HMRC Is Shite: October 2011

Monday, 31 October 2011

HMRC Hackers

There was a rather interesting article in yesterday's Sunday Times, about hackers gaining access to HMRC systems and diverting tax refunds.

The article also refers to an earlier piece on this site (published in June 2011) about 91client accounts being hacked. The Sunday Times uses the "polite" alternative domain name of this site www.hmrconline.com.

Here is the article in full:

Tax rebates stolen by Revenue and Customs hackers

HMRC has emerged as the most recent target of hackers after fraudsters tap refunds system and divert funds into their own accounts

Jon Ungoed-Thomas and Cal Flyn

Fraudsters have found a way to hack into government tax records and divert refunds meant for others into their own bank accounts.

An investigation by The Sunday Times has revealed that criminals are secretly examining HM Revenue & Customs’ records looking for anyone who has paid too much tax. They then change the details of the bank accounts into which the repayments are to be made.

Alternatively, the hackers file fictitious tax returns showing large overpayments directly into the HMRC computer in the names of genuine taxpayers, then ask for refunds.

Victims become aware of the scam only when they are officially contacted by HMRC and told an overpayment is being transferred into their account.

HMRC is now facing questions over its security procedures and how the hackers are able to infiltrate its records. Experts claim it has failed to react as promptly as the banks to the risk of online fraud.
Roger Symes, 53, a ship broker from Surbiton, in south-west London, received a letter last month from HMRC advising him of a refund. He said: “They gave details of a bank account into which they were paying the money, but it wasn’t my bank account.

“My accountant said he had the same problem with 18 other clients.” The refunds applied for were between £100 and £4,000.

The hackers are accessing the tax files using the sign-on and passcodes assigned to accountants who file clients’ tax returns online. How they are obtaining these security details is unclear. It is not known whether it is via computer attacks on individual accountancy firms or by breaching HMRC’s own systems.

One hacker who spoke to The Sunday Times this year said he had accessed HMRC’s systems and had been able to obtain details of agent sign-ons and passcodes. A security expert said the claim was credible but HMRC denied its systems had been compromised.

Once a hacker has an agent sign-in, he can read the tax records of all the accountant’s clients, amend them and change the bank account details. Accountants who have spoken to this newspaper said hackers have been accessing taxpayer records for at least two years.

Claire Savage, a chartered accountant in Milton Keynes, Buckinghamshire, spotted irregularities in one of her clients’ files in June last year.

She said: “I called him up to ask about his new bank account, which turned out not to be his at all. When I realised that security had been breached I went through all of my clients’ files. A fair chunk of them — around 10 — were affected, and repayments of up to £3,000 had been requested in each case.” None of Savage’s clients lost money to the fraudsters.

Ralph Hayden, a chartered accountant at GW Cox & Co in Frinton-on-Sea, Essex, said 41 of his clients had been affected by a similar scam, which was first noticed in November 2009.

He said: “HMRC said that it must be our systems that had been breached but we called in computer experts who confirmed that it definitely wasn’t.

“In most cases, a tax return had not yet been filed, so a false return was submitted. In others, their returns had been edited, so that a repayment was now due. HMRC were not advising their frontline staff in case it was an inside job.”

On hmrconline.com, a blog about the HMRC, one taxpayer reveals that his accountant was also targeted. The posting states: “We recently returned from holiday to the news that 91 of our accountant’s client accounts had been hacked at the HMRC government gateway website.
“Hackers had accessed information on 91 individuals or organisations and had entered false end-of-year accounts in order to claim self-assessment refunds.

“We then received a letter from HMRC to advise us that the refunds were on their way to what we knew were false accounts. They actually paid out. HMRC now apparently know what they have done but to add insult to injury they have now started to send demands for repayment to the people [whose] accounts had been hacked.”

Unlike HMRC, the big banks ask customers conducting transactions online to provide additional passcodes for each financial transaction. These are generated by inserting a bank card into a hand-held reader provided by the bank.

Jason Hart, managing director of Cryptocard, a computer security company, said: “If you just had a static passcode, then once it’s compromised, you’re going to be a massive target for the fraudsters. It’s an invisible threat because they can get into your system at any time and you don’t even realise.”
A spokesman for HMRC said: “We take the security of our customers’ data extremely seriously and we do not discuss the details of our security defences ... We actively monitor repayment transactions and continue to address any fraudulent repayments.”

Tax does have to be taxing.

UK EXPATS: Reduce tax on UK Pensions
HMRC QROPS provider. Unlock your UK pension and access a 25% lump sum today.

Quote ID code "ABC" when contacting a QROPS specialist.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

What is TAXWISE?

TAXWISE 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 Taxwise

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"

Saturday, 29 October 2011

HMRC Staff Survey 2011 - Disengaged

My thanks to the loyal reader who posted this comment (see below) about the HMRC 2011 staff survey having only a 52% response rate (last year's being 69%).

Such a low response rate will negate the validity of the survey (whatever the results are).

Please can someone send me the source document or link for this statistic?

Thanks.

"Anyhoo... perhaps you can ask their Press Office why the HMRC response rate to the the 2011 People Survey is a whopping 52%..... a full 17% down on last year.

Therefore 48% of all staff (around 35,000 people) can't be arsed / don't trust ExCom to tell HMRC what it's like working there.

Looks like the recovery job from Steve Lamey's gaff hasn't worked. Hope nobody has a response rate target in their performance contract..."

Friday, 28 October 2011

Public Standards, Private Vices

Now here's a funny old coincidence, and btw there really is such a thing as coincidence!

That ever popular star turn at Parliament, Dave "Jack" Hartnett, was a guest at yesterday's House of Commons Members' Expenses Committee. He spoke about the Parliamentary Standards Act 2009.

Chairman Adam Afriyie asked a rather pertinent question about whether HMRC addresses MPs' taxation in the same manner as they do the wider general public.

Aha!

Jack gave a rather "interestingly" phrased answer, noting that HMRC's objective is to treat all people the same in terms of the quality of their service.

Note, "objective" is not the same as saying that everyone "IS" treated equally.

Jack went on to give the caveat that MPs are clearly unique in their requirements (I bet that stroked a few egos in the HOC) and, as such, require some specific dispensation.

The committee was particularly interested to know as to whether, in the eyes of HMRC, MPs are considered to be self-employed, employees of Parliament or office-holders.

Jack declared that HMRC couldn't think of a group to whom the term ‘self-employed' was less applicable, and that the logical place in HMRC's eyes was to classify MPs was as office-holders.

Anyhoo, this is all very interesting I hear you say, but "what is the coincidence to which you refer Ken?"

Well, I am glad you asked me that; for you see an enquiry about whether HMRC treats MPs differently from the rest of us could not have come at a better time; given what happened to "poor old" Vince Cable (Business Secretary) this week.

Vince (who has a bee in his bonnet about tax avoidance) failed to register freelance earnings for VAT (wrt his publishing, media appearances sidelines) until the error was detected and rectified back in February.

Cable's accountants, once they spotted the £25K VAT error (gross before deduction of charitable gifts) error accountants fessed up to HMRC, and HMRC fined him £500.

I don't doubt that this was a pure and simple "cock up". However, I do wonder about the mechanics of this cock up:

- If there were no invoices for his fees/royalties, how will he satisfy HMRC as to the adequacy of his financial records?

- If invoices were issued, was VAT added? If so, what VAT registration number did he use? (trick question, because he wasn't registered for VAT)

- If no VAT was added, then his taxable income will have been overstated etc etc.

Anyhoo, whatever the mechanics of this cock up, I do wonder what HMRC's attitude (and size of fine) would have been had "Joe Public" made a similar cock up?

A very harsh, and excessively brutal assessment of this cock up could lead some to treat this as "evasion".

What do you think?

Comments, as ever, very welcome.

Here, btw, is a link to a video of Jack speaking at the committee Jack Speaks.

Thursday, 27 October 2011

The Government Responds

The House of Commons Treasury Committee recently published this paper on HMRC "Administration and effectiveness of HMRC: Government Response to the Sixteenth Report from the Committee"

The committee's recommendations are in BOLD and the government responses (it is the government that ultimately is in charge and is responsible for HMRC, as noted in an earlier article about Jack, when MP's have a go at HMRC, they should in fact be directing their ire at the government/themselves) are in normal font.

Unsurprisingly there is a large section dealing with staff morale etc, eg "The evidence we have received about the management culture within HMRC, supported by the staff survey results, is very disturbing".

HMRC's handling of post and phones also receives some "comment".

Additionally, according to the government, it seems that the real time information system WILL be implemented on time!

ROFLOL!!

I look forward to writing some pithy articles in 2013 referring back to this government statement.

Anyhoo, here are a few extracts:

"We welcome the fact that HMRC is updating the 2006 KPMG study on the burdens imposed by the tax system to take account of changes over time and urge it to broaden the study to examine the wider “hassle” costs imposed by complying with tax law. This work may be costly. We seek assurances from Government that the findings of the updated study will be acted upon....

HMRC is adopting a new and enhanced customer cost reduction measure. This measure is extended in scope in two regards: it includes individual customers (as well as business customers), and it includes wider customer compliance costs such as where processes do not run as smoothly as they
should or where there is error....

The possible displacing of costs from HMRC onto taxpayers has been a long-running concern for tax agents, businesses and individuals. Not enough is known about the impact of resource reductions at HMRC on the administrative burdens faced by businesses and individuals. It would be counterproductive if ‘efficiencies’ achieved at HMRC resulted in greater costs being placed on the wider economy. Such a result would impede growth. Government will be reluctant to take effective measures to address this issue in the absence of robust evidence about its extent. We urge the representative bodies who made these claims to us to come forward with quantitative evidence about the extent of this problem....

It is important that HMRC staff who are planning or implementing process changes have some personal understanding of the possible impact on the wider public. We recommend that HMRC staff, particularly senior staff, spend time visiting businesses, tax charities and tax practices to see the impact of process changes on the ground....

The Government accepts the Committee’s conclusion....HMRC staff do engage directly with its customers to get first-hand experience of the impact of changes it is making....

We recommend that the Government look again at the profiling of the savings HMRC is expected to make alongside the efficiencies that are expected to deliver them to ensure the two are commensurate and allow a degree of contingency in the case of unexpected problems with implementation. Technological improvements and process changes within HMRC have and will continue to deliver genuine efficiency savings. However, there have been credible suggestions that HMRC has in the past made savings by reducing staff numbers before the enabling efficiencies have been fully realised – with resulting impacts on performance and costs.
(Paragraph 22)

The Government partially accepts the Committee’s recommendation. HMRC keeps profiling of cash and benefits under systematic review and adjusts as necessary to ensure efficiencies and savings remain in step.....HMRC’s Workforce Management Plan is designed to manage the overall reduction in staff numbers and ensure the Department has the right people in the right place with the right skills to deliver core HMRC business, to maximise redeployment opportunities for those staff whose roles may be coming to an end at their current locations and to take advantage of estate reduction opportunities. Wherever possible the Department tries to ensure that staff numbers are reduced in line with enabled changes to work processes and systems, in order to maintain performance...

There is some evidence that the workforce change programme may have led to a disproportionate loss of experienced people at HMRC. We recommend that HMRC examine how it implements job cuts, with the aim of preserving the professional expertise in tax it needs to deliver an effective service, and report back on the changes that have been made as a result of this process. (Paragraph 27)

The Government accepts the Committee’s recommendation. HMRC’s Workforce Management Programme is working to take advantage of estate reduction opportunities as they arise and to maximise redeployment opportunities for those people whose roles may be coming to an end at their current locations. The work to get the right number of people with the right skills in the right place supports HMRC’s role in tackling the UK deficit by both contributing to the reduction in Government spending and by maximising the collection of revenue.

HMRC does not anticipate using large-scale severance schemes during the Spending Review period. Any schemes that are offered will be small-scale and closely targeted at people for whom there is really no other option. HMRC’s main tool for meeting staff reductions is the redeployment of those in need of new roles into other essential departmental operations....

HMRC’s task is made harder by the increasing complexity of the tax system and deficiencies in the underlying legislation. The Government has already announced a package of reforms to the way tax policy is made. Following the O’Donnell Review of 2004 HM Treasury has had lead responsibility for making tax policy, whilst HMRC is responsible for “policy maintenance”. The time has come to review how those arrangements are operating with a view to ensuring the practical impact of new tax legislation is adequately considered even before the consultation stage begins. (Paragraph 29)

The Government does not accept this recommendation....

Staff engagement at HMRC was a major concern of our predecessors throughout the last Parliament. The management team have achieved some small improvements in relation to organisational purpose whilst staff remain dedicated to their work despite the considerable pressures on them and the organisation, some of which originates from outside the Department. However, this cannot conceal the overall picture. Relatively positive staff attitudes towards immediate colleagues and superiors stand in stark contrast with overwhelmingly negative attitudes towards organisational change and the management of the Department. It appears likely that the poor handling of the recent PAYE reconciliations and relentless negative publicity has further harmed engagement and morale. This widespread disengagement is a serious problem for a Department about to undergo further restructuring, and which was described by one witness as “stretched almost to breaking point”. (Paragraph 50)

The Government notes the conclusion. HMRC’s Executive Committee (ExCom) accepts that action is required to improve leadership across the Department and acknowledges the need to strengthen trust in and across the Departments’ leadership. Working with the whole leadership community, ExCom will lead, direct and drive work to address this need. This provides opportunity to deliver improvement across every aspect of leadership and across the entire leadership cadre from ExCom downwards. The way in which this work will be carried out will be intended to build trust through a high degree of involvement and collaboration with people at all levels in HMRC.

The People Function at HMRC will have a clear role in proactively ensuring compliance with standards of delivery and behaviour on HMRC-wide issues and ExCom will hold all leaders to account in respect of these standards.

The Executive Committee will also ensure all leaders, from top to bottom in HMRC, visibly adopt and promote the Leadership Behaviours. ExCom members have also personally signed up to specific leadership behaviours that they will improve. ExCom recognised that it must be seen to be leading from the front in order to rebuild trust across the organisation and address engagement concerns. ExCom members are regularly visiting offices across the UK and proactively seeking views, listening to and acting upon feedback. They will be communicating frequently through intranet messages, video, blogs, staff dial-ins and hot seat forums so everyone knows how they are progressing in addressing concerns to improve engagement and morale.

Any organisation facing the constant job losses that HMRC has faced over the last five years would experience problems with staff engagement. The Spending Review settlement means that some areas are likely to experience greater stability, even expansion, whilst other parts of the Department continue to be reduced in size. Ensuring that engagement does not fall still further in these latter areas will be an enormous challenge for HMRC managers. (Paragraph 55)
The Government notes the Committee’s point.

The evidence we have received about the management culture within HMRC, supported by the staff survey results, is very disturbing. There is a perception that the Department is run on the principles of close control and management scrutiny, with little opportunity for individuals to develop autonomy and exercise their skills. Whilst there is a need for consistency in dealing with people’s tax affairs and appropriate performance management, a culture such as the one described to us is likely to harm staff morale and lead to disengagement and poor performance. (Paragraph 64)

The Government notes the Committee’s conclusion and HMRC is taking steps to build more productive relationships with its people as well as improve the leadership skills, in order to address the perception described.

HMRC is also committed to supporting its leaders in this challenging environment. HMRC is confident that, at the most senior levels, the recent selection processes have enabled the appointment of the right people into the right roles. New leadership behaviours have been introduced and used within the selection processes and as part of the overall development of the organisation. As such, managers at all levels will continue to be assessed against these behaviours as part of the regular appraisal process and used as a foundation to individual leadership development plans....

The National Insurance and PAYE Service should ultimately make PAYE work more effectively and ensure efficiencies across the Department. However, the problems resulting from its flawed implementation have done significant damage to the public perception of HMRC and the tax system more generally. It is crucially important for the credibility of the management team that the 2012 target for clearing open cases is met and that improvements in overall performance follow soon afterwards.(Paragraph 83)

The Government accepts this recommendation and HMRC is on track to hit its 2012 target to clear all old open cases.....

We welcome the move to introduce Real-time Information (RTI). We agree with the professional bodies that the system must be tested thoroughly before full implementation, with full consultation with users and close co-operation with the Department for Work and Pensions at all stages. We note that large employers will Administration and effectiveness of HMRC: Government Response 11 be required to use the new system in January 2013, which is before the system has been tested through one complete tax year. (Paragraph 91)
The Government agrees the Committee’s conclusion that the system should be thoroughly tested for a year....

HMRC has committed to an ambitious timescale to deliver Real-time Information, driven in part by the importance of the project in delivering the Universal Credit. The history of large IT projects subject to policy-driven timescales has been littered with failure. The timetable is made more ambitious by the fact HMRC will still be resolving the legacy of open cases and stabilising the National Insurance and PAYE Service during the project’s early stages. Introducing Real-time Information before HMRC and the Government can be sure it will work correctly would run 12 Administration and effectiveness of HMRC: Government Response unacceptable risks for the reputation of the Department and the tax system. We recommend that HMRC and DWP have contingency plans in place in case a delay becomes necessary. Given the importance of the project we further recommend that the preparations for Real-time Information in both HMRC and DWP are subject to external audit as implementation proceeds, for example through the National Audit Office, to ensure that they are as robust as possible. We expect arrangements to be put in place for the National Audit Office to report quarterly to Ministers, this Committee, the Public Accounts Committee and other relevant Committees to ensure Ministers in both Departments can be held properly accountable for the progress of the project. (Paragraph 93)

The Government partially agrees this recommendation...

We welcome HMRC senior management’s acknowledgement that the Department’s customer service performance has been unacceptable. We are not convinced, however, that the problems can solely be accounted for by the problems with PAYE in 2009–10. The evidence received by us and our predecessors suggest that poor service standards have been an issue for many years and have not been fully reflected in HMRC’s customer service measures....

The evidence we have received, correspondence from the public and the coverage in the professional press suggest that long delays in responding to post at HMRC are endemic. This is unacceptable...

The Government partially accepts this recommendation although it prefers to wait....

It is inevitable that HMRC will have to pursue some taxpayers for outstanding debts and it may have to be forceful in doing so. However, the tone of some of the letters being sent out suggest the “potential consequences” are inevitable unless payment is immediately forthcoming. These letters appear to have been widely used without sufficient thought to whom they were sent to, even being sent to people who did not 24 Administration and effectiveness of HMRC: Government Response actually owe money. Such language is appropriate only where there is strong evidence of persistent and deliberate non-payment; it is completely inappropriate where the amount owed is in dispute, where the amount may be zero, or where the recipient is vulnerable. We recommend HMRC take steps to ensure such hardhitting correspondence is used in a more proportionate way, is better tailored to individual case histories and contains information on the specific debt in question. (Paragraph 168)

The Government accepts the Committee’s recommendation."

Wednesday, 26 October 2011

Downfall II - HMRC Fights Back

My thanks to a loyal reader who posted HMRC's Stephen Hardwick's (Director of Communications and Corporate Affairs) intranet defence of Dave "Jack" Hartnett on this site the other day (apologies that it got stuck in the spam filter!).

I note he talks about "relentlessly" pursuing tax evaders.

Fair enough, except that (as I understand it) the vampire squid was trying to avoid (not evade) taxes. So that, to my humble view, is a red herring.

Additionally, quite why Hardwick chose to use the Occupy London Camp as a rationale for his message also eludes me; given that most of the tents are vacant, it is hardly an "occupation" or a credible "political movement".

Surely he would have been on firmer ground (if he really believes what he is saying), robustly demolishing the PAC assault on Jack (which after all is the real threat to Jack's career and the future of HMRC)?

Therefore, to my humble view, this was a wasted opportunity by the Director of Corporate Communications.

Anyhoo here it is (as posted), feel free to comment:

"London tax demonstration: Message from Stephen Hardwick

24 October 2011

You may know that activists are expected to march from the Occupy London camp at St Pauls’ Cathedral to 100 Parliament Street this afternoon, where they will call for Permanent Secretary for Tax Dave Hartnett’s resignation.

The march has been co-ordinated by tax pressure group UK Uncut and follows a week of media coverage over the Department’s large business settlements.

UK Uncut has persistently misrepresented how HMRC handles large business settlements and has targeted our 2010 settlement with Vodafone in particular.

Their claims that HMRC does “sweetheart deals” are wholly false. HMRC has relentlessly pursued all taxpayers who seek to evade tax, big or small. In fact, the money we bring in through our compliance work has more than doubled since the Department was created in 2005. Last year, that figure stood at £13.9 billion.

UK Uncut and others have attacked HMRC – and Dave Hartnett personally – over the non-disclosure of confidential tax records. As they know, the law prevents us from doing this.

We have repeatedly said that our legal advice makes clear that any official who breaks taxpayer confidentiality, whether before a Parliamentary committee or in any other context, could be prosecuted. We have a duty both to protect taxpayers’ confidentiality and our employees.

UK Uncut’s march on HMRC and its call for Dave Hartnett to resign are misguided. While there is a role for public campaigning against tax avoidance and evasion, and we welcome the profile it brings to the issue, those who target individuals and companies do have a responsibility to get their facts right. Otherwise they undermine both their own cause and HMRC’s work.

Dave Hartnett will be declining UK Uncut’s request that he resigns, and he has the full support and sympathy of all his ExCom colleagues. He is taking all of the burdens of HMRC’s negative publicity on this issue on his shoulders and, in our view, does not deserve to be targeted in this way.

Stephen Hardwick

Director of Communications and Corporate Affairs"

Tuesday, 25 October 2011

An Inspector Calls II - Clasper Speaks

On 10th October I wrote the following:

"The ICAEW reports that Mike Clasper (Charmian of HMRC) popped in to ICAEW Council last week for a wee chat.

Clasper told members that improving service standards and the "customer" experience were priorities for the department. He also stressed the importance of 2012 to HMRC as a number of changes are implemented.

This is his first visit to Council and he acknowledged the difficulties that have existed within HMRC since the merger between Customs and Excise and the Inland Revenue. He also stated that HMRC plans to become more efficient, increase tax revenue and improve the "customer" (ugh, the "C" word again!) experience ."

The wheels within the ICAEW sometimes grind rather slowly. However, after a wee bit of gentle pushing from me, the ICAEW has published a summary of what Clasper actually said at the meeting.

Here it is:

"hmrc service standards and tax agent strategy

HMRC’s Chairman, Mike Clasper, and Brian Redford, Deputy Director, Business Customer & Strategy, attended the October Council meeting to discuss service standards and the recently published consultation on Tax Agent Strategy.

The decline in service standards is one of the biggest concerns currently being mentioned by the ICAEW membership. Following a highly critical report by the Treasury Select Committee published in July 2011, a meeting was held in September 2011 between HMRC’s senior management and the professional bodies and various charities to discuss what should be done to help make improvements.

It was chaired by Mike Clasper and following the meeting a joint statement was published, setting out plans for HMRC to work with the professions and charities to make improvements. Tax Agents have a critical role to play and need a strong relationship with HMRC. At the moment there is a lack of trust that needs to be addressed.

There is understandable concern that promises have been made in the past to improve service standards but they have not been realised. However, the joint statement marks a turning point and shows that HMRC has picked up the challenge issued by the Treasury Select Committee to work with the profession to make improvements.

The biggest problems highlighted are post and telephone handling. The challenge for HMRC and the profession is to jointly understand the nature of the problem, develop solutions to improve the service and find performance measures that accurately reflect the customer experience.

Background

In the past, there have been different views as to how HMRC should recognise agents, with some feeling that the focus of attention should be on the tax payer. HMRC are now clear that strategically the role of the agent should be recognised in addition to the role played by the customer and there is a genuine intention on the part of HMRC to improve relationships with agents.

With the launch of HMRC in 2005, there was a loss of confidence in the organisation from customers as it was felt that it did not have a clear customer centric focus. The foundations for the merger were solid enough. It offered one tax authority for business which is a huge enabler for a customer-centric organisation, a system of dealing with large businesses that is globally competitive and a vast amount of knowledge about tax payers. However, the merger did not fully resolve the cultural differences between the two organisations and needed to deliver efficiency savings at the same time as facilitating a smooth transition from a local to a national organisation.

Following the merger, HMRC’s strategic objectives included:

- Closing the tax gap

- Focusing on the customer experience

- Providing value for money

- Operating with professionalism

In the 2010 spending review, along with all government departments HMRC was charged with cutting costs by a further 25%, but reinvestment back into HMRC was agreed with a primary focus on closing the tax gap and improving compliance.

In order to achieve HMRC’s strategic goals, there has to be a balance between three key and often conflicting aims:

1. The tax has to be collected

2. The customer experience has to be good

3. HMRC has to be efficient

2010 – A difficult year

Mike acknowledged that 2010 was a difficult year and had said so on the record, but that it had to be seen in context. For HMRC employees, existing systems and processes were becoming outmoded and as configured were not able to provide a single view of a PAYE customer on its systems and this required expensive manual intervention. The system designed to support PAYE was based on 13 regionally defined databases meaning that some people had several records, some of which had not been linked and led to bad data quality and inconsistency. Working with this dated system, people developed ways of getting the right result without inputting the right data which led to further problems. HMRC underestimated the problems that would arise in the move to the new national PAYE system (NPS) and the resources that were needed to tackle them. These problems were only made worse by the resulting high volume of telephone calls that taxpayers and agents made to HMRC.

A related problem was the growing backlog for reconciling PAYE exceptions, which by 2010 had reached 23 million open cases, a problem that dated back to 1983. It was proving impossible to tackle this backlog with the existing systems.

The current situation

Mike explained that over the last few months there had been a considerable turnaround in performance and customers were starting to see the benefits of the NPS investment and other operational changes. Customer contact has improved. This year 70% of calls, on average, are answered within 40 seconds which is a massive improvement on the previous year.

Postal response times are the best they have been since the merger. The average is less than 15 days – calculated from the day the post arrives at HMRC through to when it is posted on HMRC’s system and a response sent. However, Mike accepted that this is not translating to the customer experience and this needs to be addressed. HMRC is also working with its mail partners, Fujitsu and Royal Mail, to cut delays once correspondence leaves HRMC. But Mike acknowledged that there is more to do in improving the customer experience.

Internally, work is being done to improve professionalism and quality. Training and development is an essential part of this. HMRC is supporting professionalism through the establishment of ‘The Tax Academy’, accredited by Manchester Metropolitan University. This year, some 200 members of staff will commence their training through the academy for full technical training, although it is acknowledged that a wider section of the workforce will undertake other training and continuing professional development. HMRC recognise some 18,000 members of staff as tax professionals.

Teams have been empowered to improve their own processes through ‘Pacesetter’ methodology and already an improvement in productivity of up to 60% has been seen in some areas.

Work is also being done to cut down on the organisation’s hierarchy. There have been up to 14 approval levels, from frontline staff up to CEO. By March next year there will be no more than eight. The top four tiers of the organisation have also been reviewed. 45% of jobs have been competed with a number filled externally to revitalise the structure and overall numbers reduced.

Up to 8,000 members of staff are also moving from processing to compliance roles in the coming years, which will help to balance the three requirements to achieving strategic goals.

On the performance challenge, HMRC staff members have received the training needed to enable them to go out and observe Tax Agents in their own firms to get a first-hand view of the problems that they are experiencing. HMRC now needs the profession to volunteer to host their staff and help improve standards. At the moment, it was proving difficult to recruit volunteer firms and Mike requested that ICAEW did all they could to promote this initiative. Since the Council meeting a significant number of ICAEW members and others have stepped forward and the visits are will commence as planned.

Tax Agent Strategy

Allowing agents to ‘self serve’ through an online system should improve the process. By enrolling and understanding the business profiles of tax agents, it will be possible to tailor communication and support.

Through this system, HMRC will now be able to look at all interactions with agents. If there are consistent problems, they can then work with the agents to make improvements, a mutually beneficial process.

Conclusion

HMRC has committed to a big challenge. However, improvements can only be made with the input of the profession and it is therefore important that firms come forward to volunteer to host HMRC staff. Council members are strongly encouraged to do so, and take their opportunity to share their experiences.

For further information, please contact Frank Haskew, Head of the Tax Faculty, frank.haskew@icaew.com "
Well then, Clasper sounds quite optimistic!

I have been publishing this site for several years now, and accept that I may at times be "jaundiced" in my views as to whether there is any genuine improvement or merely scratching around at the edges of the issues facing HMRC.

Therefore I would welcome opinions from my loyal readers (HMRC staff and non HMRC staff) on the above, and as to whether it is a fair reflection of reality.

I would note one thing, not everyone is of the view that there is such a cosy relationship between HMRC and the profession.

Anthony Thomas, President of the Chartered Institute of Taxation (CIOT), recently debunked the nonsense that there is a "special relationship" between HMRC and the professional bodies, calling it a "myth" (akin to that "relationship" between the UK and US governments).

This view may ruffle a few feathers over at the ICAEW, where Michael Izza (the CEO) claims that "we (the ICAEW) now have a partnership with HMRC".

Monday, 24 October 2011

Downfall

Such is the perceived mess that HMRC is in, and the animosity felt by many towards Dave "Jack" Hartnett, that GOD, or to give him his mortal name Gus O'Donnell (the cabinet secretary) is to investigate demands from senior MPs for a fundamental reform of HMRC.

The Guardian reports that Margaret Hodge, the chairman of the public accounts committee, met with GOD and told him that he had to consider how to bring greater accountability to HMRC's dealings with big business.

Some MPs are now claiming that Hartnett was "out of control", and that there were no effective checks and balances on him in Whitehall or Westminster.

Well, 20/20 hindsight is all very well and dog whistle politicians do rather love to attack wounded animals. However, I would venture to suggest a few points:

1 Hartnett's behaviour, and HMRC's issues, have been widely publicised for a number of years. Were these same MPs all asleep during this period?

2 HMRC is (theoretically) under the control of Parliament. Therefore the failings of HMRC and its senior officers are (when the "final buck is placed upon the table") attributable to our "respected" elected representatives.

3 These elected representatives, who are howling for blood, are the very same people who have devised our "buggers' muddle" of a tax system, merged IR with Customs, ordered the restructuring and cuts within HMRC, appointed people such as Strathie and Hartnett and generally enjoy various tax privileges and avoidance schemes that the rest of us are not privy to.

Hartnett refuses to answer journalists' questions about his arrangements with Vodafone and Goldman, saying that taxpayers' affairs must be confidential.

Hodge on the other hand has said that she wanted O'Donnell to accept that corporations were not entitled to the same privacy rights as individuals.

The public accounts committee also wants HMRC to be accountable to the National Audit Office, and for the NAO to have the right to brief MPs in confidence about controversial decisions. HMRC refuses to give the auditors detailed accounts of big tax disputes, once again citing the need for confidentiality.

As you can see, this is developing into a power struggle between Parliament and HMRC. This is rather ironic, given that HMRC is meant only to be a bureaucratic arm of government responsible for the efficient and cost effective gathering of taxes.

Something, somewhere in the past seems to have given HMRC ambitions above its "position" in the grand scheme of things.

Whatever the outcome of the battle between HMRC and Parliament, Jack's position has become untenable.

All lofty ambitions end one day, shattered and decaying into dust.

Friday, 21 October 2011

Secret - A 19

Yesterday I wrote that there may be an opportunity to use HMRC relief A19, in the event that you are on the receiving end of a tax demand from HMRC for tax that they should have collected a few years ago.

However, those of you who try to look for A19 within the HMRC website may be a tad disappointed.

A helpful flow chart explaining how it works used to be there, but now exists no longer.

For why?

"This text has been withheld because of exemptions in the Freedom of Information Act 2000"

Don't believe me?

Ask Nick Morgan.

Evidently HMRC do not want to help taxpayers understand how the tax system works.

Thursday, 20 October 2011

Destined To Fail II

Those of you on the receiving end of a tax demand from HMRC for underpaid taxes emanating from HMRC's reconciliation of its PAYE "backlog" would do well to remember that there may be a way to avoid having to pay these backclaims.

Extra Statutory Concession (ESC) A19, states that HMRC should "forgive" a tax claim if it has not followed its procedures correctly.

HMRC should not claim tax if it has failed to properly use information supplied by a taxpayer, their employer or the Department for Work and Pensions.

The Telegraph quotes Jeff Taylor, editor of The Economic Voice:

"This concession applies to income tax and capital gains tax and allows someone to ask to have the tax debt remain uncollected as long as two important circumstances exist.

The first is that HMRC must have been in receipt of all the relevant information and have used it within 12 months from the end of the tax year concerned.

The second is that HMRC must be satisfied that the taxpayer had a 'reasonable’ belief that their tax affairs were in order."

Good luck!

Wednesday, 19 October 2011

Good News! - HMRC Destined To Fail

Good news everyone, HMRC is now in the process of settling outstanding discrepancies (some going back to 2001).

Seemingly, over this period, HMRC has taken excess tax of £2.5BN and under collected £720M.

The result of the above discrepancies will mean that over 6M will receive a refund in the next few weeks of around £400.

Hoozah!

However, around 1.2M people will receive a bill for £600.

The discrepancies have come to light following HMRC's reconciliations of PAYE, as a result of the introduction of a new IT system.

HMRC note that these discrepancies that are now being highlighted are merely the end product of them clearing a backlog that had built up.

HMRC also note that things will now improve as the new system "beds in".

So are we to assume, and believe, that everything from now on will be fine?

Errmmm....sadly no!

For why?

Well, many reasons actually. However, to keep things simple, here are just two:

1 The new universal credit system is allegedly meant to be up and running by 2013. However, as already noted on this site, it will miss the deadline.

2 The HMRC capability review is now hitting the mass of managers below SCS. We can expect the upheavals emanating from that to cause a significant decline in TAXPAYER (I refuse to use the"C" word) service levels next year.

All in all, expect things to get worse rather than better.

Tuesday, 18 October 2011

Jack's Back - By Popular Demand!

By popular demand the ever entertaining Dave "Jack" Hartnett made his encore yesterday before the Commons Public Accounts Committee (PAC).

Margaret Hodge (Chairman) made Jack feel very welcome, by stating that the committee would not "let matters rest from last week".

Hodge went on to say that the Cabinet Secretary (GOD - he who soon leaves orifice) had requested a meeting, and that the committee would decide after that meeting what ‘further action’ it was going to take wrt HMRC.

PAC could force open the settlement agreements that forgave the giant vampire squid (Goldman Sachs) £10M of tax and Vodafone £4.75BN. There are also two other companies with similar tax agreements with HMRC that remain secret.

Hartnett told PAC that HMRC was ready to talk in confidence, and would ‘support the NAO’ in its work.

How very "nice" of him and HMRC!

Does that not sound as though HMRC and Hartnett are getting a tad above themselves?

Have I not warned many times on this site about HMRC taking on powers and politicising itself, in an attempt to place itself above its brief of being a bureaucracy whose mission should be solely to collect taxes in an efficient and cost effective manner?

Anyhoo, Jack confirmed that he would write to the committee regarding legal advice received on taxpayer confidentiality. He claimed that he was in discussions with lawyers, and would clarify the precise rules governing taxpayer confidentiality "by Wednesday" (doesn't he know the rules after all those years in the job?).

Stephen Barclay MPO accused Jack of misusing confidentiality rules to "cover up his own mistakes".

Jack admitted that he had not sought legal advice before settling the case with Goldman, based on the view that HMRC could not pursue it because of the technicality.

Mr Barclay retorted that it "sounded like" he had "cut a deal and didn't tell anyone".

Jack blustered that there was "far more" to the case than had been discussed, but it could only be revealed in a confidential session.

Aha!

The whole case seemed "very odd", said Mr Barclay.

Quite!

Enjoy watching Jack's encore performance via this link Jack's Back.

Monday, 17 October 2011

Debunking The Myth

Anthony Thomas, President of the Chartered Institute of Taxation (CIOT), is none too impressed with the flood of consultation documents that spew forth from the HMRC bunker.

Speaking recently at the president's reception at the Tate Modern, he was quoted by Accountancy Age as saying that it was:

"enormously frustrating... spending hours poring over consultation documents on what seems to be thousands of documents flooding out of HM Revenue & Customs... especially when on occasions the consultation is a complete waste of time."

For why are these consultations a waste of time?

Because the decisions had already been made by HMRC.

Mr Thomas called for a sensible approach in the future whereby there would be a meeting in advance with policy advisers, to enable HMRC and professional bodies understand the issues.

He then went on to debunk the nonsense that there is a "special relationship" between HMRC and the professional bodies, calling it a "myth" (akin to that "relationship" between the UK and US governments).

This view may ruffle a few feathers over at the ICAEW, where Michael Izza (the CEO) claims that "we (the ICAEW) now have a partnership with HMRC".

Tax does have to be taxing.

UK EXPATS: Reduce tax on UK Pensions
HMRC QROPS provider. Unlock your UK pension and access a 25% lump sum today.

Quote ID code "ABC" when contacting a QROPS specialist.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

What is TAXWISE?

TAXWISE 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 Taxwise

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"

Friday, 14 October 2011

Jack Speaks

My thanks to a loyal reader who has sent me the text of an HMRC intranet message posted by Dave "Jack" Hartnett on 13th October.
As far as I can see it's:

- business as usual,

- "nothing to see here", and

- "what's all the fuss about?"

Oh dear, I really would have hoped for something a little better than this.

"Message from Dave Hartnett: yesterday's Public Accounts Committee hearing 13 October 2011

Yesterday afternoon, I appeared before the Public Accounts Committee to answer questions on HMRC’s 2010-11 accounts.

As you’re probably aware from this morning’s media coverage, most of the meeting was taken up by two issues – taxpayer confidentiality and one of our large business tax settlements.

Given the importance of our work to the UK economy, it’s quite right that we are held to account before Parliament and I want to make two points that are important in this context.

The first is that HMRC does not make ‘sweetheart’ deals with large businesses or anyone else. It is absolutely essential that the public, as well as everyone working here, knows that – which is why I am writing to you now and why we have made this point very strongly to the media.

The second is that we cannot breach taxpayer confidentiality, something which caused the committee great frustration yesterday. Our legal advice is that any official who broke taxpayer confidentiality, whether before a Parliamentary committee or in any other context, could be prosecuted.

That is why I cannot go into more details about the large business tax settlement that was under discussion or even repeat confidential material that is now in the public domain through leaks, save to say that the picture presented in the leaked documents is incomplete and therefore fundamentally flawed. This confidentiality, which Sue Walton wrote to you about yesterday is at the heart of what we do.

I appreciate it’s difficult seeing HMRC getting this kind of treatment in the news again but I want to correct any misconceptions people may have around this, especially given the tone of some of the coverage this morning.

Finally, I want to thank you for all for your professionalism and integrity – I know that upholding taxpayer confidentiality and being even-handed in our work are core values that you maintain every day. We play a valuable role and last year, our combined efforts brought in £468 billion across all taxes and paid out more than £40 billion in benefits and credits – excellent results which have not been reflected in today’s coverage."

Thursday, 13 October 2011

Jack Back at 15:15 Monday

Poor Old Jack - Liar Liar

Well my buckos, things seem to be moving forward don't they?

Dave "Jack" Hartnett appeared before the HOC Public Accounts Committee yesterday, and was called a liar.

My thanks to the loyal reader who posted the link to the video.

If you want to see the moment that Jack's world fell apart, you can do so by going to the HOC site.

As earlier comments have mooted, don't feel too sorry for Jack; as and when he is "resigned", I dare say he will be offered a bevy of NED positions in various companies (eg the giant vampire squid) to cover his cost of living etc.

Tax does have to be taxing.

UK EXPATS: Reduce tax on UK Pensions
HMRC QROPS provider. Unlock your UK pension and access a 25% lump sum today.

Quote ID code "ABC" when contacting a QROPS specialist.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

What is TAXWISE?

TAXWISE 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 Taxwise

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"