MPs on the Treasury Committee have questioned HMRC bosses about the organisations’ culture, pay and conditions, as well as customer service levels, its approach to debt collection and the implementation of the 2019 loan charge. Inevitably the department’s Brexit preparations also loomed large at the hearing.
The Treasury Committee monitors the work of HMRC on an ongoing basis. Catherine McKinnell (Lab) was the interim Chair at the time of the hearing. Other MPs attending this session with HMRC were Rushanara Ali (Lab), Alison McGovern (Lab) and Alison Thewliss (SNP). Evidence was given by Jim Harra, Interim Chief Executive, Penny Ciniewicz, Director General, Customer Compliance, and Ruth Stanier, Director General, Customer Strategy and Tax Design, all HMRC. The full transcript of the hearing can be read in PDF or HTML.
HMRC culture, employment practice and pay
Alison Thewliss led on this topic, referring both to comments in the Adjudicator’s report “about a reluctance within HMRC to engage with its feedback about systemic or cultural issues when dealing with the public” and the “worrying revelations about widespread bullying and harassment” at HMRC highlighted in Laura Whyte’s Respect at Work report. Jim Harra accepted that the culture within HMRC is not in accordance with HMRC values. Penny Ciniewicz said around 17,000 HMRC people have engaged in the discussion about what HMRC’s behavioural standards ought to be, and they are ‘bringing that conversation to a conclusion’. That will result in “a new shared set of standards that everyone can live by, in addition to our values”. HMRC is increasing the number of mediators in the organisation and training more than 1,000 of their people so far in micro-behaviours awareness, she added.
Ruth Stanier said HMRC has put in place a new service level agreement with the Adjudicator to improve the way that HMRC interact with her office and handle those complaints. HMRC will publish a report that responds to the Adjudicator’s report, by the end of 2019. She added that HMRC have in place “a new customer experience committee, where we are working with external experts from the private sector and with others, with the Adjudicator in attendance, to really challenge us on driving work in this area.”
Responding to Catherine McKinnell, Harra identified three key issues with HMRC pay, which he said he regarded as a crisis. “First, people have not had real-terms pay increases for many years and, in fact, when you take pension and national insurance contribution changes into account, have had cuts. Secondly, there is an in-built unfairness in our pay system, whereby two people doing exactly the same job side by side will be being paid very different rates, because we have been unable to progress people through the pay scales. The third challenge we face is that, from next year, increasing numbers of our core administrative grade will face the national living wage. I will have to increasingly put my pay flexibility into meeting that statutory obligation to pay the national living wage, which is not a position as an employer that I want to be in at all.”
Alison Thewliss expressed concern about ‘heavy-handed’ behaviour by HMRC in its pursuit of penalties. She has a number of examples from her constituency “where companies have entered into a repayment plan or a CVA; they have kept pace with the agreement but companies are then finding that there is some sort of arbitrary reneging on that decision at a moment’s notice, which plunges the company into a degree of chaos, because they cannot deal with that, since it has been such a short notice decision. I am curious about the chain of command in the decision making, where companies feel as though they have a relationship with somebody at HMRC and then all of a sudden the rug is pulled from under them. Can you explain why that might arise?” Harra said that should not be happening and he would be happy personally to review any case where she saw that happening.
Harra added that on debt collection, HMRC are ‘very proud’ of their time-to-pay arrangements. At the end of the last financial year, HMRC had just shy of 800,000 taxpayers in those arrangements, worth about £2 billion. HMRC have a very high compliance rate with them—people stick to about 90 per cent of those arrangements and the instalment payments they agree under them. Harra told Rushanara Ali that HMRC use external debt collection agencies through a debt management integrator, but that does not involve any bailiff activities at all.
Harra lamented that face-to-face service is quite expensive for HMRC to provide, and has to be restricted to people who need extra support or have problems with their compliance. On debt, HMRC have a business payment support service, which HMRC encourage people to get in touch with before they get into debt. Stanier said HMRC had quite a lot of complaints about needing to phone to check tax codes. HMRC took 400,000 of those calls last year. Acting on that feedback, HMRC have changed their app, so that people can do that much more quickly and easily through the app. That has been used two million times now, she championed.
Thewliss speculated about a link between the reported systemic poor behaviour towards colleagues and an aggressive and dismissive attitude to members of the public and businesses when they are being dealt with. Staff survey results continue to show ongoing dissatisfaction with pay and benefits, and low levels of employee engagement, after all. Ciniewicz said HMRC have put a business case into Treasury and the Cabinet Office for significant pay reform.
Ciniewicz told Ali that, at the moment, HMRC are not projecting forward to how many of those individuals and businesses that have not settled will settle with HMRC. HMRC are still encouraging people to settle. Ali pointed out that many MPs argue that people should not be pursued while the review of the loan charge is going on. Ciniewicz replied that HMRC are giving people information about how it will work, so they have a reduced level of uncertainty about that process but ‘if people want to wait beyond the review process, we are able to let that happen’. She would not be drawn on whether everybody would settle by January 2020.
Facing questioning about loan charge-related suicides, Harra said: “We clearly do not want anyone to harm themselves. We do not want anyone to feel mental anguish. HMRC has been notified of four cases where people involved in disguised remuneration schemes have taken their lives. We have referred ourselves, in each of those four cases, to the Independent Office for Police Conduct or the relevant body in Northern Ireland or Scotland. In two of those cases, the IOPC has decided that no further action is required; in two of them, it has asked us to carry out further work internally to make sure we did everything correctly. Within my organisation, a senior director who is independent of the compliance group is taking those forward. We have now reached the point where we have concluded our internal investigation and we now want to engage with the families of the people concerned to make sure we have got this right. We certainly take it very seriously, and it is distressing for us that that would happen.” Ciniewicz then said in the last year, since September 2018, there have been nine suicide cases after people have had an engagement with the tax system.
Ciniewicz said time to pay arrangements for the loan charge can go beyond 20 years. Harra added that HMRC has not required anyone to sell their home to pay one of these loan charge debts. But then said: “As far as bankruptcy is concerned, we sometimes have to make taxpayers bankrupt, so there is no categorical guarantee that we do not. However, we take that action in two scenarios. One is where, as I said, it is clear that people are going to build up ever-increasing arrears. I am afraid that we have to stop that. The other is where we see people taking steps to deliberately evade.” Rushanara Ali complained that the problem with all of this is that there is a lack of transparency.
Ali said the reason why, in part, we have ended up in this mess is because there have been organisations promoting these schemes. Ciniewicz said this year, HMRC are doubling the resources involved in tackling promoters. HMRC have over 100 investigations into promoters at the moment. She added: “One of the things we are piloting at the moment is taking a look at what we can see in PAYE or real‑time information that might indicate that people are getting involved in avoidance. We are piloting direct contact with customers to nudge them on that and to try to steer them away from avoidance, if we think they might be getting into that space.”
Ciniewicz said HMRC was looking at how they can better publicise the details around avoidance schemes. Additionally, “We are working our socks off to tackle promoters who are selling avoidance schemes. Of the 16 schemes that were disclosed last year under DOTAS, only five were proactively disclosed. We forced the disclosure of the others by promoters. We are intent on making the UK an uncomfortable place to be an avoidance promoter.”
Brexit – transporting goods across the Irish border
Harra explained to McKinnell that goods going into Northern Ireland (NI) from Great Britain (GB) will have to comply with EU regulatory standards so that they can then circulate freely within the EU over the Irish border. If goods move into NI, either from GB or from the rest of the world, that are deemed at risk of moving on to the EU, the UK will make sure that a tariff equivalent to the EU tariff is applied. That will necessitate declarations being made for goods moving from GB to NI, both to ensure that regulatory standards are being met and to ensure that, if those goods are deemed to be at risk of going on to the EU, the correct tariff is charged. It does mean administrative procedures, including a declaration will be required for movements from Great Britain to Northern Ireland. But HMRC do not envisage that there will be a significant level of physical checks of goods. HMRC would not plan to trace the onward movement of those goods once they have entered Northern Ireland, either.
It is a different process for goods from NI to GB, said Harra. The only prohibitions and restrictions that will apply are those required to fulfil international obligations that means there will be some administrative process. But there is no question of any customs control applying to those, in the sense that there could be no tariff for goods. There is no intention really to put a tracing mechanism in place for trade in either case, said Harra.
All systems should be ready by 1 January 2021.
Brexit – EORI numbers and a ‘no deal’ Brexit
Alison McGovern asked about EORI numbers and a no deal Brexit. Harra replied that HMRC targeted just over 3,000 high-value exporters (exports of more than £250,000 a year to the EU) but 20 per cent of them are still not ready. HMRC estimate that about 250,000 businesses will need to use customs for the first time. About 150,000 of those are VAT-registered and therefore HMRC can identify them. Additionally there are 100,000 microbusinesses below the VAT threshold that HMRC cannot identify directly, but that will need to get ready to comply with customs. About 20,000 of the non-VAT-registered population have an EORI number. But he pointed out that they will not all need an EORI number in order to move their goods, because some of them may choose to use a parcel operator, such as DHL or FedEx, which uses its own EORI number to move its customers’ goods. At the moment we have issued 170,000 EORI numbers to traders. Harra said: “In the event that someone imports goods on 1 November, they do not have an EORI and we detect that, our approach will simply be to educate them on what they need to do to become compliant and encourage that final take-up after 1 November.”
McGovern asked about recent confusion over the guidance on whether companies need two EORI numbers. Harra explained that you need a UK EORI number to be an international trader after EU exit from the UK’s point of view, to comply with UK customs. Someone will need to make an import declaration to, say, French customs, so they will need an EU EORI number. There are certain circumstances in which a UK exporter, if it has entered into a certain type of contract, would have to have an EU EORI, so it would need two, but the most common commercial arrangement is that the EU importer needs the EU EORI number.
Brexit – impacts and costs
The additional costs of having to make customs declarations is between £15 and £56 per declaration. By and large, consumers will be excluded.
Harra said that the most recent impact assessment that HMRC published in relation to no deal estimated the additional costs arising from the additional customs declarations that would be required to be £15 billion, about half of that in the UK and about half in the EU.
McKinnell then enquired about goods provided with a service in addition. Harra said the issue would be in VAT, where the withdrawal agreement provides that, in relation to goods, with certain exceptions NI would stay aligned with the EU’s VAT rules. He is confident that HMRC can come up with guidance based on what they currently do on goods and services to make that work. If there was divergence in the future between the services and goods rules for VAT that would be more complicated.
Harra said: “I am not going to promise frictionless trade. First of all, I am not sure what the definition of it is. Secondly, it is clear that, in administrative terms, there are going to be new administrative procedures for people to comply with that were not there before.”