mean for business where ‘£’ is not the only driver? What else needs to be considered for inclusion?
• Pre and Post Transaction Clearances – HMRC are committed to removing the four Finance Act limitation but what else is needed? There are advantages to having formal routes but is that enough? What informal route or alternatives are there?

Further points raised:

• LCF were interested in all of the recommendations to a greater or lesser degree but agreed that it would not be manageable to be actively involved with all of them. Although it was also raised that business would not want HMRC to ‘cherry pick’ when to involve them. HMRC were going to talk to Confederation of British Industry (CBI), the 100 Group and others about who to involve and how this might be done. It is important to get an external perspective so that HMRC don’t miss opportunities by devising the consultation routes themselves.
• Members felt the restructuring of HMRC and reductions of staff and offices did present a huge challenge to the delivery of the recommendations. There was concern that LBS people could be lost as a consequence losing the skills sets and relationships with customers that are already in place. It was not expected that LBS would be making further net staff reductions, though there would be churn in staff, for example through early retirements. On offices, currently LBS operates out of around 80 locations. This is not conducive to coherent team working and presents its own problems that probably already impact customers. Even without the departmental reduction, LBS would be looking to significantly reduce the number of offices in which it has a presence. It was agreed that there may be transitional problems but LBS will be putting considerable effort in to ensuring the moves will be carefully managed.
• One of the recommendations was looking at ensuring that HMRC people had the right skills and career paths. Support and training would be provided although it is recognised that there was a need to do a lot more. Former tax inspector training was good but needed to be refreshed to reflect the current ways of working. Information on this is due in the spring from HMRC’s Central Professionalism Team.
• When asked how the Business Tax Forum would be taken forward and how business representatives would be chosen; John responded by saying that the main forums would be:
  • Large Business Advisory Board (LBAB) – providing a high level strategic view and approval of plans for delivery of the Review recommendations. This will be chaired by Paul Gray, acting Chairman; members of the Consultative Committee are also expected to be involved.
  • Business Tax Forum (BTF) – day-to-day HMRC issues. Membership currently includes Dave Hartnett, Board member and Chair of the Forum, senior members of HMRC, Edward Troup from HMT and business representatives. Further business representatives are being sought. There is a plethora of Forums sitting beneath the BTF and work is needed to ensure they are correctly focused.
• There was not a clear answer to how business representatives were chosen; current membership consists of CBI and 100 Group representatives. All Forums need to ensure that membership is kept fresh and that there is a transparent process for selection.
• The recommendations from the Review and the governance being set up are focussed on ensuring that HMRC delivers its side of the ‘bargain’. What about business? There are issues about measurement across all of the recommendations and while it was decided not to have specific business measures, there is a commitment to transparency from business, for example Full disclosure for rulings and more transparency on Transfer Pricing issues. David Varney has stated that there will be things that go wrong on both sides and, if necessary, these will be escalated to the LBAB.
• Members had heard differing views on the future of negotiated settlements and wondered what the current view was. A paper is due to be published by 31 December 2006 that will describe the roles and responsibilities of Sector Leaders and CRMs, including how CRMs apply the principles of HMRC’s approach to settlements and litigation.

The Role and Future of LCF
All

David opened the discussion by commenting on how far we had come in the past few years in creating a real dialogue between HMRC and large business customers through the LCF. explaining that there was no equivalent Forum in the former Customs and Excise and when he first took over the Chairmanship of the LCF, it was primarily a small informal group debating technical issues. The creation of HMRC and the move of LBS into a sectorised approach meant it was right that the LCF evolved too. It was decided not to have a constitutional approach where members are voted in but to build the Forum with volunteers and have a policy of ‘three strikes (missed meetings) and you’re out’. A waiting list exists for the first time. To ensure that the Forum was equally ‘owned’ by external members it was decided to have a joint Chair; Adam Little was chosen and as a member of the BTF, provides a link to HMRC’s strategic Forum. A recent questionnaire showed that members believed the LCF adds value and was generally OK although there was still scope for improvement. Further recent developments are the creation of Working Groups to discuss relevant issues in more detail with a smaller number of members and the creation of the LCF Shared Workspace; allowing all members ready access to any papers/discussions relevant to LCF.

Melanie proceeded by saying that if the LCF did not currently exist then it would be something she would want to create. A Group that can advise, challenge and support LBS was invaluable. Equally important was the need to ensure that membership is as broad as possible and represented LBS sectors; there also needs to be clarity on how members are selected and assurance that LCF fits with other departmental Forums such as the BTF. She felt that it was right that the Group was focussed on advising on LBS and operational issues. There were however limits to the number of people that could be involved in order to have meaningful meetings. Given that LBS has between 1400 and 1500 customers, perhaps there was potential to use other ideas to supplement the LCF.

Current members had been involved with the Forum for varying amounts of time but all felt that communication was an important part of the LCF and that open and honest communication and feedback from businesses in this way had to be helpful to LBS. The other main points of the discussion were:

• Members believed that the Forum was ‘owned’ by both LBS and external members but, due to other competing priorities, businesses were guilty of not giving much consideration to the Forum before the meetings. Many felt that they did not contribute to the Agenda and communication between meetings as much as they should. There were a lot of time pressures on business which impacted on the amount of collaboration between meetings and their readiness to be involved in Working Groups. At this point it was suggested that the Working Groups be extended to include not only LCF members but other businesses dealt with by LBS.
• The size of the Forum was felt to be about right; any bigger and there was a danger that it could lose the openness during debates that it currently enjoys. There was quite a lengthy discussion on ways to ensure that meetings were adequately attended – these could be used where it was known that members definitely could not attend the next meeting:
  • there was potential to give their ‘slot’ to someone else in their team as long as they have expertise in the particular areas under discussion
  • Ask someone on the waiting list, preferably from the same sector to attend.
  • Have a list of businesses from each sector as ‘deputies’
    These had the potential to energise the Group and the members involved.
• Members of the LCF do get involved with other LBS initiatives, such as the Partnership Enhancement Programme (PEP). Members are sponsors to some of the groups this year. In addition, some members have addressed sector groups.
• It was pointed out that when the LCF was first created, there was difficulty getting customers on board. It was therefore suggested that a measure of its success was that people now wanted to join.
• The Review of Links found that many Forums were primarily ‘talking shops’; LCF was different because it focused on LBS and operational issues. LCF have already appointed a co-Chair from business; other Forums are now doing that to help re-invigorate them.

Action Point1/December – Andrea to work with Melanie and Adam to develop proposals on how to take forward the LCF and bring to the next meeting

Location of LBS Sectors
Stuart Keenay, LBS

A paper was circulated to members before the meeting giving the proposed locations of LBS sectors (PDF 145K). Stuart reiterated the point made earlier; LBS could not stay in the number of offices in which it was currently located. It was negatively impacting team working and ultimately could negatively impact business. The report given to LCF members was a précis of the Report that is currently with LBS staff for consultation. The deadline for comments is mid-January and it was felt important that business was also consulted; this is the start of that process. CRMs will discuss the proposals with business during the course of their meetings with them. Agreed changes will be implemented on an iterative basis with an expected completion date of 2010. As CRMs leave, replacements will be located in the revised area. Any moves will need to be dovetailed into the HMRC Estates Strategy. Discussion raised the following points:

• There was concern that indirect tax expertise will be lost in the South East, Automotive was specifically mentioned but there are others that this will impact. This loss could adversely impact the relationship between HMRC and business.
• Alignment to the new locations for Corporation Tax would happen by moving the case papers rather than moving staff. It was hoped that CRMs would remain with businesses for at least a year to help maintain continuity as Tax Specialists change but there may be some breaks in continuity; this would be managed by LBS.
• Banking, Insurance and Oil and Gas would see little change. Other sectors, particularly on the indirect tax side will have more major changes.
• Members pointed out that, while LBS was wedded to sectors, many businesses weren’t. There were exceptions such as Oil and Gas but these were the minority. If the adherence to sectors was exacerbating the scale of the changes then perhaps this should be reconsidered. Stuart explained that sectorisation is not the main driver for the changes but creating better team working by putting ET, Corporation Tax (CT) and indirect taxes together by rationalising the number of locations was; sectors created the opportunity for people to gain transferable expertise and new skills sets. It was appreciated that it will be some time before the full benefits are realised.
• It was confirmed that Employer Compliance (EC) were included although there were separate LBS and departmental projects that will determine how ET will work in the future.
• The departmental Population Project will look specifically at LBS and Local Compliance (LC) boundaries and whether businesses that are dealt with only in part by LBS should be in LBS for all taxes or totally dealt with by LC.
• The critical period was the transition from what LBS has now to the future structure; knowledge transfer is not something that has been done well in the past. When business undertakes the scale of change that LBS is going through it can take two years for effective knowledge transfer to occur and often specialists will be employed to help that process. The employment of a specialist team to help with the knowledge transfer was an interesting point that Melanie asked Stuart to consider further.
• There isn’t an intention to have a sector only in one location; the average will be three although some will be in four. In general, businesses will be wholly dealt with in one location if all taxes are dealt with by LBS. Where businesses are partially dealt with in LC, businesses may be dealt with in more than one location. LC are being kept informed of the proposals and their move to having Large and Complex Business Teams will help.
• 75 per cent of LBS staff are already in or close to urban locations; this means that only the work will need to be balanced. The South East is an area where there will be surplus staff but the timeframe for managing this is quite long, until 2010.

The Work of National Audit Office in Relation to HMRC
David Allen, NAO

David presented a brief background to the NAO (PDF 60K) and the work that it does before giving examples of HMRC studies that have been undertaken and the findings. For example, a recent study into the collection of CT in area offices found that there were inconsistencies across offices and that improvements could be made that would maximise yield. Current studies included the management of large business CT; an appropriate follow up study to the one previously carried out in the area offices. This was the focus of the rest of the presentation. Key points made were:

• Large business contribute approximately £24 billion in CT; it is therefore a key tax to look at
• The study would allow NAO to identify opportunities within LBS at a time that it was in transition
• Large business face a lot of challenges, including globalisation; this presents increasing challenges for HMRC
• Unlike LC, large business was complex and NAO were not specialists but will bring an outside perspective on how LBS is doing and how they might improve, including how the performance of LBS might be measured.
• NAO need customer views on the management of CT affairs to give the study credibility.
• An external focus group meeting was scheduled to be held at the end of January; participants were needed. David hoped that members of the LCF may agree to be a part of it; this was a real opportunity for large business to have a voice in the review.
• NAO were employing a technical expert, Nicholas Dee (member of Institute of Directors and previous tax director) to provide insight to the key risks from his perspective.
• NAO would review previous HMRC surveys and papers relevant to this topic.
• David would like to come back to the Forum to give the interim findings of the study in order to validate them.

During the discussion, the following were raised:

• Members asked if a Terms of Reference for the study was available. A three page outline for the study was available and this would be forwarded for inclusion with the minutes.
• Asked if the study was looking solely at how the system was managed or whether there was scope to also look at problems with the legislation, David confirmed that the study would focus on how HMRC dealt with key risks as they arose and that there was a mechanism in place to manage them. The study was not looking at the HM Treasury role.

Action Point2/December – David Allen to provide the outline for the Management of CT Study

Action Point 3/December – Members should inform David if they were interested in being involved in the Focus meeting at the end of January

A View from the Incoming Director
Melanie Dawes, LBS

Melanie provided members with a summary of her career to date. She pointed out that it was very unusual to have such a long handover period and this had given her an opportunity to spend some time visiting LBS offices (15 offices with a total of around 400 staff), meeting people in the Big Four Accountancy firms and meeting some LBS businesses. It had also given her time to reflect on what she had seen and heard and had given her an idea of the issues facing staff and customers. During visits, Melanie got a strong sense of commitment and professionalism from staff but also a feeling of uncertainty about change. There was strong agreement from both the private sector and LBS people that the Operating Model was the right way to go and, already there were signs of it working positively. But full delivery of the Model’s objectives would take time and required LBS to work differently. For example:

• Making more use of system audits.
• Addressing major cultural issues to ensure that trust was built up between LBS people and customers and that decisions did not always need to be based on a 99 per cent certainty.
• Gaining a better understanding of customer drivers; this needed to be done in conjunction with business to develop a suite of training/learning activities, such as secondments – these could be long or short term

Melanie finished by saying she did not underestimate the scale of the challenges ahead and had huge respect for David on what had been achieved so far. Members raised the following observations and questions:

• No matter how many times customers explained to LBS people ‘This is how it is’, when trying to explain business drivers behind decisions, staff did not always believe it, believing that there were always tax reasons for decisions. It is felt that belief would provide a bigger breakthrough than secondments into the business.
• When asked if she was clear about the Sector Leader role, Melanie replied that she was. The primary role of the Sector Leader is to manage their area of LBS and be accountable for performance within it, leading the change that is needed. Management is quite new for many and there needed to be more clarity on how Sector Leaders will be measured; the Review of Links helps.

A.O.B.

Members agreed that the next meeting should be arranged for mid to late April

Members also gave David their good wishes stating they had enjoyed their interchanges through the Forum and elsewhere.

David thanked members and hoped they agreed that the Forum had evolved quite a long way with improved dialogue; perhaps as a consequence of getting to know each other better. He also thanked Andrea for organising the Forum meetings. On wishing Melanie well for the future; the meeting was closed.

Next Meeting:

The next meeting will be held on 19 April 2007 in the New Nelson Room, Somerset House.