HMRC to tighten investigation net
A House of Commons committee report on HMRC’s civil investigations praised the department for improving its performance in difficult circumstances, but highlighted concerns about morale, management direction and achieving more strenuous post-Spending Review targets.
Following up the NAO report on civil investigations in December, the Commons Public Accounts select committee took further evidence from HMRC officials. Both the report and committee chair Margaret Hodge MP praised HMRC for increasing yields with fewer resources.
“The two directorates in HMRC responsible for civil investigation work brought in £8.5bn of tax revenue in 2009-10, nearly 50% more than the total three years before. At the same time they reduced spending by 10%,” said Hodge.
“This was good progress and we welcome that. But the department now has a much more stretching target. Government spending plans require HMRC to bring in an extra £18bn of tax revenue over the next four years while reducing its costs.”
However a lack of detailed information on the costs and returns of different enforcement activities will hamper these efforts, she added. As the report amplifies, HMRC has only a limited understanding of the performance and capability of its various investigation teams: “Without this information, the department cannot decide how best to deploy its resources.”
While Hodge congratulated HMRC managers for improving the collection performance, Conservative MP Stephen Barclay laid into Mike Eland, HMRC director general for enforcement and compliance: “The thing that sings out from the [NAO] report to me is… you’ve got work ongoing to strengthen the management of resources; you’re about to roll out a case management system; you’re developing a resource allocation model; you don’t have an effective system for escalating cases and it says the department is ‘in a transitional phase’…
“Six or seven years after you’ve started in post you’re about to do a whole load of things to improve this and the department is in a state of transition.
Exchanges with Barclay and Labour MP Austen Mitchell highlighted continuing problems with morale. Eland could not hide the results of HMRC staff surveys, but explained to the MPs: “Their frustration is sometimes with things that they regard as bureaucratic processes, and I have to look at those and see whether they are genuinely bureaucratic processes or whether actually they are management systems that are constraining some of their activity in ways that are beneficial.”
The Public Accounts Committee did, however, uncover plans to tighten the referral criteria for civil investigations. According to the NAO, only 20% of cases referred to dedicated investigation teams were adopted, which caused disillusionment among caseworkers.
HMRC has also confirmed that it plans to undertake a fivefold increase in criminal prosecutions increasing the tally from 200 at present to 1,000 going forward. This will be backed up by a new prosecution policy which will be published this April.
James Bullock, partner at McGrigors, said: “HMRC has offered the ‘carrot’ of the amnesties. This is the proverbial ‘stick’. Over the last few years HMRC has concentrated on prosecuting fairly ‘low level’ cases within the informal economy. It seems that they will now take on bigger and more complex cases. The question is how they will increase prosecutions by 500% without pursuing marginal cases that would be better resolved by civil settlement. Evasion can be notoriously difficult to establish and inevitably some innocent taxpayers could get caught up in the trawler net.”
McGrigors says that HMRC’s new strategy is likely to focus on prosecuting individuals in three key areas:
- Professional advisers committing or promoting fraud
- Taxpayers who have already reached a ‘civil settlement’ and offend again
- Taxpayers with substantial amounts offshore which is undeclared and who have not made a disclosure under one of the tax ‘amnesties’
Out of an annual average of around 4,000 cases, the number of referrals fell from 380 a month in 2007-08 to 330 a month in 2009-10 (though that figure has now recovered, HMRC said).
Donald Toon, HMRC director, Central Compliance, told the MPs the department planned to “relaunch” the system with new criteria for referral in April.
“What that’s trying to do is really to be rather more specific about cases that are more likely to require take-up by some form of specialised investigation, whether that be criminal or civil investigation,” he said.
Which the current process was introduced in in 2007, HMRC set low criteria for referrals to boost case numbers to help build up its “central intelligence picture” of the structure of potential fraud. Without mentioning any specific changes, he said, “We have not changed those criteria; what we have done is tighten up those criteria.”
At the NAO and MPs’ prompting HMRC will also introduce a new set of performance measures in 2011. Among these will be a measure of the amount of extra tax actually collected as a result of compliance work, not simply the amount identified as owing.
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