Some Members in Enforcement and Compliance and More Specifically Local Compliance Will

Introduction

Some members in Enforcement and Compliance and more specifically Local Compliance will recall the situation prior to the outcomes from the 2010 Spending Review ( SR 10 ). A scenario of desolation , of drift towards a lack of quality work , locations closing and a lack of direction as we all understood it prior to Departmental merger . A sense of deep frustration permeated most compliance staff that many areas of compliance were not being tackled in any meaningful sense. The PCS recognised and understood the extensive feedback from members at the time and issued R&C/BB/185/09 asking members to let the PCS know their views about the “compliance journey” .

The PCS received magnificent feedback and that produced R&C/BB/433a/09 which published , publicly, a 20 page letter to the then Director of LC and the then Director General E&C which had been sent a month earlier. The strategy to start the process that resulted in the letter was initiated by the then AGS Compliance Margi Rathbone and her compliance PCS team of Lynden Melrose , Kevin Eaton , John Barrett and Chas Hay who then compiled and sifted the data to enable the letter to be sent .

From that letter sprung a notable sea change : we were at a crossroad and we took the correct step on the path towards being a better and more successful organisation with SR 10 . We gained a significant increase in many areas of compliance with additional resources – unique in the public sector at the time - and we have continued to see that in each successive fiscal event since then .

Things were not perfect – they never are – and the PCS in compliance has tackled some major issues ( and literally countless others ) on behalf of members since then notably reform of Tax Professional Qualifications – aspects of which in 2010 we correctly indentified and informed the employer were major impediments to success and that reform continues ; Caseflow - the journey to improve this continues and ultimately to replace it ; Penalties – still not as simple to administer as they could be and Grading – we have made major progress in setting the benchmarks across all regimes for grading from AA to G7.

In this period we also saw the extensive and comprehensive trial and adoption of the Single Compliance Process . This came from LC SME but has applications across the board in all aspects of compliance in E&C and BT . It proved categorically , once and for all , that visiting traders was the most productive form of intervention .

We have now reached another crossroad. The department has an estate strategy

 , a digital strategy

a compliance strategy . ( we have used the RIS site for compliance strategy as it appears to be the one that gives the best context for information purposes.

Now we have Building our Future :

It is not for this paper to comment in any detail about this announcement suffice to say this is the HMRC consultation with you about the changes and transformation the employer is seeking to make and perhaps some detail – possibly.

Together with other strategies they form the basis of the 2020 vision of HMRC as seen by ExComm . We are concerned in this document with the first 3 strategies above – linked to BoF - and what they mean for you - the member who has to deliver the real business of HMRC . We will now attempt to set out the vision the employer has and explain our alternative and why we believe it is more pertinent and a model for success rather than the employer’s . This is not to say we advocate no change or that we as individuals or collectively will not change – we must . The PCS vision is derived from feedback from members and we hope this document will provide even more views and issues to finally absorb into a complete PCS alternative vision of compliance in HMRC - made by those who really know and understand - you – the rank and file member.

We intend to set out facts – whatever they are and however unpalatable they may be . Only when fully informed can members contribute and we can formulate from your contributions a real vision for success .

HMRC Vision

In this section will set out – without PCS comment - the scope and purpose of the HMRC vision . It is as much as we know from either information from members or discussions with the employer . It is our understanding of their vision .

To reach the vision and attain the goals necessary to reach that vision ; HMRC set itself on the path of transformation – this is grouped into Change Portfolio Clusters . These are : B&C , People Skills Culture and Location , Data , E&C , Digital , PT , Process Transformation , Corporate and BT. In many of the clusters there are multiple sub programmes – sometimes managed together . We will touch on those of relevance only to this document.

Estates – People Skills Culture and Location cluster

- Location Strategy sub programme .

The department is under pressure to adhere to the Government Property Unit ( GPU ) accommodation standard . This 8m2 per person and based on desk sharing . There are minor exceptions but they are not material in the scope we are examining. This is not within the gift of HMRC to change and it means that even on current staff numbers we have ”too much” estate and that means – reductions .

Another driver in the estate arena is staff numbers. Overall HMRC has a settlement with the Treasury to reduce staffing in ALL areas ( BT , PT and E&C ) by the end of the fiscal year 2015/16 . There are additional plans – though not yet totally finalised - to reduce staffing even further . To attain the GPU standard aligned to staff numbers HMRC has the location strategy .

The HMRC location strategy is predicated on 16 major urban locations as a final outcome. Preferably before 2020 . It will offer more career opportunities to staff in these centres and it will offer flexibility but most of all it means HMRC can neatly meet the “targets” for estates .

- Remote and Mobile sub programme

It remains in its’ infancy but is often quoted as the panacea for having no spread of compliance locations and provides the path and adherence to 16 locations outcome. There is , as yet , no formulated workable strategy . Members must note that it is not the stated intention of HMRC to have “mass home working”.

Data Cluster and Digital Cluster

It is just 25 years since the advent of the World Wide Web and that has profoundly impacted our lives in one way or another . There is a generation in their 20s who know no different and the number like that will only increase. How the department will interact with people will change but no-one should be “left behind” . HMRC obeys the government agenda for the civil service - digital by default . They have no option . There are profound implications for all the people who use HMRC from this agenda but this document will confine itself to impact on compliance.

Should the digital products in relation to submission , collection , collation and understanding of data come about ( In the Data cluster managed in 2 distinct sub clusters of multiple sub programmes ) - it will provide a huge data store to be used in a more accessible way by RIS . RIS will use increasingly sophisticated computerised algorithmic interrogations ( mining and warehousing ) of multiple internal and external databases coupled with behavioural indicators in a real time environment to enhance and modify the interventions required in alignment with the compliance strategy . If it works – then with viable , sustainable , verifiable and true yield being realised at the compliance strategy stages – HMRC will reduce the right tax failed to be paid at the right time. This approach can all be grouped under the heading Data Analytics . This will free up resources to tackle those who have no desire to respond to “help” – such as those using aggressive avoidance schemes and involved in evasion. HMRC believes it will allow for the industrialisation of most interventions . The recent advent of the Merchant Acquirer Data , additional Offshore agreements and enhancements to CONNECT and ADEPT E&C are just some of the data that HMRC believe will deliver the superior RISK modelling required . Much of the change in the digital area is driven by outcomes from Spending Review 13 ( SR 13 ) .

A sub programme in the Digital cluster is the Whole Customer View – this will allow it is believed for anyone in HMRC to see ( along with the customer ) all the interactions with HMRC in one place.

E&C Cluster

A successor to Caseflow / CRMM remains a goal and is a sub programme in this cluster as are the improvements being made to Caseflow and CRMM . There are multiple other sub programmes in E&C many of which are familiar to members such as CAD and Mid Size.

Compliance Strategy

In this section we will set out the strategy for compliance and also refer to Business Tax and E&C Change Portfolio Clusters .

The compliance strategy is built on the phrase “Protect , Promote and Respond”. Promote compliance by designing it into systems and process . Prevent non compliance in real time using the data analytics and respond to non compliance as appropriate and modified via data analytics.

This will change compliance so by 2020 ( starting from 2013 ) error and failure to take reasonable care ( FTRC ) as corrected by HMRC will reduce from 18% approximately of all taxpaying entities ( ATE ) to 10% approx . It must be borne in mind that HMRC considered that 50% of ATE in 2013 make no error or FRTC or are involved in avoidance or evasion. At the same time evasion will reduce from just over 10% ATE to less than 10% ATE. There remains a section of ATE - 25% in 2013 reducing to well less than 10% ATE by 2020 who make errors and FTRC that HMRC is unable to discover. This will result in ATE who make no error or FRTC or are involved in avoidance or evasion grow to nearly 70% of ATE . A compliance success story .

There will be far more detail when the E&C Business Plan for the period 2014 to 2016 is published in very near future and we encourage members to examine that in great detail and let us know your views.

LC Transformation / Change

In LC – changes have already taken place – the advent of Mid Size , Large & Complex being split between Business Tax ( Large Business – Customer Relationship Manager allocated businesses ) and Mid Size , the advent and transfer of staff to Counter Avoidance Directorate ( CAD ) and the SME Transformation Review.

- CAD

Bringing together all E&C resources to focus on marketed avoidance schemes coupled with legislation designed to aid the overall avoidance effort will make major inroads in the HMRC effort to combat aggressive avoidance.

- Mid Size

An area of the customer population that has required a more focused effort looking at more sophisticated risk models and deploying resources where required to meet the risk.

- SME Transformation

This has effectively sought to work within the estate and digital strategies by ensuring that multiple objectives have or are to be delivered coupled with the complete review of all the work areas in SME . The work areas were examined for Location Specific / Non Location Specific ( LS and NLS ) and “Core” designations coupled with the SR10 objective of a move towards Evasion.

From this has come the Intervention Centre - to be based at two locations – Edinburgh and Newcastle . These will be hybrid centres ( in that they will compliment existing and increased work by the Compliance Centres e.g. Campaigns ) undertaking NLS work in the error and FRTC arenas within the Compliance Strategy of “Protect , Promote and Respond” and aided by the digital strategy. This will leave , what is considered to be , the resource intensive face to face intervention only to be carried where required and mostly in the Evasion arena ( reference E&C Business Plan 2013/14 and SR10 ) . The industrialised approach will in time operate in a real time environment using understanding of the customer base to provide help when required. HMRC will also seek to undertake evasion and complex cases via the IC on a remote basis .

It is the intention of HMRC to also segment the compliance F2F activity reducing the work of a F2F caseworker to purely compliance activity. The IC is intended to undertake all non tax specialist compliance activity from this and a test and learn pilot has commenced.

- Evasion

The capability in LC to deal with Evasion will increase substantially with varied work patterns and exist in both LC and Taskforce arenas.

- Conclusion

This is , by necessity , an abbreviated summary of the future and just because certain areas have not been detailed does not mean they will not exist or be part of the future vision in HMRC and in LC in particular . Areas such as Individuals , Anti Money Laundering , SEAT , TAPE etc will still be required and exist in the future.

This is , as was stated at the start of this section - the PCS outline from our sources but it is , we consider , a true reflection of a huge numbers of things that are happening or being planned . It has been given without direct PCS comment wherever possible as this next section of this document will now attempt to set out the PCS Vision.

PCS Vision

We will attempt to try and address , in sections , certain areas we see as incorrect or where there are omissions of logic – as we see it - and at the same time detail our vision for a successful HMRC.

Compliance Strategy

Is PPR the correct stance ? Yes. For too long we have worked mainly on downstream risks – respond - by undertaking compliance activity via a less than robust risk model . We do need to look at upstream risks and reduce them via “the 2 P’s” . But they cannot be a total panacea for compliance activity which also cannot be undertaken in all fields by phone and letter. Frankly it has to be laughable to imagine that an entity evading tax will respond to such an interaction. Compliance activity , in the round involving IC/CC with face to face interventions will provide greater coverage , productivity and results only when combined correctly with the appropriate enablers .

Estates

We will start at the most basic high logic allowing for some currently immutable factors. HMRC has to follow the GPU standard . If HMRC comprises “x” number of staff then by the GPU standard this will require “y” number of m2. M2 costs money . M2 is cheaper outside urban locations so it makes fiscal sense to ensure that where Location Specific work is required that it is as local as it can be to where the work has to be carried out not in only bare estate costs but also incidental fiscal costs such as Travel and Subsistence.

The issue of remote and mobile ( home working ) , as was stated above , is in its’ infancy but certain things are known . It is not meant to be compulsory , will only suit some people , will not cover any additional costs of working from home , may only be allowed temporarily and cannot and must not be a vehicle to avoid redundancy . And we have not even touched on the issues of “governance” and the real impact on people potentially involved in the team and managerial context . It does not therefore seem the “magic bullet” . To date ; HMRC have been clear that they do not envisage mass “home working”.

So basing , even on a high level a core estate strategy , HMRC on 16 major urban locations has deep flaws – fiscally , operationally and managerially. We will address the rather spurious argument that only having 16 locations will offer all participants more career opportunities in due course as we will with other facets of the strategy later in this document.

Location Specific Work

Does this work exist – yes. Has this been categorically proved that this is the most productive way of completing intervention cases and finding the maximum yield across all areas of compliance ? – yes ( reference : the long trial of the Single Compliance Process and the empirically measured outcomes ). Does this work for all tax heads and all practices ? – yes ( same reference ) . This is where things now get complicated as we must discuss Intervention and Compliance Centres and how they fit into the compliance spectrum and how they should work with LS work and the compliance strategy.

Let us start with the first question : should the IC and CC exist ? – most certainly yes as they will be able to ensure far greater coverage than ever would be possible without a number of intervention caseworkers reaching numbers that would negate the cost effectiveness.

Can the IC and CC with the compliance and digital strategies really have an impact on the FTRC and error markets by a: the overall tax gap and b: without the need for F2F caseworker interventions ? The answer to a: is yes but that has to be qualified and for that qualification we would refer you to the Yield section later in this document. The answer to b: is an emphatic no. There will be many entities that will not respond to a “nudge” or even seek to mislead via the method of contact ( phone or correspondence ) that an IC or CC will use or will not respond at all . Do we ignore these instances or do they begin to give an even more complex picture of risk that does require on the ground F2F intervention - the answer to the former must be no and the latter is of course yes . Even allowing for Affluent and Mid Size populations outside of the normal work area here there are numerous entities that are just totally unable to be dealt with via an industrialised process and require action to address FRTC and error. That action is face to face interventions.