New Dawn on Investigations

BASIL SABINE FTII, OBE, MA reflects on Revenue Enquiries and Investigations.

IN THE 200-year old relationship between the Revenue and the taxpayer, the former is generally cast as Goliath and the latter as David. A basic difference is that there is no guarantee of the Biblical ending. There have been various posting stages in that relationship, i.e. the formation of the first Enquiry Branch in 1921, the shake-up in techniques in the 1970s plus the recent Taxpayer's Charter and the publication of the Revenue's taxation manuals. The last two deserve a little more comment.

Magna Carta

The Taxpayer's Charter is a much-neglected fiscal Magna Carta. Briefly, the Revenue can be expected:

• to be fair;
• to give help where required;
• to provide an efficient service;
• to be fully accountable for its actions.

In return, the taxpayer will be expected:

• to be honest;
• to keep and present accurate accounts;
• to pay the tax due on time.

The publication of the Revenue taxation manuals is a mixed blessing. In some cases there were omissions where confidentiality was thought to be involved. Secondly, and more importantly, they still remain the property of the Revenue and should never be read except in that context. In fact, they should carry a 'health warning' that they recommend procedures to be followed on the presumption that there is something wrong with the return to be examined. This also creates a somewhat ambivalent attitude towards random enquiries, where this sort of guidance cannot readily be assumed.

It might be noted that the Chairman of the Board of Inland Revenue has recently tried to reposition his charge in the public perception. Its publicity material now refers to evasion as 'cheating the public purse' with the clear inference that the evaders are swindling their fellow citizens and not some faceless bureaucracy. As Harold Wilson once remarked many years ago, 'one man's evasion is another man's increased taxation'.

The history of investigation is a gradual accretion by the Revenue of increased powers in this field. Further stimulus is ageing population, along with the Government's promise of increased public expenditure. That is the position now and the drive continues.

The current changes, which may be dated conveniently from the start of this century, are, then, the constant and intensifying feature of investigation targets. But there are two other features, both of which need discussion in the context of a development which is common to both.

Recent developments

The Revenue and the various professional associations were invited to give their opinion on self-assessment enquiries, including opening, requesting private bank accounts, opening interviews, and the Faster Working initiative. The results were illuminating.

There was widespread agreement that agents should be notified of an enquiry at the same time as the taxpayer, but the Revenue laid much greater stress on the importance of the opening interview.

On private bank accounts, as might be expected, the Revenue favoured encouraging taxpayers to provide them, as opposed to the agents. There was a clear difference of opinion on interviews in the opening stage of an enquiry, 70 per cent of agents being opposed: the Revenue does not seem to be pressing this. There was, however, general agreement on the need for a settlement interview.

As for Faster Working, it was generally agreed to be ineffective apart from a certain amount of speeding up. Overall, the consensus was that there was considerable room for improvement. The real importance of these discussions is that they were held at all and that they have given rise to formal reports, published under the title of 'Working Together'. This bulletin was first issued in May 2000, and there have been six more issued in all, the latest being in December 2001. The two main features of the current tax system covered are compliance and self assessment and accompanying investigations. The seven issues of 'Working Together' contain five references to the former and no less than 32 to the latter; this is not surprising, since it is still a comparatively new code of taxation. The ground covered stemmed directly from the press release of 9 December 1999 'Self Assessment Enquiry Procedures to be Reviewed', the terms of which were:

• to carry out, in consultation with interested parties both within and outside the Revenue, a review of all the processes and procedures involved in an income tax self assessment enquiry;
• to highlight those areas which were working well and those where improvements were needed; and
• to make recommendations on improvements that could be put in place.

Self assessment

There was some justification for concentrating debate on self assessment since there have been many problems in administration. The creation of discussion groups on both sides has been useful in ironing out problems on self-assessment enquiries. Specifically, the Revenue did its best with the increased penalty notices for 1998-99; there were in fact only 5,000 rather than the media estimate of 20,000 — less than 1 per cent of the 750,000 issued and a bare fraction of the nine million self assessment returns sent out that year.

Opening letters

A further source of complaint has been the opening letters to an enquiry, in two respects.

Firstly, the tone of the letters was thought to be somewhat intimidating. This aspect is still under discussion with the Revenue, the Operations Consultative Committee and, perhaps surprisingly, trade union representatives.

Allied to this is another continuing problem. Normal procedure is to send the opening, detailed, enquiry letter to the agent alone, the only contact with his or her client being the formal section 9A notice enclosing a copy of the two codes of practice to open the enquiry.

There are two opposing views of practitioners. The Revenue, knowing the strength of feeling here, is inviting feedback. This does represent a softening of the Revenue's attitude to public suggestion and criticism. The two possible revisions of the opening letter and the client contact are also relevant in cases of investigation.

Routine enquiry work

In the case of routine district enquiry work, the February 2001 bulletin distinguishes the possible reforms above and the more familiar procedural queries, such as the length of the opening letter. It also looks at how requests for disclosure of private bank accounts are to be treated, and the virtues or otherwise of early interviews. In earnest of the seriousness with which the Revenue treats such procedures, it has promised to report on the actual working of a selection of typical cases, where the actual working officers, teams and managers will be carefully consulted.

2001 campaign and reorganisation

In the 2001 edition of the bulletin is a report on full enquiries into company accounts, of which the number is scheduled to increase. This campaign will both coincide with deploying more multigrade teamworking, which is rated as being more cost efficient and effective, and the detailing of some officers of the Special Compliance Office to act as coaches and who may attend meetings. One anticipated concern is that where there are more than two Revenue personnel present, it is thought that this will 'accelerate progress', but only by consent.

The Revenue states that it is not simply a change in line management roles and internal organisation. As a key component in an overall modernisation programme, it is intended to support a root and branch change in conduct of Revenue business. Briefly, the local tax offices will be grouped into sixty or so management units (known as 'Areas'). Each area is headed by an area director (service) and an area director (compliance) and a corporate services manager (except in Scotland and London where there is a single area director because the work has either been centralised or exported). It is envisaged that centralisation would enable complex technical work to be better deployed, in enabling work to flow more freely to officers with appropriate skills.

A further and more ambitious project was to build a better understanding of the taxpaying public, firms and companies.

The reasons for these changes are two-fold. Firstly, the Revenue has now taken under its wing National Insurance contributions, tax credits, enforcement of the national minimum wage, and collection of student loans. Therefore the income taxpayer is no longer the ewe lamb.

Secondly, the Revenue feels the need to exploit fully its technology, its centralisation and its concentration of specialist resource. Meanwhile it must maintain its strict timetable. 2001-02 will be at best a transitional period as the new system and its staff settle down. The problems of self assessment and compliance will no doubt be profoundly affected so that any firm conclusions are bound to be purely speculative.

Reforms

It is clear that a new dawn of reform, consultation and co-operation is at least appearing above the horizon. True, it is admitted that there is room for improvement. But the difference now is the degree of operation on the Revenue side despite stories where the officer has 'executed the functions of his office in a harsh and vexatious manner' against which his 1857 Instructions had warned him. In self assessment and compliance the Working Together movement has been 'firmly established'. These developments coincided with dramatic and radical changes.

Issue: 3840 / Categories: