Weekly Tax Update - Monday 01 August 2011

1. GENERAL NEWS

   1.1. Treasury Committee report into the administration and effectiveness of HMRC

   The Treasury Committee has published its report into the administration and effectiveness of HMRC.

   The Parliament website summarises the report as follows:

   "The Treasury Committee's report into the administration and effectiveness of HMRC has found there is considerable dissatisfaction among the public and tax professionals with the service provided by the Department. The committee is concerned that if this continues it may undermine respect for the tax system.

   Following an inquiry by the Treasury Sub-Committee, the report identified serious concerns in a number of areas, including:

   Unacceptable difficulties contacting HMRC by phone during peak periods Endemic delays in responding to post An increasing focus on online communication that may exclude those without reliable internet access The committee recognised that the Department performs a crucial role and operates under significant external pressures including continuing resource reductions, deficiencies in tax legislation and the legacy of the merger.

   It acknowledged the commitment of management to tackling these problems and the dedication and professionalism of HMRC staff. However, it concluded that the Department has a difficult few years ahead of it, as it attempts to improve its service to taxpayers and benefits claimants, stabilise the PAYE system and introduce Real-time information.

   The sub-committee is holding further hearings on HMRC's compliance work, and the committee may report on this later in the year.

   Recommendations

   The committee made recommendations in the following areas:

   Improving the service provided by contact centres, particularly in relation to escalating complex queries and providing alternatives to 0845 numbers Providing robust alternative to online contact, including more cost-effective ways of providing face-to-face advice Ensuring greater awareness of the impact of process changes on individuals and businesses, in particular recommending senior staff spend time with tax practices, charities and businesses Ensuring reductions in resources are managed in a way that is commensurate with the enabling IT and process improvements and minimises the loss of Departmental tax expertise Reviewing the division of responsibilities between HMRC and HM Treasury in relation to making tax policy, to ensure practical considerations are taken into account at the earliest possible stage Better targeting of letters that threaten serious consequences against individuals Having the National Audit Office externally audit preparations for Real-time Information, to ensure Ministers can be held accountable for progress against the Government's ambitious timetable Examining how the Department can achieve better accountability around the settlement of large tax cases." www.parliament.uk/business/committees/committees-a-z/commons-select/treasury-committee/news/hmrc-publication/

   Extracts from the report are set out below:

   "There is considerable dissatisfaction among the public and tax professionals with the service that Her Majesty's Revenue and Customs (HMRC) provides to taxpayers and benefit claimants. Three areas in particular stood out in the evidence we received: access to advice over the telephone; responses to post; and offline alternatives to internet-based filing and guidance. This dissatisfaction has been building for some years now, and was reported on by our predecessors in the last Parliament. As such, we do not accept the Department's explanation that these problems are primarily the result of reconciling of multiple PAYE tax years at once. There is a serious risk that if communicating with HMRC becomes too time-consuming, difficult and expensive, respect for the tax system, and with it voluntary compliance, may be undermined.

   The PAYE system itself has been the subject of negative publicity throughout the last year.

   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.

   HMRC continues to face major difficulties with staff engagement. Whilst staff remain dedicated to their work despite the pressures HMRC is under, they have little confidence in the leadership of the Department or that change will be for the better.

   One of the most concerning themes in the evidence we received was that some of these savings were effectively being made by displacing the costs of tax administration onto individuals, businesses and tax professionals.

   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.

   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".

   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.

   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.

   It is particularly concerning that staff feel unable to escalate possible problems up the management chain or challenge established practice. In principle one of the benefits of close scrutiny should be that issues are anticipated and responded to. This does not appear to be the case, as the handling of the 2009–10 PAYE reconciliations shows. HMRC intends to reduce its layers of management to improve communication; however this will achieve little unless the underlying culture of the organisation is changed. We recommend that HMRC engage constructively with staff and unions to see how this can be achieved and report back to this Committee within the financial year.

   HMRC has been through a period of instability at the top of the organisation that has led to a lack of strategic vision. The current management team has now been in place for two years. It has set out a vision of where they would like the organisation to be, but have yet to demonstrate substantial progress towards achieving those goals and do not yet have the confidence of staff. We intend to monitor progress in these areas closely during the Parliament.

   The episode's impact on the reputation of HMRC cannot be overstated. The problems with PAYE spring immediately to mind when reading Tax Help for Older People's damning verdict on HMRC's public profile:

   'Ten years ago the Inland Revenue had the reputation of being one of the best run

   Departments in Whitehall. Today HMRC's reputation is in tatters as one disaster has followed another'.

   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.

   We welcome the move to introduce Real-time Information. We agree with the professional bodies that the system must be tested thoroughly before full implementation, with full consultation with users and close cooperation with the Department for Work and Pensions at all stages. We note that large employers will be required to use the new system in January 2013, which is before the system has been tested through one complete tax 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...