MTD is Out of Control!

 

A damning report issued by the National Audit Office (NAO) on HMRC's Making Tax Digital (MTD) scheme suggested it is expected to cost around five times its original 2016 budget and excluded upfront costs of £1.5bn from its business cases.

Accounting bodies such as the Chartered Institute of Taxation have labelled the project “out of control” and called for HMRC to “pause and take stock”, backing the NAO’s call for a separate business case for MTD for income tax self assessment.

As per the report:

"HMRC’s initial timeframe for MTD was unrealistic. It did not allow sufficient time for HMRC to explore the full range of options that would achieve the programme’s aims and select one that it could implement.

Each announcement has set an ambitious timeframe for delivery, with several aspects of the MTD programme to be delivered in parallel. The repeated delays and rephasing of MTD has undermined its credibility and increased its costs. There is a risk that delivery partners and taxpayers disengage from a programme that can only succeed if those groups significantly change their behaviour. Higher costs were not inevitable, had HMRC taken more time to plan and consider the realism of the options.

HMRC has not demonstrated the programme offers the best value for money for digitalising the tax system, with later business cases significantly underplaying the total cost to customers of making the change. The programme should now develop a robust business case which includes a comprehensive and up-to-date assessment of the costs to customers of implementing MTD. Planning has been too high-level and the risk remains that further delays will add costs and defer benefits. HMRC is reviewing how MTD will work for businesses and landlords with lower Self Assessment income. It should take this opportunity to assess how far the programme is improving services, reducing burdens, and making the tax system easier to comply with and use lessons from this review to ensure the wider programme is finally on track to secure the benefits it has long promised."

Both HMRC and MTD need to be scrapped, neither are fit for purpose!

Tax does have to be taxing.

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Investigation into The Implementation of IR35 Tax Reforms

 

The NAO have published their report into IR35 tax reforms.

They conclude:

"Rolling out the IR35 reforms to the public sector first has meant an opportunity for HMRC to learn lessons and adapt its approach. The 2017 reforms have achieved their primary purpose of reducing non-compliance and therefore increasing tax revenue. However, the public sector faced challenges with the initial roll-out: public bodies had little time to prepare; some found it difficult to use the original guidance and tool that HMRC had provided; and there was a limited understanding on all sides of how much time and resource were needed to get it right. As a result, it was highly likely that some public bodies would make mistakes.

By changing its approach, both in the public sector and when extending the reforms to the private and third sectors, HMRC appears to have learned several key lessons and addressed some of the more significant difficulties, including enabling more support and time for the transition. Questions remain about the system for addressing incorrect determinations, with routes of appeal untested and tax burdens in cases of non-compliance likely to fall on employers. There are also differences between the public and private sectors that increase the inherent challenges. HMRC faces new risks that will make it harder to identify, monitor and address non‑compliance, including larger and more complex labour markets in the private sector. HMRC will need to manage these risks if it is to ensure the reforms are successful."

Tax does have to be taxing.

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BBC Working With HMRC On Updating HMRC’s Employment Status Manual

As per the National Audit Office:

"Following concerns raised by Parliament and individuals employed by the BBC, the National Audit Office has investigated the nature of, and associated issues related to, individuals hired by the BBC on a freelance basis, particularly those hired through personal service companies (PSCs)¹.

In its investigation, published today, the NAO has found that the BBC has taken steps to help affected individuals, however issues remain unresolved and a number of possible outcomes may have future financial implications for the BBC.

The BBC hires thousands of freelancers every year, covering a number of different roles both on and off-air, including actors, entertainers and off-air workers, such as camera operators. Between 2004 and 2013, the BBC developed policies for what contracting method could or should be used when hiring freelancers in on-air roles, resulting in some roles being contracted through PSCs. It based its decisions on whether roles were employed or self-employed for tax purposes on its understanding of HM Revenue & Customs’ (HMRC) guidance and, for on-air presenters, of industry practice.

The government introduced legislation in the Finance Act 2000, commonly known as IR35, to counter concerns that some people were using PSCs to avoid paying the correct amount of tax. It sought to ensure that people who work in the same manner pay comparable income tax and national insurance, whether they are employed directly or work through a PSC. 

Central to the application of IR35 is the assessment of an individual’s employment status for tax purposes. However, assessing employment status is complicated as there is no precise statutory test and instead each case must be assessed individually against a number of factors.

The Committee of Public Accounts first addressed the BBC’s use of PSCs in 2012 as part of a wider enquiry into off-payroll working across the public sector.

In April 2017, the government transferred responsibility for determining employment status for tax purposes of people hired through PSCs to the public bodies hiring them. Prior to this date, PSCs did this themselves and therefore bore the risk of incorrectly assessing employment status and paying the incorrect amount of tax.

The BBC applied HMRC’s 2017 assessment tool to determine employment status for on-air roles. This generated a different employment status for tax purposes in many cases, compared to the BBC’s previous use of its own assessment test and understanding of HMRC guidance. By June 2018 the BBC had assessed 663 on-air freelancers using HMRC’s tool and 92% received an ‘employed for tax purposes determination’. In contrast, prior to this, the BBC assessed the majority of on-air freelances as self-employed.

Between April and September 2017 the BBC paid £8.3 million of tax on account to HMRC to avoid any penalty charges for not paying tax that was potentially due. It started to recoup this money when it was certain about an individual’s employment status for tax purposes, but has not yet fully done so, in part because of concerns raised by individuals. By June 2018, it was yet to recoup £2.9 million.

The BBC’s implementation of these changes has adversely affected its relationship with some of its presenters, who have expressed fears that a change in their assessed status will open up a retrospective HMRC investigation. 170 presenters publicly expressed concerns with the employment status for tax purposes given to them by the BBC through an open letter, with claims that the BBC bears some responsibility in relation to HMRC’s tax demands. Individuals have said they only started operating through PSCs because the BBC required them to do so if they were to receive work from the BBC, and they feel that they have received misleading or limited information from the BBC. 

The BBC has taken steps to help affected individuals. For example, for some people it has paid bridging loans and given a contribution towards additional book-keeping fees arising from the IR35 compliance changes. In addition, in March 2018, the BBC announced its intention to set up an independent mediation process for cases where on-air presenters, who were hired through PSCs, believe the BBC bears some responsibility in relation to HMRC demands for employers’ national insurance contributions.To improve guidance available to those working in the media industry, the BBC is also currently working with HMRC, alongside others in the media industry, on updating HMRC’s employment status manual.

By May 2018, the BBC estimated that some 800 presenters, nearly 300 of whom were hired through PSCs, warranted further review as they were at risk of being challenged by HMRC. This could involve tax arrears for the BBC and for the PSCs.  According to HMRC, as at October 2018, there were about 100 open investigations into BBC-related PSCs.  All open cases relate to tax years prior to 2017 and the vast majority of these were opened prior to the reform.

Tax does have to be taxing.

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HMRC Accounts Qualified for 14th Year In a Row

The National Audit Office (NAO) report on HMRC's accounts noted that as far as HMRC’s figures can be relied on, error and fraud in tax credits and child benefit payments increased again in 2017-18.

Tax credit overpayments increased to 4.9% (£1.3bn) of tax credits expenditure during the year, while child benefit fraud and error accounts for an estimated £155m,  just 1.3% of total expenditure.

Yet HMRC expect us to trust them!

Tax does have to be taxing.

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HMRC and Brexit

The National Audit Office has stated that HMRC has accelerated work on its contingency plans for handling customs declarations in the event of a “no-deal” Brexit next March.

The NAO said that if this work was successfully completed, HMRC would have the system capacity to handle customs declarations no matter what the outcome of exit negotiations between the UK and the EU; ie HMRC would be in a position to handle a "no deal" Brexit.

However, the NAO also stated that significant challenges remain and the success of wider customs preparations would involve many other dependent systems and processes at the border.

Civil Service World reports that auditors found HMRC has started to engage with 150,000 traders that import and export goods outside of the EU, but has not yet started the same communications with the at least 145,000 EU-only traders who may need to make customs declarations after March 2019, dependent on the EU exit deal.

Time and the outcome of the Brexit negotiations will tell if HMRC is up to the challenge!

Tax does have to be taxing.

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SLC Were Warned About Lamey

As loyal readers know, Steve Lamey (ex CIO of HMRC) has featured a few times on this site.

Anyhoo, he is back in the news again following his less than happy time at the infamous Student Loans Company.

The FT reports that civil servants had in fact warned ministers against appointing Lamey as chief executive of the Student Loans Company (he was suspended over misconduct allegations after just over a year in the role).

Lamey was appointed to the SLC in June 2016, when the company was supervised by the business department. Monitoring passed in July 2016 to the Department for Education. He was suspended in July 2017 over a series of allegations, including some brought to the company’s attention by whistleblowers,.

The claims included allegations of:

- bullying behaviour (a prerequisite for management in HMRC, according to many staff who comment on this site),

-the taking out of a lease on a new building without proper approval,

-and unauthorised changes to the SLC’s governance.

Lamey, who denies any wrongdoing, was dismissed in November 2017.

It seems that, according to an NAO report (Investigation into oversight of the Student Loans Company’s governance, and management of its former chief executive) published today, Lamey’s references from HMRC “raised questions about Mr Lamey’s ability to build the right relationships, trust and rapport”.

Business department officials said it would be “too risky” to appoint him and recommended re-running the process. However, an unnamed special adviser at the business department pointed out that Lamey’s 2011-12 performance review at HMRC called him a “top performer”.

The adviser also questioned the fairness of the HMRC references, and raised concerns about the cost of starting a new recruitment process.

Hence warnings about him were ignored!

He was eventually dismissed for gross misconduct in public office over a series of allegations, including breaches of the Nolan principles on standards in public life, guidance on the management of public money and the company’s code of conduct.

Tax does have to be taxing.

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Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

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Error and Fraud Rising Within Tax Credits

"HMRC collected more tax revenue in 2016-17 and improved its service levels for taxpayers. However error and fraud is rising within Tax Credits and HMRC needs to make it easier for claimants to get help. HMRC is part-way through an ambitious programme to bring in digital services and reduce its costs. In doing so HMRC must ensure it maintains adequate services if it is to protect revenue and tackle error and fraud”.

Amyas Morse, head of National Audit Office, 14 July 2017

The Comptroller and Auditor General (C&AG) has qualified his regularity audit opinion on the 2016-17 Resource Accounts because of material levels of error and fraud in the payments of Personal Tax Credits.

He has qualified the accounts on these grounds every year since Tax Credits were introduced in 2003-04.

HMRC’s central estimate of error and fraud in 2015-16 (the most recent available) is £1.57 billion of overpayments (5.5% of total spending on Personal Tax Credits) and £0.21 billion of underpayments (0.7% of total spending on Personal Tax Credits). HMRC’s estimated increase in error and fraud within Tax Credits is contrary to the significant reductions achieved in previous years, and the rate is expected to increase further.

Wrt MTD the scale of transformation will be challenging to manage, and the U.K.’s exit from the EU presents an additional challenge (no kidding!).

As for "customer service" the NAO warns that the current approach used by HMRC to measurement could overstate calls handled, and understate the time to answer as experienced by the customer.

Tax does have to be taxing.

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Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

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NAO To Investigate HMRC/Concentrix Contract

HMRC’s contract with Concentrix

Scheduled	Winter 2016
Sector	Welfare and benefits
NAO Team	Director: Claire Rollo Audit Manager: Richard Wood

The NAO intends to carry out a factual investigation looking at the performance of Synnex-Concentrix UK Ltd (a business services provider) in supporting HMRC’s anti-fraud and error interventions. HMRC contracted with Concentrix in 2014 to provide it with additional capacity. HMRC announced that their three year contract with Concentrix would not be extended once it expires in May 2017. In this investigation we will review the performance of Concentrix and how HMRC has managed the contract, including HMRC’s decision not to extend the contract.

If you would like to provide evidence for our investigation please email the study team on enquiries@nao.gsi.gov.uk, putting the study title in the subject line. The team will consider the evidence you provide; however, please note that due to the volume of information we receive we may not respond to you directly. If you need to raise a concern please use our contact form.

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

Morse Worried About Optimism Bias and Underwriting Failure

Amyas Morse, the Comptroller and Auditor General, issued a report last week on the 2015-16 accounts of HMRC.

---

“HMRC is running a complex and challenging set of change programmes, and aiming to maintain service to taxpayers at the same time. On the one hand, it needs to keep its nerve and commitment to its goals even if there are occasional setbacks along the way; on the other, it needs to ensure that it does not make the taxpayer underwrite the risk of failure through service breakdowns.”

Amyas Morse, head of the National Audit Office, 14 July 2016

---

Tax revenues and spending in 2015-16
HMRC raised £536.8 billion of tax revenues this year, an increase of £19.1 billion (3.7%) on 2014-15 and paid out £40 billion in benefits and credits (approximately one-fifth of the government’s total benefit expenditure). The annual cost of running HMRC was £3.2 billion in 2015-16 (£3.1 billion in 2014-15).

Transforming tax administration
HMRC has begun to implement its plans to transform how it administers tax. Its vision is to have “the most digitally advanced tax system in the world”. By 2021, it expects to employ 16% fewer staff, substantially rationalise its estate and automate more of its processes.

HMRC’s approach looks credible and proportionate to the scale of the risks involved, and it has worked closely with the Treasury and Cabinet Office to develop and refine its plans. It is too early to evaluate how well its approach is working but one of the most critical tests will be how management responds when things do not go as expected. NAO have identified two areas of risk:

• Optimism bias in key assumptions – in the last Parliament, HMRC was over-optimistic about how much change it could deliver all at once, and how fast it could reduce demand for telephone contact in particular. This resulted in a collapse of its service to personal taxpayers in 2014-15 and the first half of 2015-16. HMRC has since recovered the quality of its service to personal taxpayers by recruiting more staff and has adjusted its future resource plans in the light of this experience.
• Understanding the costs and benefits to taxpayers – HMRC has yet to estimate the costs for individual taxpayers or businesses of making the transition to online services or to quantify the benefits they can expect. Over the next year, it plans to develop a fuller picture of what it will cost taxpayers to use the new systems. Most business customers will be required to update HMRC quarterly rather than annually about their tax affairs, and some may need to purchase new software that works with the new systems. Some businesses are sceptical of HMRC’s evaluations of the costs and benefits of previous changes to the tax system.

As Morse says, let us ensure that we taxpayers do not end up underwriting HMRC's failure!

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



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HMRC May Miss Aspire Deadline

The National Audit Office has recently published a memorandum into HMRC's progress wrt Replacing the Aspire Contract. Rather unhelpfully it does not present any conclusions. However it does present a list of the risks faced by HMRC in replacing Aspire.

Unsurprisingly HMRC is at risk of not being able to complete the switch-over of its Aspire contract in time, while HMRC’s internal IT organisation and revenue & custom’s Digital Technology Services may fail to work together productively.

It was ever thus!

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



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Taxpayers' £97M HMRC Phone Bill

As loyal readers know, getting through to HMRC on the phone is something of an endurance test. As such, it should come as no surprise to anyone to learn that the National Audit office (NAO) is none too impressed with caller wait times either.

The NAO reports that a decision to cut jobs in HMRC meant that call waiting times tripled to 47 minutes last October just as paper tax returns were due. Bizarrely more than 5,000 HMRC staff were moved away from its call centres at a time when telephone calls were not falling.

“HMRC’s overall strategy of using digitally enabled information to improve efficiency and deliver service in new ways make sense to the NAO. This does not change the fact that they got their timing badly wrong in 2014, letting significant numbers of call handling staff go before their new approach was working reliably. This led to a collapse in service quality and forced a rapid expansion of headcount. HMRC needs to move forward carefully and get their strategy back on track while maintaining, and hopefully improving, service standards”.

Amyas Morse, head of the National Audit Office, 25 May 2016

The cost to the economy of leaving millions of callers hanging on the line (which as per the Telegraph is officially priced at £17 an hour) was £97million, up by 50% in three years.

The chaos prompted HMRC belatedly to send 2,400 staff to man the phones at its call centres, which in turn meant they had to “defer essential work to maintain PAYE records”.

The consequences of moving the deckchairs in this manner was a doubling of discrepancies between PAYE and self-assessment returns, leaving a risk that 3.2million people had “paid the wrong amount of tax”.

HMRC will be quizzed by PAC next month about this clusterfuck.

How ironic that just as this chaos is being exposed to the cold light of day, Dame Homer retired last month. The timing of her retirement couldn't be better, and is the only thing that she has got right in her civil service career!

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



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MOD Accounts Qualified Six Years Running

As a wee epilogue to yesterday's announcement about the appointment of Jon Thompson (currently the Permanent Secretary of the Ministry of Defence) as CEO of HMRC and Accounting Officer, I draw your attention to the following extract from the REPORT OF THE COMPTROLLER AND AUDITOR GENERAL ON THE 2014-15 ACCOUNTS OF THE MINISTRY OF DEFENCE:

"I have qualified my opinion for a sixth year because the Department is likely to have omitted a material value of leased assets and associated liabilities from its Statement of Financial Position. 

I cannot quantify the impact of these omissions on the accounts with certainty because, as a result of its accounting policies, the Department has not maintained the records, or obtained the information required to do so...

Sir Amyas C E Morse 
Comptroller and Auditor General 
13 July 2015"

Just saying...

Hat tip to Kevin Reed for pointing this out to me.

Thompson: Very well respected departmental finance chief, though unable to prevent MOD's accounts being qualified :) https://t.co/yL1qwxojcC

— Kevin Reed (@Goonerreed) February 24, 2016

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

HMRC's £10BN Aspire Contract - Unacceptably Poor

As loyal readers know, I have on occasions written about HMRC's Aspire contract; eg in August 2013 I wrote:

"HMRC has spent over £3.7BN with Capgemini over the last five years on the Aspire contract. The contract was originally valued at £2.8BN.

As per Computing the spend was:

-2008/09:  £777.1m
-2009/10:  £728.9m
-2010/11:  £757.8m
-2011/12:  £735.5m
-2012/13:  £773.5m

HMRC won't reveal a more detailed breakdown of its costs:

"It is considered that disclosure of details about cost breakdown of payments made by HMRC to Capgemini would prejudice the commercial interests of HMRC as a contracting authority and our ability to deliver best value.
It is also considered that release of such information would weaken our supplier's position in a competitive environment by revealing market-sensitive information or information of potential usefulness to its competitors."

Does this spend represent value for money?"

Fast forward almost a year, and we see Aspire in the headlines yet again.

The National Audit Office (NAO) says, in a report entitled Managing and Replacing The Aspire Contract, that the Aspire contract cost £7.9BN between July 2004 and March 2014, and estimates that, by the time it ends in June 2017, HMRC will have spent £10.4BN.

Note that the original contract was valued at £2.8BN.

How on earth has the spend so skyrocketed out of control?

Very simple, additional projects and services have been added. Unfortunately these have not been market tested; ie HMRC has happily allowed the new work to be done by Capgemini without checking to see if it could be done better or more cheaply by others.

"Both Capgemini and its subcontractor, Fujitsu, have achieved considerably more profit than was modelled in 2004. "

Well done lads!

The NAO report also notes that HMRC was overly dependent on the technical capability of the Aspire suppliers between 2004 and 2012, which limited its ability to manage the contract commercially.

The NAO states:

"There are serious risks to HMRC’s business if the programme to replace the Aspire contract fails to meet its objectives by June 2017, when the contract ends."

Amyas Morse, NAO head, said:

"HMRC faced complex, long term technology challenges, and Aspire provided an appropriate means of working through them and limiting risk. However, there has been a lack of rigour in HMRC's commercial management of the contract. 

It is essential in any contract that the client retains the independent expertise to challenge the supplier. We welcome HMRC’s recognition of this part way through the Aspire contract and its efforts now to rebuild its capability. 

HMRC now faces a considerable challenge in a limited amount of time to negotiate reform to the contract while at the same time defining its technology strategy for post-Aspire."

Margaret Hodge, chair of the Public Accounts Committee (PAC) described HMRC’s management of Aspire as ‘unacceptably poor’.

Quite so!

She went on to say:

"Its own lack of capability meant HMRC was over-reliant on providers’ technical expertise, undermining its ability to act as an intelligent customer on behalf of the taxpayer. All of this gives me little confidence that HMRC’s senior team has the capability to manage large and complex contracts."

I agree, as I have noted many times before government departments do not manage large IT projects well.

This is indeed UNACCEPTABLY POOR!

Tax does have to be taxing.

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HMRC's £15BN debt

The National Audit Office has stated that uncollected government debt owed to HMRC is £15.1BN (out of £22BN in total owed to all government departments), despite the use by HMRC of debt collectors.

The Public Accounts Committee (PAC) has told the Treasury and Cabinet Office that it needs to take ‘urgent action’ to develop a cross-government approach to debt management if they are to recover the £22BN debt.

Homer's Solution?

Raiding bank accounts, which is expected to raise £375M over the next four years.

Brilliant!

Tax does have to be taxing.

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NAO Spat With HMRC

I recently noted that, according to the National Audit Office, neither the Treasury nor HMRC know whether Gift Aid and other tax reliefs on donations have resulted in more income for charities.

The report has produced a wee public spat between HMRC and the NAO, which took place at a PAC hearing on the subject on 2nd December.

The Committee’s chair, Margaret Hodge, told HMRC’s chief executive Lin Homer and director of counter-avoidance David Richardson that the report showed that the link between gift aid and higher donations was “at best unproven; at worst giving to charity has actually fallen”.

This set the scene for the spat between Homer and Robert Prideaux, director at the National Audit Office, over whether the charity sector agrees that donations have risen over the 13 years since gift aid was introduced.

Homer is quoted by CivilSociety:

“We and the sector are very clear that donations have gone up, that gift aid has had a very positive effect on individual donations."

Prideaux disagreed and said that the NAO consulted the sector for its report and found “no clear evidence that donations in the round are increasing”.

“They are in absolute terms, but this might be down to demographics and population changes.

We have not said in the report that donations aren’t increasing, but there is no clear evidence that they are increasing, and the charitable sector will back this up.”

Margaret Hodge was also unconvinced, telling Homer:

“You have yet to prove that this radical change in 2000 was value for money for the £1bn that has gone to corporations and high net worth individuals as a bribe to encourage them to do more.”

Hodge asked the HMRC executives to name the ten charities that benefit most from gift aid, but Richardson said that he didn’t have that information to hand and wouldn’t name names anyway.

Tax does have to be taxing.

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Does Gift Aid Work?

According to the National Audit Office neither the Treasury nor HMRC know whether Gift Aid and other tax reliefs on donations have resulted in more income for charities.

HMRC has not collected the data which would enable it to conclude how tax incentives since 2000 have affected donor behaviour, or if they have increased the value of donations.

The Head of the National Audit Office, Amyas Morse, said:

"Gift Aid is an important source of income for many charities, worth £1bn to charities in 2012/13. The changes made in 2000 to increase charitable giving resulted in a further £940m of reliefs going to individuals and companies as an incentive to give more money to charity. 

However, the exchequer departments cannot demonstrate that these incentives are working, or that the increased cost to the taxpayer has resulted in a rise in donations to charity."

Unsurprisingly the NAO recommends that HMRC and HM Treasury should collect better evidence on the impact of reliefs on donor behaviour, and should work with the charitable sector and academics to obtain this.

Tax does have to be taxing.

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NAO Blows Its Own Trumpet

In December 2012 the National Audit Office (NAO) published a report, Customer Service Performance, which noted that HMRC received 79M calls and answered 74% of them in 2011/12, exceeding a provisional target of 58%. However, as the NAO stated, HMRC didn't exactly have high aspirations:

"HMRC’s service targets are lower and cover fewer areas than those of other organisations."

However, despite these low aspirations, the service level was unsatisfactory; as could be seen from the headline figure approximately 20M calls went unanswered. Those who did manage to get through had to wait on average 282 seconds before being put through to an adviser.

Moving on to the present day, the NAO is now claiming some "glory" from the report in that the NAO claims that this report has resulted in an improvement in the way HMRC deals with its customers

The NAO impact statement says that HMRC now plans to answer 80% of calls within five minutes, introduce more online services and replace the expensive 0845 helplines with 03 numbers.

All very jolly no doubt, except that in March this year I wrote:

"HMRC's target of answering 80% of calls within five minutes is "unambitious and woefully inadequate", and would still leave 16 million people waiting longer than five minutes."

The NAO should be a little less keen to blow its own trumpet in the future, unless there is a genuinely impressive improvement in performance from one of its audited organisations.

Tax does have to be taxing.

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RTI Fails On Key Metrics

The National Audit Office (NAO) has found that the delivery of HMRC's real-time information (RTI) project is over-budget, not fully resilient, has not yet qualified for financial accreditation and may miss its roll-out targets.

No surprises there then!

The NAO report into HMRC’s 2012-2013 accounts noted that the cost of implementing RTI is £356.6M (£115M over budget).

Oddly HMRC has not budgeted for any extra costs from any new issues that may arise.

The report also notes that the timetable for implementation is “challenging”.

Bizarrely RTI went live without full financial accreditation.

For good measure HMRC has chosen to not develop RTI with full resiliency because of the cost implications and because the PAYE service could be operated in an emergency without RTI.

All in all a fine example of how not to manage a systems upgrade!

Tax does have to be taxing.

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Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

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The Tax Evasion Hotline

I see that the state has managed to turn us into a nation of sneaks, as economia reports that calls to HMRC’s tax evasion hotline reached 72,000 tip-offs last year (as per figures from Bloomsbury Professional).

Martin Casimir, managing director of Bloomsbury Professional, said:

“The sheer volume of calls to the hotline is astounding. People are clearly keen to ensure that no-one cheats the tax system and that everybody pay their fair share of tax."

However, quantity does not always equal quality; as Mr Caimir went on to say:

“HMRC is already on a stretched budget.

There’s a question mark over whether HMRC has the manpower to deal with all the complaints that it receives.”

Additionally questions need to be raised over whether these calls actually identify genuine tax evasion, or are merely being used by people who are either confused about the difference between evasion and avoidance or who simply have a petty grudge against someone.

The National Audit Office has said that the tax evasion hotline is the least cost-effective method of detecting tax evaders, as it yields just twice the amount of money it costs to operate it.

Martin Casimir noted:

“HMRC should be concerned about how few calls actually reveal a tax evasion case of note. Whilst people are now more sensitive to the possibilities of any tax irregularities, it can lead to people being over-keen and making calls that are misguided.

It’s a rarity that calls to HMRC reveal a large-scale evasion of tax. Many of the calls relate to tradesmen being asked to be paid cash-in-hand, for example. The loss of tax for HMRC is rather small.”

Therefore we should ask is this the most effective use of HMRC's resources?

Calls to HMRC’s tax evasion hotline reached 72,000 tip-offs last year, according to figures from Bloomsbury Professional

The tax and accounting group has calculated that this equals roughly 300 calls a day to the service, which allows members of the public or businesses to tell HMRC about suspected cases of tax evasion.

Martin Casimir, managing director of Bloomsbury Professional, said, “The sheer volume of calls to the hotline is astounding. People are clearly keen to ensure that no-one cheats the tax system and that everybody pay their fair share of tax."
However, Caimir warned that the high levels of calls will not necessarily lead to more investigations, and more amounts of unpaid tax collected.

“HMRC is already on a stretched budget,” he said. “There’s a question mark over whether HMRC has the manpower to deal with all the complaints that it receives.”

HMRC did not disclose figures to show how many of the calls it receives lead to investigations into tax evasion.

However, spending watchdog the National Audit Office has said that the tax evasion hotline is the least cost-effective method of detecting tax evaders, warning it yields just twice the amount of money it costs to operate it.

Martin Casimir concluded, “HMRC should be concerned about how few calls actually reveal a tax evasion case of note. Whilst people are now more sensitive to the possibilities of any tax irregularities, it can lead to people being over-keen and making calls that are misguided.”

“It’s a rarity that calls to HMRC reveal a large-scale evasion of tax. Many of the calls relate to tradesmen being asked to be paid cash-in-hand, for example. The loss of tax for HMRC is rather small.”

- See more at: http://economia.icaew.com/news/june2013/tax-evasion-hotline-soars-to-72000-calls#sthash.BpBcyE4W.dpuf

Tax does have to be taxing.

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Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

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What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

Auditor Independence - Perceptions Matter

As an ex auditor (both external and internal) and having had some considerable experience of fraud investigations and compliance work, I can state that it is a fundamental requirement in order for an auditor to be able to do his/her job in a professional and credible manner (and for the audit report to have credibility) that he/she and the department that they work for are not only independent but perceived to be independent.

When that independence is undermined by, eg, an unhealthy close relationship with the auditee, or by unhelpful dissemination of information about ongoing audits to third parties, then the auditor can no longer perform his/her function.

My thanks to a loyal reader who pointed me to a recent article in the Guardian that shows that the National Audit Office (NAO) has had its independence severely compromised by the alleged actions of its own boss Amyas Morse.

The Guardian reports that Morse, who set up a judge-led review into the "sweetheart" multimillion-pound tax deals between HMRC and corporations, undermined the whole process by telling Dave Hartnett (when he was still head of HMRC) that the inquiry would find "nothing of substance".

For good measure Morse told his staff that the review by Sir Andrew Park would find no evidence of serious wrongdoing.

In an email marked "private and confidential – please do not pass on to anyone without coming back to me", sent by Hartnett on 15 December 2011 to 10 senior HMRC officials Hartnett wrote that he had held a meeting that afternoon with Morse which was "useful and interesting". 

Hartnett went on: 

"Amyas has been insistent that Andrew Park tackles the cases one at a time. He [Morse] has told me that he has made clear to the NAO that his expectation is that nothing of substance will be found in the review."

Morse apologised for the way that Hartnett's officials had been treated by PAC:

"He [Morse] did not envisage things playing out the way that they have and was sorry for the individuals in HMRC who had been bruised by the actions of the PAC and for the difficulties the department had experienced." 

It is clear from the text that the relationship between NAO and HMRC has become far too cosy; as such the perceived independence of NAO has been severely compromised, which means that NAO can no longer perform its role effectively.

QED!

By the way, does anyone know what has happened to the whistleblower Osita Mba?

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"