Treasury Committee enquiries and disputes hearing with LITRG
The Treasury Select Committee has held its first hearing as part of its inquiry into the conduct of tax enquiries and resolution of tax disputes. Witnesses included Victoria Todd of the CIOT's Low Incomes Tax Reform Group and (in a personal capacity) CIOT Council member Keith Gordon. This liveblog was updated through the hearing.
Technically the hearing is being held by the Treasury Committee's Treasury Sub-committee. The sub-committee has the same membership as the full committee, but a different chair, Labour MP John Mann.
You can watch the hearing at https://parliamentlive.tv/Event/Index/9fbcd057-acad-4ca5-8d2a-70618a286d55
Victoria Todd, Senior Technical Manager, Low Incomes Tax Reform Group ‚ ãPaula Ruffell, Tax Investigations and Disputes Senior Manager, Grant Thornton UK LLP Keith Gordon, Barrister, Temple Tax Chambers
NB. The notes below are contemporaneous and not checked against Hansard. We cannot guarantee that no errors have crept in and we advise on checking any passage against Hansard before repeating it.
Liveblog of proceedings
Sub-committee chair John Mann opened proceedings, inviting witnesses to introduce themselves. Mann then posed the first questions, asking Paula Ruffell what HMRC is willing to negotiate. Ruffell responded rthat the Litigation and Settlement Strategy (LSS) takes into account chances of success. Junior caseworkers cannot weigh those chances. Is there a deal to be done, Mann asked. Ruffell responded that she was formerly at HMRC. No deals were done. Agreements were reached on a principled basis, based on the law. What you are not doing is saying "w will give you VAT if you ignore income tax," she said. Asked what value Grant Thornton add, Ruffell said they helped them niavigate the process. Mann pressed again at whether there was anything to negotiate.
Mann then asked Victoria Todd: Does HMRC deal with disputes fairly and even-handedly? Todd replied that LITRG works closely with tax advice charities but is not a frontline organisation itself. HMRC often do not take into account the circumstances of our client group - low incomes people, she said. Vulnerability is not taken into account. This could mean mental health problems, physical disabilities, etc. People who eventually go to tax charities for help have often tried to navigate the system and asked for penalty to be written off but failed, and tax charities have been better able to explain circumstances, getting penalties written off. Mann asked about definitions of vulnerabilities. There is a chapter in HMRC's debt management handbook which deals with what constitutes vulnerabilities in that context. Ruffell added that there are elements of the code where HMRC have discretion and that is where a firm like GT adds most value.
Mann then asked Gordon about HMRC's basis for taking cases forward. Gordon said HMRC do it where they think they can succeed but they are not always right. He cited a case where the Revenue lost at first and second tier tribunals. Gordon said some matters were subjective, some were a matter of 'black and white' law. How often do HMRC back down 'on the steps of the court' asked Mann. About 10% of the time, said Gordon. A recent example was a penallty for non-cpmpliance, but the taxpayer had phoned up the officer two and a half years earlier saying they hadn't received the follower notice, but HMRC said you'll have to see what the tribunal thinks. Their adviser had also called. HMRC said the taxpayer must have received an FN, but they hadn't.
Mann asked if people who can afford specialists such as GT and a barrister have a better chance of beating HMRC. Yes, said Gordon. He said tribunal would bend over backwards to help unrepresentated taxpayers but they are still at a disadvantage.
Charlie Elphicke asked whether HMRC the LSS is a useful framework. Ruffell said it is, but does not work as well as it could. Some within HMRC don't know governance processes. People often don't know what stage of process they are at. Elphicke asked how easy to escalate concerns to senior HMRC officer. It's getting increasingly harder, said Ruffell, citing cuts in HMRC staffing. Resources are a huge issue for HMRC, she said. He then asked Gordon whether taxpayers feel that the officer they are dealing with is a decision-maker. Gordon said you get the feeling that the people writing the letters are just seeing what they can get from the taxpayer but any decision is further up the chain. Elphicke wondered whether there were sudden changes resulting from engagement at a higher level in HMRC. Gordon said his experience was not. Ruffell said caseworkers should consult a policy specialist, and use them as a sounding board throughout the case. But sometimes they were used badly (ie insufficiently).
Elphicke asked Todd how well she thinks LSS works for unrepresented taxpayers. Todd replied that most unrepresented taxpayers would never have heard of LSS. There is no mention of vulnerable taxpayers, of HMRC's charter, of Needs Enhanced Support (NES) service, in the LSS. HMRC's support falls short, in particular in relation to GOV.UK, she said. Most people LITRG are in contact with don't know about what they are entitled to. Taxpayer does not have enough information. We've been very supportive of NES, where there is a good team, said Todd, but it can only be effective once need has been recognised, and the rest of HMRC isn't good at identifying that need. She acknowledged that this was not easy - people might not tell HMRC they have, say, a mental health problem. But when someone tells HMRC they are deaf and they get referred repeatedly to a helpline, that is a problem. On enquiries, HMRC could be clearer about what special circumstances are. Gordon added that the best improvement HMRC could make is going into the process with an open mind. Ruffell added that HMRC does not act in a joined up way.
Rushanara Ali asked Todd if LITRG has a breakdown of the number of people who are vulnerable who get given penalties. We don't have a breakdown beyond what is produced by HMRC, said Todd. We don't hear about the cases which don't go wrong. Ruffell said GT saw HMRC taking a more aggressive approach on penalties. Todd said we saw a presumption that someone had been careless and they had to put forward information to argue they had not been. Ali asked if the landscape on penalties had changed - had it become more aggressive? Gordon said it used to be 100% penalty maximum. Most would settle for 10-15%. FA 2007 provisions put new scales in place. Reasonable excuse at the centre of a lot of cases. Longer timescales for deliberate conduct. HMRC identifying cases too late for carelessness to still be in play so claiming deliberate conduct. HMRC mindset is of a spectrum of conduct. Too much carelessness deemed deliberate conduct, said Gordon.
Todd said LITRG see a lot of late filing penalties. Penalties of c£1600 could be charged even though no tax due. 2015 consultation document hasn't been acted upon. Ali asked how many people don't know enough to navigate through the tax system. We find there is a trend of people who haven't had any need to interact with the tax system, said Todd. Ruffell said complexity a real concern. Ignorance of the law is no defence, but 21,000 pages of tax code hard to navigate. Ali asked if HMRC was seeking to maximise revenues at the expense of vulnerable people. Todd said pressure to maximise revenue combined with cuts in resources meant limited time for interaction. You avoid disputes by providing help and education and HMRC are not strong on this. They don't mention Citizen's Advice or the tax charities. Are HMRC too rigid? asked Ali, They could do more to help people early in the process, said Todd. Gordon added that there is a real problem of lack of awareness. Closure of HMRC offices means HMRC is invisible to most taxpayers.
Is HMRC too restricted, asked Ali. Todd replied that they have flexibility and discretion but at times don't always use it. That's why people do do better when they get help from advisers / charities. We have special relief but you have to understand what you need to provide to access these things. Ruffell said GT clients often concerned about payment schedule. You get a bill to settle in 30 days. People not always aware of 'time to pay'. HMRC not very creative in, say, putting a charge on properties rather than cashflow. She cited a recent GT case where this had not been taken up.
Ali then asked whether there was an issue of culture - taxman perceived as a bogeyman; people struggling. Todd said unrepresented taxpayers often scared of HMRC. 15% of people said wouldn't take decision to tribunal even if they thought they would win because of fear of HMRC. Gordon said old relationship with a district inspector was different, more benign. HMRC alienating people trying to comply.
Simon Clarke asked when transition to more aggressive HMRC occurred. Ruffell said she left HMRC Solicitor's Office in 2015. I was surprised at the points that were being taken, when I left HMRC, she said. Gordon said it was early 21st century - cited Arctic Systems case. Eg husband and wife companies where one was doing the work but both had equal shares. All of a sudden HMRC changed their minds. Someone in HMRC decided to go back six years. DOTAS in 2004 notched things up. 2005 we merged two depts and slightly more aggressive C&E took over at combined dept. In 2008 Dave Hartnett announced he saw HMRC's job as maximising tax revenue, not just collecting right amount of tax. Clarke said he was trying to work out what had prompted the change. It preceded the financial crisis but that played a role, said Gordon. Clarke then asked Todd about taxpayer survey judging HMRC against its charter commitments. She said the LSS does not mention HMRC's charter. We encourage people to hold HMRC to the charter, said Todd. LITRG was set up 20 years ago because of the need to help unrepresented taxpayers. Some of the same sisues now, but some more pressures. A lot of work went into the charter but you rarely see it mentioned by HMRC. There is an annual report and a committee monitoring it but it is not used internally or externally.
Clarke questioned Gordon on the strong language of his submission. Gordon said taxpayers were being forced into paying to get HMRC off their backs. Internal review system not working as well as it should. Ruffell agreed. Clarke then questioned Ruffell on GT's submission highlighting HMRC requests for information they are not entitled to in law. Ruffell said a couple of GT clients had received a mailshot recently asking them to let HMRC know within a short period whether they fall within SAO and large business tax strategy regimes. She thought this was a fishing expedition. Gordon added that someone who advises accounants told him she had seen from the same officer two standard sets of info requests - one for an accountancy firm which has its own tax dept and one for those which did not. These suggested they were pushing for as much info as they could get. The latter asked for much more info which they were not entitled to.
Clarke than said he found GOV.UK pretty hopeless. Todd agreed. LITRG's website has gone from the tens of thousands of annual visitors to four million since GOV.UK came in. GOV.UK has information misleading and wrong, and a middle layer of info is missing. How can people meet their obligations if they don't have the information, asked Todd.
John Mann asked if HMRC's debt management teams were intergrated into the process. It's not joined up, said Ruffell. People can't speak to the debt management people before they accept all the tax is due, said Gordon.
Mann asked about Crown Dependencies and Overseas Territories. Who should the committee talk to? The witnesses were unable to assist.
Mann asked what improvement was most important or deliverable in this area for the committee to put to HMRC. Todd said it would be bringing NES to people's attention - referral within the dispute process by the HMRC officer dealing with the case. Ruffell said it was a joined-up approach with ideally a single point of contact who could take a decision (Mann had put this to her). Gordon said it was officers realising they were dealing with real people - a cultural change. This could be driven by parliament and the press. HMRC treating ordinary taxpayers like they were criminals is not the way forward.
Rushanara Ali rejoined the discussion, saying the committee would challenge HMRC about whether they were putting the right emphasis on tackling the right people or were they just going for the easiest people to go for.
The hearing ended at 5.33pm. Further hearings will take place over the coming months, with HMRC and CIOT expected to be among the witnesses.
George Crozier CIOT Head of External Relations