PAC misses the point, again

                     

 

 

26 April 2013

For immediate release

 

PAC misses the point, again

Today’s Public Accounts Committee (PAC) report – Tax Avoidance: the role of large accountancy firms –  sends contradictory messages and repeats misconceptions on how best to counter tax avoidance says the Association of Revenue and Customs (ARC), the union representing senior staff in HMRC.

ARC President Gareth Hills said, “We agree with PAC that confidence in the UK tax system can only be maintained if every company and every individual is seen to be paying their fair share of tax.”

But Hills is disappointed that PAC repeats the misconception that “HMRC appears to be fighting a battle it cannot win in tackling tax avoidance”.

Hills said, “HMRC is successful in battling tax avoiders – the results in the courts show that.”

Hills believes more resource is key if HMRC is to continue winning the fight against avoiders and evaders. ARC presented detailed investment proposals on resource and reward in its recent Budget submission demonstrating that recruiting 450 additional senior and support tax professionals to challenge tax avoidance could yield £2,000m over 4 years.

http://www.fda.org.uk/Media/Tax-gap-is-closing-but-further-8-billion-could-be-recouped-by-HMRC-providing-an-alternative-to-cuts-or-tax-increases-says-ARC-Budget-submission.aspx

Hills was also surprised to read PAC’s comments condemning as ‘inappropriate’ secondments to HMRC and HM Treasury from the ‘Big Four’ Accountancy firms. Hills said  “ARC has seen no evidence to support PAC’s view that there is anything inappropriate about secondments to HMRC or the Treasury. I’m afraid this report is another example of PAC missing the point about the challenges facing HMRC and how ARC members are responding.”

 

Notes for editors

 

1. The FDA is the trade union and professional body representing 18,000 of the UK’s senior civil

and public servants. Our members include policy advisors, senior managers, tax inspectors, economists, statisticians, accountants, special advisers, government lawyers, diplomats, crown prosecutors and NHS managers.

 

2. Members in HMRC are represented by the Association of Revenue and Customs (ARC), a section of the FDA.

 

3. The FDA (formerly the First Division Association) should be referred to simply as “The FDA” and can be described as “the senior public servants’ union”. 

 

4. For further information contact:

  • Gareth Hills, ARC President, tel: 020 7401 5555 or 07870 592356.
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Aside

Tax gap is closing but further £8 billion could be recouped by HMRC, providing an alternative to cuts or tax increases, says ARC Budget submission

13 March 2013
(For immediate release)                                                                     

The UK’s current tax gap – the shortfall resulting from fraud, error, non-payment and artificial avoidance schemes – is estimated by HM Treasury to be at least £32 billion per annum, which means that every adult pays an additional £1,000 per year in taxes.

Progress toward closing the tax gap was helped by the Coalition decision taken at the 2010 Comprehensive Spending Review to invest £917million in compliance, and a further £150million in Budget 2012.

In its fully costed submission to next week’s Budget, the Association for Revenue and Customs – the trade union representing tax officials – says a further investment of £312 million in HMRC will deliver additional revenues to UK plc of more than £8 billion, a return on investment of more than 26 to 1.

ARC President Gareth Hills said:

“Recouping lost taxes – from companies to individuals, from VAT to corporation tax – makes sense at a time of public outrage over tax avoidance, especially by large multinationals. To do so would also help address the current £100billion deficit providing an alternative to public sector spending cuts or tax increases.

“By investing in key personnel in HMRC, the Government will be guaranteed a significant return. Now is the time for it to act, the time for it to be bold, and the time for it to back a cast-iron winner.”

HMRC’s own figures show that almost £13billion is lost to indirect taxes (such as £9.6billion of VAT) and £18.7billion is lost for direct taxes, including:

 

£5.2bn

Incorrect tax returns from individuals and partnerships

£4.1bn

Company tax gap, £1.4bn in the UK’s largest companies.

£3.2bn

People not reporting their income or gains (ghosts’ and ‘moonlighters’)

£2.9bn

Incorrect PAYE returns from employers

£2.1bn

General avoidance (and real figure is probably higher)

 

 

In addition to its specific proposal (see Notes for editors), ARC feels strongly that the Government should reconsider the scale of the proposed reductions in HMRC staffing, as it is set to lose an additional 13,000 staff over this Spending Review period. ARC also urges the Government to urgently address the significant pay disparity with the private sector (where tax experts can earn up to 64% more) to ensure that HMRC retains the skills necessary to reduce the tax gap and tackle complex avoidance schemes.

 

Notes for editors

1. The Association of Revenue and Customs (ARC) is a union representing senior staff in HM Revenue and Customs, including tax inspectors, accountants, lawyers, managers and other leading professionals. ARC represents members in HMRC at grade 7 and above, and also trainees in grade 7 entry schemes. It is also a section of the FDA.

2. The FDA is the trade union and professional body representing 19,000 of the UK’s senior civil and public servants. Our members include policy advisors, senior managers, tax inspectors, economists, statisticians, accountants, special advisers, government lawyers, diplomats, crown prosecutors and NHS managers.

3. The FDA (formerly the First Division Association) should be referred to simply as “The FDA” and can be described as “the senior public servants’ union”.

4. Details on ARC’s costed programme to reduce the tax gap are below:

 

ARC COSTED PROGRAMME TO REDUCE THE UK TAX GAP

 

Cost

 

Projected yield over 4 years to 2016/17

  1. Tackling avoidance and technical tax gaps
  1. 100 additional senior tax professionals to be deployed as customer relationship managers for 1000 corporate groups.

£25m

£485m

  1. 50 additional senior tax professionals to be deployed as corporation tax specialists to challenge large business tax returns. 

£12.5m

£510m

  1. 200 additional senior tax professionals and 200 HO/SO tax professionals to challenge avoidance by large employers.

£82m

£1500m

  1. 50 additional tax professionals to challenge avoidance of indirect taxes by large businesses.

£12.5m

£500m

  1. Support for front-line compliance staff through increased travel budget and additional support staff.

£34m

£130m

  1. 20 senior tax professionals to tackle technical tax gap.

£5m

£500m

  1. Additional legal resources, 150 trained lawyers and 50 legal assistants, to accelerate litigation of the Tribunal backlog and accelerate yield.

£45.5m

£2000m

Total

£216.5m

£5,625m

 

  1. Investment in customer and agent support
  1. Business expansion unit of 6 senior tax professional staff.

£1.5m

£35m

  1. 250 SO/HO customer and agent support staff.

£40m

£1,000m

Total

£41.5m

£1,035m

 
  1. Building future capacity
  1. Recruit an additional 200 graduates each year to train as senior tax professionals. (Yields will quickly build to over £1billion per annum as these trainees complete their training and develop into experienced tax professionals).

£40m

£300m

  1. Recruit 50 chartered tax advisers and train to become senior tax professionals.

£12.5m. 

£1000m

  1. Internally recruit 50 SO/HO tax professionals and train to be senior tax professionals. 

£2m. 

£300m

Total

£54.5m

£1,600m

 

Overall Total

£312.5m

£8,260m  

 

5.ARC’s full Budget submission can be read here.

6. For further information contact:

  • Gareth Hills, ARC President, tel: 020 7401 5555 or 07870 592356.
  • Kay Hender, FDA Communications Officer, tel: 020 7401 5589 or 07980 700747.

 

 

Aside

Tackling tax avoidance: Public Accounts Committee needs to recognise the need for more HMRC resource and proper reward for staff, says ARC

19 February 2013
(For immediate use)

 

 

Today’s Public Accounts Committee (PAC) report – Tax Avoidance: Tackling Marketed Avoidance Schemes – makes much of naming and shaming promoters of avoidance schemes and adopting the Australian model of advance rulings on schemes, but says little about the need for more resource and adequate reward for HMRC staff says the Association of Revenue and Customs (ARC), the union representing senior staff in HMRC.

ARC President, Gareth Hills said: “We welcome PAC’s comments on having an advance rulings system. Indeed, in ARC’s response of April 2012 to the limited GAAR the Government intends introducing, we said that a more general GAAR – with a properly resourced clearance system – would allow avoidance to be identified and tackled whilst leaving responsible tax planning untouched.”

Hills also welcomed PAC’s comments on ‘naming and shaming’, but said that would require legislative change: “In an era of austerity, ARC has argued consistently that securing the right amount of tax is more vital than ever. The Government needs to give HMRC the tools to allow it to crack down on avoidance and evasion. And it needs to adequately reward those working hard to bring in money to help build a better Britain.”

But Hills is disappointed that the PAC report is silent on the need for further investment in HMRC, over and above the £77m announced in last year’s Autumn Statement: “ARC published its interim investment proposals in December last year to help reduce the deficit and close the tax gap, and showed how an even relatively small scale investment of £120m would recoup currently lost tax of £3.7bn

“The scale of the overall budget deficit of £126billion, and the tax gap of £32 billion, are such that the Government needs to put significant investment into HMRC. By investing in key personnel in HMRC the Government will be guaranteed a significant return – one it could use to draw down the deficit, to avoid further austerity measures, or to fund economic recovery and growth. Now is the time for it to abandon caution, the time for it to be bold, and the time for it to back a cast-iron winner.”

Notes for editors

1. The Association of Revenue and Customs (ARC) is a union representing senior staff in HM Revenue and Customs, including tax inspectors, accountants, lawyers, managers and other leading professionals. ARC represents members in HMRC at grade 7 and above, and also trainees in grade 7 entry schemes. It is also a section of the FDA.

2. The FDA is the trade union and professional body representing 19,000 of the UK’s senior civil and public servants. Our members include policy advisors, senior managers, tax inspectors, economists, statisticians, accountants, special advisers, government lawyers, diplomats, crown prosecutors and NHS managers.

3. The FDA (formerly the First Division Association) should be referred to simply as “The FDA” and can be described as “the senior public servants’ union”.

4. ARC’s April 2012 GAAR response can be read at: ARC response to the Aaronson GAAR study.

5. ARC’s interim investment proposals can be read at: Reducing the UK Tax Gap – Proposals from ARC

6. For further information contact:

  • Gareth Hills, ARC President, tel: 020 7401 5555 or 07870 592356.
  • Kay Hender, FDA Communications Officer, tel: 020 7401 5589 or 07980 700747.

Briefing for Westminster Hall Debate Tuesday 5 February 2013

Aside

1. Reduced Resources

  • In the 10 years since its formation in 2005 to the end of SR2015 HMRC will have almost halved its resources with staff levels being cut from c.97,000 to c.55, 000.
  • Recent talk of  “increased numbers of tax inspectors” is not accurate. (See e.g. David Cameron in Commons replying to Teresa Pearce. “We have actually increased staffing levels at Revenue and Customs.” David  Cameron, 19 April 2012. Also see George Osborne’s speech introducing the 2012 Autumn Statement “We are increasing by around 2500 the number of tax inspectors going after      evaders and avoiders.”).
  • In fact, all  that has happened is that one part of HMRC has got bigger by cutting some other parts – robbing Peter to pay Paul. They are a valuable redirection      but the vast majority of the new posts as a result of reinvestment and limited investment are not for Tax Inspectors with a deep professional training.
  • Another example concerns the Autumn Statement.  The reality is that resource moved onto work identified in the autumn statement will have to be moved from other high priority work.  It is worth asking the question how much revenue will be lost in these areas. Put another way; how much more of the tax gap of £50 billion could be recouped with a properly resourced HMRC?
  • HMRC faces a demographic time bomb, over half of its workforce is aged over 45 and 18%  is aged over 55. That proportion is higher for senior grades where around 30% of Grade 6 and above are over 55.
  • Until the early 1990s the department had a well-managed graduate recruitment programme.  But since then recruitment has been stop start.  As an example around 200 graduates were recruited onto the fast-stream programme in 2012 but only 30 or so were recruited in 2011.
  • This makes planning very difficult.  It also makes it difficult to retain essential infrastructure including recruitment at graduate fairs, training and suitable development placements.   HMRC should publish its plans for graduate recruitment over the next ten years.  And these should include recruitment of at least 200 graduates on to the technical fast stream programme each year.
  • HMRC has also failed to invest in career planning and development.  Despite successive government initiatives to move work from London HMRC remains very focused on the capital.  For example the ratio of senior officers and above to higher officers and below is twice as high in London as the North East.

2. Reduced Capabilities

  • The cuts and the impact of the demographics  means there are not enough trained professionals across the various professions. HMRC is now running very hard to catch up. Thorough training  for Tax Professionals can take from two to four years. Many of HMRC’s most experienced staff are now near or over 60 and able to resign at any  moment.
  • ARC told the TSC last October about the  implications of the demographics. At Grade 7 level there are 11 people over 50 to one person under 30. In November 2012 around 40 people graduated from a 4 year tax professional training programme. But there were over 170 business critical vacancies for these 40      people.
  • HMRC is currently carrying at least 150 business critical vacancies at Grade 6 and 7; this will increase with the need to resource the autumn statement commitments and will increase further with the demographic profile of the department’s senior tax professionals.
  • HMRC’s ability to deal with multinational corporates, and in particular issues around transfer pricing, has been in the headlights, ARC would make the following points:

–      it is common for major multinational PLCs to have well-resourced transfer pricing teams – a team of around 15 specialists is not uncommon. These people are experts engaged permanently in maintaining tax efficient transfer pricing structures on a worldwide basis.  At the point where such multinationals become engaged on detailed transfer pricing discussions with the UK or another fiscal authority they would of course supplement their internal resource with Big 4 expertise. Using the model of transfer pricing resource as set out above means that ARC’s best estimate is that Transfer Pricing expert resource available in HMRC is barely four times that of a single multinational corporate – and HMRC deals with hundreds of such multi-nationals. And whilst the autumn statement will give HMRC some additional expertise, that will be nowhere near enough to match that available to corporates.

–      the complex nature of cross border transactions, along with the complicated structures of multinational groups, makes ensuring the correct tax treatment of those transactions among the most difficult work of HMRC’s tax professionals. Tackling that difficult work relies on a properly trained, skilled, developed and properly rewarded, cadre of senior tax professionals. The teams we have in place are incredibly effective, and bring in hundreds of millions to the exchequer, but they cannot deal with everything. And their expertise is sought after by accountancy firms and large corporates, so that there is a real fear that with pay, pensions and conditions being eroded in HMRC, we will lose this precious resource over the next few years.

–      ARC calls for a review of the impact on the UK tax base of new forms of technology, the capacity of businesses to incorporate in a choice of jurisdictions, and growing use of offshore intermediaries. Along with other fiscal authorities, the UK may be losing its ability to match tax revenues with the economic substance of trading and investment activity. To be fully effective we believe this work will have to be done on an international basis, perhaps via a working group sponsored by the OECD.

3. Reduced Morale and Engagement

  • Regrettably HMRC is still near the bottom of the Civil Service Engagement table. And  low engagement and morale is not just an issue for junior staff. A recent      FDA survey of SCS members showed 24% would like to leave their jobs soon      as possible. Even using the Government’s own figures 20% would like to  leave within 12 months – 5% as soon as possible and 15% within 12 months.  HMRC and the unions are working to improve on that, but it will take some time to address the legacy of trust and engagement issues.
  • HMRC staff still work incredibly hard but ARC members tell us they see little in the way of career prospects. Staff are publicly criticised by political  figures who distrust their abilities, at the same time staff do not seem to get Ministerial support. For example, witness the implications in  Austin Mitchell’s recent comments to the Big 4 at PAC “This is a game in which you are battling a slower-moving HMRC      with fewer staff and possibly smaller brain-power.”
  • ARC absolutely refutes the suggestion that HMRC senior tax officials lack brainpower –  far from it, many of the best tax brains in the country work for HMRC. But there is a serious imbalance in the amount of resource available to HMRC to combat tax avoidance and evasion compared with the resource available to the UK’s largest businesses. And, as we demonstrate below, there is a serious imbalance in remuneration paid to HMRC senior tax officials as      compared with those available in the private sector.
  • Indeed, ARC  believes the imbalance is now so great that there is a real danger that  HMRC will face an exodus of talent as soon as the economy recovers. Remuneration  imbalances are at least as great now as those which existed in the 1980s  when Inland Revenue was losing 10% of its trained and experienced senior tax professionals each year. Given current shortages and the demographic profile such an exodus would have a disastrous impact on HMRC’s ability to  tackle the tax gap and on the Government’s ability to reduce the deficit.  ARC urges Government to act now to address these pay disparities in order  to prevent a repeat of the damaging loss of resources seen in the 80s.

4. Reduced Pay

There is a wider issue over lack of genuine reward. Quite apart from the recent pay freeze and current 1% pay cap the Hay Group reported last December to Cabinet Office on pay comparisons, as part of the review of Market Facing pay. The table below compares market facing median total remuneration identified by Hay in each of 3 Zones for private sector jobs to median salaries at Grade 6 and & in HMRC (as at 31/12/2012). As the Hay report says, more senior roles tend to operate in national markets so a 3 zone model was adopted for grades SEO and above, and those zones are:

Zone 3 = Central London,

Zone 2 = Outer London,

Zone 1 = the rest of the UK.

HMRC has two pay Zones – London and National

Hay

 Zone 3

(Central London)

HMRC

London

Difference

(HMRC London to Zone 3

Hay

Zone 2

(Outer London)

Hay

Zone 1

(Rest of UK)

HMRC National

Difference

(HMRC National to Zone 1)

Grade 7 £89,383 £54,453 (£34,930)

(-64%)

£83,300 £74,967 £48,572 (£26,395)

(-54%)

Grade 6 £109,304 £70,784 (£38,520)

(-54%)

£95,841 £86,462 £63,716 (£22,746)

(-36%)

The figures show the extent of the pay lag and the scale of increases needed if HMRC median salaries are to even catch up the levels in the private sector as identified through the Government’s own research. It is worth adding that HMRC’s pay scale maxima are now misleading because the impact of scrapping pay progression in HMRC means most people are stuck at points well below the maxima.  There is effectively no reward for gaining experience in the grade and serious pay inequality amongst people doing the same jobs.

 

Revenue staff don’t go for easy options

ARC President Gareth Hills explains in Guardian that HMRC staff don’t go for easy options

http://www.guardian.co.uk/politics/2012/dec/04/revenue-staff-easy-options

“Jackie Ashley is right to be astonished at the size of the UK tax gap (Firms must pay their fair share of tax – this is war, 3 December) but is wrong to say “HMRC comes down heavily on the easy targets” and to suggest that “if you are big enough you don’t pay your taxes”. Yes, the powerful and wealthy can afford to hire armies of advisers to avoid tax. That will never change, and MPs are also very wrong if they think Britain’s tax-gatherers cannot match those they are up against.

Senior tax officials at HMRC deliver massively for the government and British public. Through their efforts, HMRC managers, investigators, lawyers and other professionals last year brought in £16.7bn over and above that returned by businesses and individuals. Members of my union, the Association of Revenue and Customs (part of the First Division Association), continue to deliver despite HMRC resource cuts. From its formation in 2005 to the end of the current spending review in 2015, HMRC will have suffered 10 successive years of staff cuts, with staff levels falling from close to 100,000 to around 55,000.

That is why the union’s programme to reduce the deficit and address the tax gap (published by ARC on 30 November) concluded that the scale of the budget deficit and the tax gap are such that modest investment or “reinvestment” in HMRC is no longer enough. It’s why we will continue to press the government to now abandon caution and properly invest in recruiting (and crucially retaining) HMRC’s senior professionals. And why we’re urging the government to work with other countries to reform the international taxation system.
Gareth Hills
President, Association of Revenue and Customs”

Investment welcome but not enough

Aside

Investment is welcome but doesn’t go far enough, says HMRC union

3 December 2012 For immediate releaseThe Chancellor’s announcement of a new investment of £77m in HMRC in this Spending Review period to tackle avoidance and evasion by wealthy individuals and multinationals was today welcomed by ARC (the union representing senior HMRC staff). This investment is expected to bring in an additional £2bn per year in tax that would otherwise have gone unpaid.ARC is urging the Government to develop and deliver a comprehensive investment package to address the entirety of the UK’s estimated £32bn tax gap and argues there is much more that could be done to close the gap.

ARC President Gareth Hills said: “This investment is a welcome one, but the Government should be considering a wide range of further investment measures to recover the avoided billions. The well-resourced tax avoider can only be countered by a well-resourced HMRC – and that means long-term investment to not only recruit but also retain tax professionals.”

ARC’s targeted interim proposal published on 30 November 2012 shows how an initially modest additional investment of £120m would deliver a return of £3.7bn. However, ARC recognises that the scale of the budget deficit and the tax gap are such that modest investment is no longer enough. The union is developing a comprehensive investment proposal for the 2013 budget, which will set out a long-term, strategic approach to the challenge of reducing the tax gap.

Notes for editors

1. The Association of Revenue and Customs (ARC) is a union representing senior staff in HM Revenue and Customs, including tax inspectors, accountants, lawyers, managers and other leading professionals. ARC represents members in HMRC at grade 7 and above, and also trainees in grade 7 entry schemes. It is also a section of the FDA.

2. The FDA is the trade union and professional body representing 19,000 of the UK’s senior civil and public servants. Our members include policy advisors, senior managers, tax inspectors, economists, statisticians, accountants, special advisers, government lawyers, diplomats, crown prosecutors and NHS managers.

3. The FDA (formerly the First Division Association) should be referred to simply as “The FDA” and can be described as “the senior public servants’ union”.
4. For further information contact:

  • Gareth Hills, ARC President, tel: 020 7401 5555 or 07870 592356.
  • Oliver Rowe, FDA Communications Manager, tel: 020 7401 5588 or 07590 838696.