JOURNAL 44

DO HMRC LEARN FROM THEIR MISTAKES?

We’ve done it! West Ham United’s win over Manchester United on Sunday to clinch their survival in the Premier League was the culmination of a magnificent run of seven wins out of their last nine matches. I can now breathe a huge sigh of relief, stop that niggling worrying (because of course like, I suspect, all Hammers fans I felt fairly confident that the team would do it after that fabulous result against Arsenal at The Emirates), and get on with tax.

Apart from having a celebratory drink or three, another thing I did over the weekend was look at HMRC’s last Annual Report to see what it said about penalties collected under the existing regime to compare them with what looks to me like a virtual doubling of effective penalties under the Finance Bill proposals. I couldn’t find what I was looking for, but did notice some figures for complaints considered by the Adjudicator that sidetracked me into visiting the Adjudicators website. There I pieced together the following information.

	% of Complaints upheld	Investigation closed	Assistance cases
1997/98	42%	582	?
1998/99	42%	603	2863
1999/00	32%	687	2928
2000/01	35%	673	2607
2001/02	39%	573	2948
2002/03	46%	503	2283
2003/04	35%	475	3955
2004/05	45%	561	4903
2005/06	43%	899	5641

Note: Assistance cases are where the Adjudicator did not open an investigation but helped the taxpayer to make a complaint to HMRC. The 2005/06 figure includes 27 cases where the Adjudicator investigated but referred the matter back to HMRC for an internal reconsideration.

A couple of points strike me from these figures. The first is that the percentage of complaints upheld remains fairly constant. The average over that nine-year period was 40% and most years fell within two or three percentage points of that figure. We are constantly told that HMRC take the Adjudicator’s criticisms very seriously and constantly make improvements to their systems to react to such criticisms. The figures do not seem to support this. I would have expected to see the percentage of complaints upheld gradually reducing as HMRC responded to lessons learnt.

I suspect that the reason why this seemed to be happening up to 2001/02 but no longer appears to be the case as that the savage cuts in staffing that the Chancellor has imposed – and continues to impose – on HMRC is coming through in terms of a reduced service as the pressures on the staff that are left force them to cut corners to the detriment of taxpayers.

HMRC’s annual report for 2005/06 contains a table showing that over the two and a half years from 1 April 2004 to September 2006 they cut staff from 97,755 full-time equivalent people to 90,040 and are targeted to reduce the level to 85,255 by 1 April 2008. This represents a reduction of almost 13%. Were HMRC really allowed by Ministers to have so much slack in the system, or does such a large reduction in staff, at a time when we have had some of the largest Finance Acts in history, represent a real squeeze in resources whose effect is being to show through in an increase in complaints? The Adjudicator certainly seems to have handled a lot more complaints in 2005/06 than in earlier years!

The other thing that struck my eye is the gap between investigations taken up by the Adjudicator and investigations completed. I do not have figures for all years as neither the Adjudicator or HMRC seem to list these consistently. A chart in the Adjudicator’s annual reports suggests that from 1993/94 to 1996/97 there were roughly 2,000 investigations started and 1,685 closed. The HMRC 2005 and 2006 reports indicate that from 2003/04 to 2005/06 the Adjudicator took up 2,047 cases and closed 1,818. These figures suggest that there are a growing number of open investigations. How long will it be before the Adjudicator herself has so many cases open that the time taken to carry out an investigation become unacceptable? The above figures suggest that open cases exceed the average of those closed every year, i.e. that there is a year’s backlog in dealing with cases!

Robert W Maas