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A double dose of tax in the media this evening will make interesting viewing and listening for anyone with an interest in the tax system – and looks set to provide an uncomfortable hour for HMRC.

At 8pm tonight Radio 4’s The Report will broadcast claims by HMRC insiders that up to £1.5 billion of unpaid tax is set to be written off.

This is of course a reference to the huge backlog of unreconciled cases from before 2008-9 all of which will need to be manually reconciled as they date from before the new NPS system.

There is already an article on the BBC website about the claims, which quotes anonymous HMRC front-line staff saying that only those cases which verge on fraud will be pursued.

However HMRC have responded that no decision has yet been made on underpayment cases. A spokesman has told the Beeb that overpayments will be paid back but underpayments are being “set aside for a future decision”.

The CIOT’s John Whiting was on BBC Breakfast and Radio 5 Live this morning talking about the issue. The CIOT’s Tina Riches is among those who have been interviewed for the programme.

By coincidence ITV’s Tonight programme is broadcasting its special report – ‘Tax: The Inside Story’ for the previous half hour.

Kicking off at 7.30pm the show is billed as follows:

‘With millions of people across the UK paying the wrong amount of tax and billions of pounds going uncollected, Morland Sanders investigates the workings of HM Revenue & Customs’

John Whiting was interviewed for the show at CIOT headquarters earlier this week.

Following broadcast (i.e. from tomorrow) both shows should be available online:
The Report, BBC Radio 4 (available for the foreseeable future – currently shows dating back to April 2009 are available)
Tonight (Tax: The InsideStory), ITV (go to ITV Player and search for Tonight - available only until Thursday 30 September 2010)

George Crozier, CIOT External Relations Manager, 23/09/10

Energy and Climate Change Secretary Chris Huhne signalled today that increases to green taxes are high on the Government's agenda.

Speaking in a debate on green taxes at the Lib Dem conference in Liverpool Mr Huhne said that the green sections of the coalition agreement were some of the strongest parts and commitments on green tax were very important to the government.

He said that the commitment to increase the share of taxes taken from green taxation won’t only be through aviation taxes and the climate change levy though he was not specific about any further changes.

Responding to criticism that green taxes can be regressive he said the government could make a lot of progress on this agenda without being unfair. There were plenty of options – they could use green taxes to increase income tax threshold, or to cut employers’ NICs. He said there was evidence that a 'green tax switch' is popular so long as people can see extra revenue is being used to reduce other taxes.

He challenged his party "to develop an ambitious green tax package that we can argue for in government."

The party backed a motion approving the commitments in the Coalition Programme for Government to increase the proportion of tax revenue accounted for by environmental taxes, reform the taxation of air travel by switching from a per-passenger to a per-plane duty, and introduce a floor price for carbon, and applauding the inclusion in the June 2010 Emergency Budget of commitments to reform the Climate Change Levy and to explore options for changes to aviation tax.

The full text of the motion can be read here.

In his leader's speech to the conference today Nick Clegg reiterated the Government's determination to crack down on tax evasion and avoidance (as set out in the Chief Secretary's speech yesterday and reported in a separate blog post). He also said ministers were "working hard with our friends in Europe and beyond on the idea of a financial activities tax on profits, pay and bonuses."

A significant section of the speech was devoted to devolution of tax powers:

"We will put local government back in charge of the money it raises and spends. That’s why in our first budget we unlocked more than a billion pounds of ring-fenced grants. That’s why we will end central capping of Council Tax. That’s why we will allow councils to keep some of the extra business rates and council tax they raise when they enable new developments to go ahead. And I can announce today that we will be giving local authorities the freedom to borrow against those extra business rates to help pay for additional new developments."

He reiterated the commitment to taking forward the Calman Commission "to give Scotland real freedom and responsibility over its own money" and said that, "if the referendum for more devolution in Wales is successful, we will take forward a similar process for the Senedd."

You can read the full speech here.

George Crozier, CIOT External Relations Manager, in Liverpool, 20/09/10
(NB. The CIOT is, of course, strictly politically neutral and reports will also be posted on tax developments from the Labour and Conservative conferences over the next two weeks.)

Danny Alexander MP, Chief Secretary to the Treasury (CST), announced today that the Government will make £900m available over the spending review period to tackle tax avoidance, evasion and fraud.

In a speech at Liberal Democrat conference in Liverpool the CST said:

“Tax avoidance and evasion are unacceptable in the best of times but in today’s circumstances it is morally indefensible.

“Today I can announce that the Chancellor and I have agreed a package of new measures to crack down on tax avoidance and evasion.

“We will be ruthless with those often wealthy people and businesses who think they can treat paying tax as an optional extra. This will mean a crackdown on those hiding money offshore; a fivefold increase in prosecutions against those who evade tax; and rooting out 50p rate tax dodgers.

“By the end of the parliament, this package will bring in an extra £7 billion in tax.”

The text of a briefing note which puts more flesh on the bones of the proposals is below.

The CIOT has issued a press statement commenting on the proposals, from John Whiting, CIOT Tax Policy Director:

“All right-minded tax advisers will welcome this increased emphasis on tackling tax evasion. Tax evasion is not a victimless crime. Cheating the Revenue robs the Exchequer of the money the Government need to fund public services and makes us all suffer.

“The Chartered Institute of Taxation has long argued that more effort needs to be put into investigating and tackling people who seek to evade tax. Cutbacks at HMRC should not mean lessening of efforts to tackle evasion. Putting resources into pursuing newer forms of evasion such as cyber crime (or e-evasion) as well as the more traditional smuggling and hidden economy is sensible.

“We can also well understand the desire to further tackle avoidance – but that should be put into the context of all the changes made in recent years, including the disclosure regime and effective ‘Targeted Anti-Avoidance Rules’ (TAARs). Ever more complex rules risk becoming administratively burdensome for all concerned and even creating further loopholes. At the same time, a good deal of the supposed avoidance is dependent on obfuscation and concealment and is better classed as evasion.”

Briefing note on the proposals announced today by the CST

Tackling Tax Avoidance, Evasion and Fraud

The Government will make £900m available over the spending review period to tackle tax avoidance, evasion and fraud. This will send a clear signal that the spending review will be focused on fairness and deficit reduction; in this case through raising additional revenues from those who undermine the tax system and seek to avoid paying their fair share. The resources will:

Avoidance & Evasion

Make it harder for individuals and companies to avoid tax and working to prevent tax avoidance before it happens, ensuring the right and fair amount of tax is paid.

Funding will be available for:
• a much more robust criminal deterrent against tax evasion – HMRC will increase the number of criminal prosecutions fivefold;
• a crackdown on offshore evasion with the creation of a dedicated team of investigators to catch those hiding money offshore; and
• a much tougher stance on evasion and avoidance by those liable for the 50 per cent tax band.

Tax Debt

Reduce the amount of tax that is lost to the Exchequer each year through written off/bad tax debt.
Funding will be available for:
• Further investment in in-house collection capacity will increase HMRC’s internal debt collection rates
• Placing up to £1bn p.a. of tax debt out to private sector debt collection agencies.
• Use of the private sector will also improve HMRC debt collection techniques and capabilities through sharing knowledge and best practice.

Organised Crime/Tax Fraud

Organised crime and criminal attack is estimated to contribute around £5bn a year to the UK tax gap.

Funding will be available for:
• more registration checks to stop people claiming tax repayments when they are not due;
• cyber crime teams and specialists to help prevent criminal attack on HMRC’s electronic systems; and
• more investment in freight and detection technology to prevent alcohol and tobacco smuggling.

Spending Review Context

£900 million is ring-fenced to spend on specific measures to tackle evasion and avoidance and reduce the overall tax gap. This will be a key component of the Government’s commitment to delivering a fairer tax system.

HMRC will be expected to deliver administrative savings in line with all other government departments as part of the Spending Review process. Full details of HMRC’s Spending Review settlement will be released alongside all other departments on 20th October 2010.

- End of briefing note -

Posting by George Crozier, CIOT External Relations Manager, in Liverpool, 19/09/10

Few people have the knack of bringing economics to life in the way that Evan Davis does. So it’s good news for all of us with an interest in spreading understanding of our tax system that, in his latest series, he has decided to turn his attention to our vexed relationship with tax (his words).

The first episode of the three-part series, broadcast on Monday, looks at tax rates, at whether there can ever be popular tax rises and indeed whether the public can be trusted to tell the truth to pollsters and politicians when they ask questions about tax. An array of former Chancellors, including Geoffrey Howe and Alistair Darling, feature.

The second episode, broadcast on Tuesday, looks at the complexity of the tax system. Why, if most people, want the system to be simpler, has it ended up so complex? (In a word – politicians.) And what is the relationship between complexity and avoidance? Among those helping Evan out on this show is the CIOT’s Tax Policy Director, John Whiting.

The third episode, broadcast yesterday (Wednesday), looks inside the tax policy-making machine and asks the question: Is this really the best way to do it? If the Transport Secretary made all his announcements on one day of the year, without telling even most of his cabinet colleagues what they would be until the day itself, beavering away on them with just a tiny group of advisers in the loop, and then implementing many of them virtually instantaneously, would we think that was a good idea? Numerous Treasury insiders give their perspectives.

Provocative and challenging (and not as simplistic as I may have implied above), the shows are essential listening for anyone with an interest in how our tax system operates. If you missed them you can listen again on the BBC iPlayer until seven days after each has been broadcast. Follow these links:
Episode 1(available until Mon 20 Sep)
Episode 2(available until Tue 21 Sep)
Episode 3(available until Wed 22 Sep)

And if you are still hungry for thought-provoking material on the tax system then why not read the CIOT’s proposals for reform of the tax law process, including ways of improving parliamentary scrutiny of tax legislation, here.

George Crozier, External Relations Manager, 16/09/10

Three of HMRC’s top-ranking officials were grilled by MPs on the Treasury Committee for an hour and a half in Westminster this morning on the Revenue’s operation of the PAYE system. I sat in on proceedings for the CIOT and a brief report on the lively exchanges follow. (You can also read reports on the BBC, Guardian, Telegraph and Accountancy Age websites.)

Business kicked off at half 10 in Portcullis House’s Thatcher Room as Dame Lesley Strathie, HMRC Chief Executive, Dave Hartnett, Permanent Secretary for Tax, and Bernadette Kenny, Director General for Personal Tax, made their opening statement before Andrew Tyrie’s committee began their questioning.

Overall HMRC faced fairly robust questioning but responded pretty well. One recurring theme was the MPs referring to HMRC’s mistakes and HMRC coming back and challenging them over the use of the word ‘mistake’. ‘These are not mistakes; PAYE broadly works’ said Dame Lesley. She told the MPs that reconciliation was inevitable: ‘Where people have more than one source of income the customer needs to be involved.’

Two Conservative MPs pressed HMRC about whether they had anticipated the number of under and overpayments the reconciliation had thrown up. Dame Lesley told them at one stage: ‘I don’t think anybody was surprised [by the numbers] given the 11 to 12 million reconciliations a year under the old system’.

The HMRC team took advantage of the hearing to announce a new concession on interest payments – namely that people needing time to pay tax owed will not have to pay interest.

Dame Lesley, who took most of the questions, said the backlog of cases from before 2008-9 (i.e. pre-NPS) was currently 17.9 million. She told the committee that, once through the process of moving to the new system was complete, the need for manual reconciliation would not exist, or there would only be small numbers. HMRC’s ambition remains to clear the backlog by 2012.

The toughest questions were over HMRC’s ability to cope with its workload. ‘Is your organisation fit for purpose’ Streatham Labour MP Chuka Umunna asked Dame Lesley. Yes, she told him. ‘Will you be able to cope with fewer staff over the next four years?’ asked another Labour MP, John Mann. Dame Lesley said it was her job to ensure the organisation has the resources it needs. She said HMRC was waiting for the spending review but conceded that ‘based on history we would expect it to be smaller, but different’ in four years time.

Committee chair Andrew Tyrie probed the HMRC team about phone helplines and whether people are having trouble getting through. Dame Lesley said they were still maintaining 85% of first calls being answered. She said currently 3-4 % of calls were about P800s with a similar number from people who had not received one but were worried by the publicity.

There were a few questions about what they would do differently ‘next time’. Broadly HMRC said they were determined to learn lessons and improve communication. ‘We need everyone to understand that PAYE is a payment on account tax’, said Dame Lesley. Dave Hartnett said there would be some changes made to the P800 form for the remaining recipients to make some aspects of it clearer.

Senior Conservative MP Michael Fallon asked if, in five years time, we would have a ‘real time’ system for taxes on income. Dame Lesley said that would be a ‘route out of reconciliation’ but moving would be ‘high cost, high risk and not without difficulties’. She gave an example of a cleaner whose work patterns would be hard to keep track of.

Andrew Tyrie concluded by saying the committee were now going to consider whether to conduct an enquiry into HMRC.

George Crozier, External Relations Manager, CIOT, 15/09/10

The Low Incomes Tax Reform Group (LITRG) have issued a guide on what people should do if they receive a tax calculation letter from HM Revenue and Customs.

The guide includes:

• Step by step guidance for people who are told they have underpaid tax
• An explanation of the circumstances in which people can challenge HMRC
• An annotated version of the ‘P800 Notes’ (the notice people will be sent telling them of their recalculated tax)
• Examples of the letters taxpayers could write in response to receipt of a tax calculation (though you will need to adapt them to fit your own circumstances)

The 14 page guide is available from the LITRG website via the link: http://tinyurl.com/taxletters

As LITRG’s Chairman John Andrews has pointed out, taxpayers receiving tax calculations from HMRC are in need of help – particularly if these show that they owe money to HMRC and they cannot afford to pay for a tax adviser. LITRG do not feel that HMRC have done all they could to help the vulnerable and the uninitiated (hopefully this can be improved before the large bulk of the six million calculations are sent out) so have stepped into the breach with extra guidance.

The guide is reproduced extensively in the Money Mail section of today’s Daily Mail.

LITRG are keen for the guide to have the widest possible circulation so if you run a relevant website or blog please feel free to link to it or even to reproduce extracts from it, provided these are attributed to LITRG.

Extensive coverage over the last few days for HMRC’s revelation that 5.7 million people have been paying the wrong amount of tax over the last two years.

The news broke on Friday with the apparently low-key news that HMRC were about to ‘start to use automated end of year reconciliation functionality on the National Insurance and PAYE Service (NPS)’ for the 2008-9 and 2009-10 tax years. But it soon became clear that, rather than this being a small, technical process it was something that will affect nearly six million people who will receive letters between now and Christmas.

Around two-thirds will be told they have paid too much tax and that they are now due refunds totalling £1.8bn. However, the one third of workers receiving letters demanding that they make additional payments to HMRC have, on average, seen larger mistakes accrue on their accounts and collectively owe a total of £2bn. HMRC will start recouping the £2bn from next April. It means many people could be at least £100 a month worse off.

More than 45,000 will receive their letters from HMRC this week.

Why is this happening now?

It is all about the new NPS computer system. Two years worth of tax records have been run through the system and it has identified many discrepancies between taxpayers’ earnings and tax contributions.

This is different from the tax codes mess that was in the papers earlier in the year. That was all about new errors (people being given wrong tax codes) as a result of bringing together separate data records in a less than perfect manner. For example, many jobs were ‘re-activated’ meaning that people found their tax-free personal allowances assigned to jobs they no longer had (and were therefore being asked to pay tax on more of the earnings from their current job than they should have been). The new issue is the traditional end of year 'reconciliation' tax records but supercharged as two years worth of records have been processed all at once.

The new database is undoubtedly a step forward, but it is a shame that the process of moving over to it is proving so messy.

One of the CIOT’s key aims is to achieve a better, more efficient, tax system for all affected by it – taxpayers, advisers and the authorities. With this in mind the CIOT and our Low Incomes Tax Reform Group are doing all we can to help in the current situation. We helped the Government identify the problems with the tax coding notices issued for this financial year. Now we are doing all we can to help people understand what they should do, and what rights they have, if they receive a letter from HMRC about tax from previous years. This includes an excellent 14 page guide produced by LITRG.

Posting by George Crozier, CIOT External Relations Manager

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