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From Public Accounts Committee Transcript of Evidence 14th November 2005

Sadiq Khan MP questioning Mr Varney and Mr Massingale from HM Revenue & Customs

Q44 Mr Khan: Helen Goodman gave you the hypothetical example of a disorganised Member of Parliament who, for various reasons, does not get the return in on time. What are your opinions on having an eight-month period within which to file tax returns for the previous financial year?

Mr Varney: That is something Lord Carter is looking at.

Chairman: We are going to have a very boring hearing, if we are constantly referring to Lord Carter.

Q45 Mr Khan: I deliberately changed my question to ask you for your opinion as I did realise you would say that.

Mr Varney: It is one of the features, if you do ask somebody to look at something, to listen to what he has to say.

Q46 Mr Khan: Without prejudice as to what Lord Carter may find, what are your views on having an eight-month period, bearing in mind other countries have a much shorter period? Would that help you?

Mr Varney: Yes. We are going to give the NAO report to Lord Carter - in fact he has got it - so that he can see what the comparison is with other countries.

Q47 Chairman: You are not prejudicing what Lord Carter is going to say by giving your own opinion now.

Mr Varney: No, and he will make that very clear. It is a balance in the end. It is not that if you made it seven months rather than eight, you would immediately get people giving it their attention. It is a judgment call as to when people have the information, how they are organised and we know that people have got used to the current situation. What we are trying to do is persuade them voluntarily to bring forward their return. If the Government desires to make a move, then we shall make that work to the best of our ability.

Q48 Mr Khan: May I say, it is a criticism, that I am no clearer as to your views two minutes after you began answering the question? If, for example, the date for returning this were nearer to when people receive their P60, what would your views be on that?

Mr Varney: The issue is that you have to pull together. It depends on the complexity of the case, the individual's circumstances. If you have a large number of bits of paper, you have to work out the critical path, the last date and I suspect moving it forward will have some benefits to us in terms of the administration, but it will also lead to a new set of issues which we will have to deal with as people think about their work. A lot of people are dependent on specialist advice and those specialist advisers do not only do income tax, they do other forms of tax. We would look, if you were to move the date, at what it would do to other tax regimes and other peaks. It is not a straightforward question. I am not trying to be obscure; I am just saying that there are various trade-offs.

Q49 Mr Khan: May I just ask you about this? We see from the report that last year approximately 5% of mistakes were made in processing returns, the year before it was 6%. Bearing in mind that some of the poorer people who will fill in returns will not have an agent or expert to advise them, do you think you are doing enough to identify and alert taxpayers who may have had their tax return incorrectly processed?

Mr Varney: We have done some more work. We have an automatic coding, a piece of IT which is going in, to remove about a third of the coding errors; so we have made an improvement there. What we are doing is trying to bring as much management quality into this process as we can. We are trying to take out of the system people whose circumstances are relatively straightforward or make sure that they do a short return, which we try to make as straightforward as possible. We have not designed the system so it needs an agent. We have designed it so that it can be worked by the taxpayer.

Q50 Mr Khan: My point, Mr Varney, is this. If somebody has an agent, it is more likely, is it not that he or she will be aware of the mistake that you have made. It is somebody without an agent who will be unaware of the mistake made and, for example, we see 50 million people have been overcharged due to mistakes made by your team.

Mr Varney: We have a rolling process in this and we try to see what the errors are. We try to spot them and we try to encourage people, if they do not think it is right, to come back and challenge it, then we look at it again. That is what we try to do. We are trying to reduce the number of errors which we generate on our side, making it easy for the people to fill in their forms, because that is the best way of making the system work.

Q51 Mr Khan: Just before I move onto the next topic, how do you encourage people to challenge you?

Mr Varney: We have explained that this is what we think is their assessment, this is how we have arrived at it and then it is up to them to come back.

Q52 Mr Khan: Okay. As far as tax codes are concerned, I see from the memorandum that last year your department was 73% accurate and the year before 71%. What sort of figure should we expect in accuracy?

Mr Massingale: We are not at all complacent about these figures; we are not at all happy about them. Perhaps I might just elaborate a little more on what our chairman has said and what we are doing about them. First of all, we do manage to track and correct about two thirds of our errors and are constantly working in our management chain to identify common causes of error and feed them into our management systems.

Q53 Mr Khan: Is this tax codes or processing?

Mr Massingale: This is both. Tax codes are a major source of error.

Q54 Mr Khan: The question I asked was: what sort of percentage of accuracy for tax codes should we expect? It was 73% last year and 71% the year before. What figure is acceptable?

Mr Massingale: I should say that we should expect it to be much higher than that.

Q55 Mr Khan: Right. So what figures can we expect to see for the current year?

Mr Massingale: I cannot give you a prediction of what would happen for this year. I can tell you the sorts of things we are doing to try to improve these matters. We have recognised that one of the issues for us has been that our quality management systems have tended to be too lagged. We have examined our quality too far away from the event and we are trying to bring quality management much more into real time in our local offices.

Q56 Mr Khan: So the graph will go upward 71, 73, this way would it?

Mr Massingale: We would expect the graph to go up quite considerably.

Q57 Mr Khan: I have already explained my concern that those who have no agents are not being made aware of errors that you make in processing the claims. I also read that only half of sole traders and partnerships file accurate returns; I suspect because they tend to be smaller partnerships and clearly sole traders by definition are small. What more help do you think you can give to improve their compliance?

Mr Varney: We do run education schemes, which are meetings for people starting up businesses, trying to explain to them what the tax system is and what their obligations are coming into the system. In terms of the information we put out, we try to make it customer friendly and we do answer questions but we approach this in a sort of multi-layered way, trying to help people with the information that they have the capacity to absorb and to use.

Q58 Mr Khan: I see from page 23 of the NAO report that after spending £25 million on Hector the Inspector, the conclusion was that it should be withdrawn because it was a stereotypical and inaccurate image of HMRC. We then spent £6 million on Mrs Doyle, which was withdrawn because it did not meet the objective of increasing filing by the end of September. We have now spent £15 million on an advertising campaign which seems at this stage to have been unsuccessful because there was a continuing deterioration in the percentage of taxpayers filing by end September. I am assuming you have changed the advertising agencies in those three examples, have you?

Mr Varney: I do not know, to be honest. For the last one, the ongoing latest results are 90.6% for the year to January 2005 and 44.8% for September 2004. So it has gone up and we have seen e-filing up by 400%. We think this last campaign is still working and still producing results. Our media tracking says the campaign researches very well. It is in the nature of what we do that we shall be changing our advertising presentation to reflect the impact it has.

Q59 Mr Khan: It says in the report that you are unable to trace 85,000 taxpayers with outstanding returns. What are your views on an amnesty?

Mr Varney: If we are unable to trace, we have various schemes now across Europe to enable the exchange of information. I am not really in favour of an amnesty. If those people do not want to be found, then they are trying to avoid and evade tax and we shall treat them accordingly. Encouraging them to come forward is not a particularly useful way. I have seen other revenues have tried something like that, but that is primarily to bring money from overseas into the country. I am thinking about the Belgians and the Americans who gave tax breaks to do that.

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