HMRC candid on transformation programme

The witnesses were all from HMRC: Jon Thompson, Permanent Secretary, Nick Lodge, Director General (Transformation), and Joanna Rowland, Transformation Director.

16:07 John Mann, Lab, chaired the meeting

Jon Thompson said customers will see a range of new services as a result of the programme, mostly accessible by digital means. By regionalising staff, he expects a better service for customers, particular those who ‘do not want to be our customers’.

He said a figure of £285 million year from 2020 onwards in extra tax is a fair and transparent estimate as a result of Making Tax Digital. MTD was originally targeted to close the tax gap from SMEs but now the Government has decided to start with larger businesses (above VAT threshold) and move down in future fiscal events.

Thompson told Mann that HMRC have not been any more lenient than in the past and pointed to the increase in the tax take as proof. There is more resource in compliance than in customer service now, he added.

16:19 Mann asked how HMRC intend to allocate resources to deal with ‘a big American multinational company’. Thompson said customers are segmented into six groups. There are 2,100 large businesses which have a HMRC customer compliance manager and depending on the nature of a particular business, HMRC scale a team that works with a customer compliance manager. HMRC rag and rate large businesses compared to their perception of their tax affairs (e.g. half are rated ‘amber’ which means open enquires and 14 are ‘red’ which shows suspicion of deliberate avoidance).

He is keen to say the vast majority of HMRC staff are not in London. Compliance managers are ‘deep tax professionals’ and a MNC bank, for example, may have a team of 30 to 40 HMRC people to deal with it.

Nick Lodge was keen to say the availability of digital tax accounts that present information in an increasingly clear way, can help to shift the way people view their tax affairs and get information.

16:25 Kit Malthouse, Con, asked whether having more people in compliance than customer service will have a cultural impact on HMRC, such as seeing the public as  the ‘enemy’ rather than customers? Thompson said there is an inherent tension between targets on clamping down on people and helping facilitate compliant taxpayers. He said HMRC’s surveys help to judge if it is achieving the right balance and it is ‘something we need to key an eye on’.

Malthouse asked about customer perception of HMRC, in light of a rise in the fear of the tax authority. Thompson said there is a rising confidence among the public that HMRC are doing the right things, according to their research. Lodge pointed to their annual customer survey which showed an increase in ratings for how clear they are about the next steps the customer should take and HMRC’s ability to resolve queries and the tax authority is seen as more approachable than in the past.

Is the person answering the call less skilled than 15 years ago, Malthouse asked? “No, more skilled”, says Thompson. People dealing with calls today have been ‘upskilled’ by being asked to do a variety of jobs.

On cost savings, Thompson said by going digital, there will be less demand from HMRC customers to communicate with a human (in 2015, it was assumed the need for human contact by 2020  would fall by 70 per cent). The other big saving is the end the long standing £750 million IT deal with CapGemini Insourcing, and instead breaking it up and going to the market. HMRC are on track to deliver more than £200 million saving from that project alone.

16:36 Malthouse asked whether, as the system becomes more electronic and produce more analysis, HMRC will be able to ‘reverse engineer the Budget’. He explained that HMRC could then say to the Chancellor if you did X, Y and Z it would result in a higher tax take. Thompson agreed with that line of thought. Thompson added that HMRC and the Treasury rarely have a disconnect but there are still some.

Thompson said HMRC do not have real time access to bank accounts despite rumours to the contrary. Although they can get information from eight merchant acquirers, since about two or three years ago. HMRC are not planning to have real time or ‘live’ access to people’s bank accounts, Thompson was keen to state, unlike in Russia.

16:45 Wes Streeting, Lab, asked about VED and taxis. Thompson said HMRC does not collect VED.

The transformation programme is not all on time and on time budget, Thompson said. The 70 per cent reduction in demand for human customer contact, for example, is not on track.

16:59 In July, the NAO reported that current plans exceed the transformation budget by about £60 million for 2017/18, said Streeting. Lodge said that is still the case and said HMRC have allocated this overspend of around £60 million to stay on track. HMRC need to take stock and are in the middle of a prioritisation programme because of the cost pressures and major additional projects and capacity, mainly Brexit.

The changes to the roll out of MTD has reduced its estimated tax revenue, when taking into account that HMRC has not been asked by the Treasury to cover that with extra revenue. On cost side, the original MTD aim of annual savings of £717m a year by 2019/20 is likely to change. Because of the broader reprioritisation programme, HMRC may have to potentially renegotiate some elements of 2015 spending review to accommodate Brexit.

The Customs Declaration Service is making good progress and is meeting its targets, ahead of launch in late 2018/early 2019.  Some of the measures or systems needed will depend on scenarios, he said, as some scenarios or options may need bespoke systems. One of the core requirements may be that outside the EU, HMRC must deal with customs declarations for import and exports to and from the UK – a jump from 55 million customs declarations a year today to 250 million a year after Brexit. A significant impact will be on vehicles coming into the UK primarily on ‘roro’ ferries, where change will manifests itself the most. Will we require a port inventory system? Thompson said that is required for such transport and it can take about three years to implement a robust system.

Is Brexit chaos at the ports likely? The biggest risk HMRC face is the reaction of member states to Brexit, said Thompson.

17:00 Streeting asked about the gig economy and self-employment. He mentioned QC Jolyon Maugham’s ongoing private action against Uber who he believes is a company that has been set up to reduce its tax obligations. If Uber drivers were treated as employed the estimates are it will bring in NICs of £150 million a year. Are HMRC treating such MNCs with ‘kids’ gloves’?

Thompson did not want to talk about ongoing legal action but said generally it is about ‘agent versus principal’ when it comes to companies such as Uber. HMRC has lost six court cases when arguing principal. HMRC said they have had enough of pursuing these cases in court but there are cases going on, such as in France, which may help their argument.

In 2018, HMRC will publish a consultation document on joint and severally liability, he added.

17:06 Rushanara Ali asked about regional hubs. Some 5,000 people are predicted to loose their jobs, according to Public Accounts Committee research, said a concerned Ali. Thompson said they are guaranteeing jobs for anyone who wants to move to a new regional centre but about 5,000 jobs will go as a result of the move, such as people not wanting to move to a regional centre.

The Cabinet Office did a regional impact analysis which included HMRC transformation.

HMRC will speak to Ministers about all the 267 projects (within the envelope of the transformation project) that HMRC ‘ought to do’, including matters on Brexit, in January, to talk about which to prioritise. Thompson set out the criteria that will be used to decide on this prioritisation: urgency, increase in tax revenue, reduce risk, return on investment, making HMRC a good place to work, core to transformation of HMRC and impact on customers. This may affect the dates related to the transformation.

17:14 Ali asked about staff morale. Thompson said a HMRC survey shows progress on managing change and more visible leadership. “We are seeing some positive signs”, he said.

HMRC is exploring the Singapore approach to customs, which has a single window so exporters and importers give one set of data to meet all its Government bodies’ requirements so they do not have to deal with different departments. HMRC is putting a business case together on this but said such a system could take up to five to seven years to implement. In Singapore, every single customs declaration is done electronically and ‘you can get an answer within ten minutes, 100 per cent of the time’, said Thompson.

Thompson and Lodge agree that the overall HMRC transformation project would benefit from a longer period, where changes can be made in sequence rather than in parallel. Thompson said it is not credible for the Government to think all 267 changes in the prioritisation programme can be achieved in the current timescale. He declined to answer directly Ali’s question if HMRC are being ‘set up to fail’.

17:29 Mann suggested it should be easy to get the best graduates into HMRC. Rowland said HMRC has seen evidence that it is hiring people of good calibre and retaining ‘fast streamers’.

Mann then asked if MPs are impairing HMRC’s negotiations with corporates in terms of maximising the tax take. Thompson disagreed and said ‘the fact there is a debate, means that tax avoidance and evasion is becoming more morally unacceptable and that is beginning to moving the dial’.

The session can be viewed here. A full transcript will appear on the committee website soon.

By Hamant Verma