Customs In Crisis

A ST J PRICE FCA laments the current state of the Department of Customs and Excise.

I BELIEVE THAT Customs and Excise are in crisis. I see much of their routine activity failing due to lack of management, while new initiatives tend to be so poorly planned as to have no prospect of success. I think we are all losing out in consequence, and that worse is to come.

The department was already suffering from too much reorganisation and too little management when Richard Broadbent was appointed chairman - and promptly changed everything once again. While there were no doubt good reasons for at least some of those changes, they were not explained properly. At a meeting with senior regional management in March 2001, I commented that I did not understand the new organisation chart which had been produced: the titles of the sections and those of the people running those sections did not appear to make sense. To my dismay, the senior managers present could only hold up their hands and agree.

I thought then that the board had made a fundamental error: if the senior people do not understand a reorganisation, what chance does it have of working? Subsequently, officers from all over the country have referred to the 'turmoil' within the department as the reason for not having dealt promptly with the cases I have been handling.

In two recent disputes, the failure of both officers and solicitors to reply to my representations has meant that I have had to make applications to the tribunal in order to force a response. In both cases, Customs got themselves into such a mess through their failure to act properly, that I was able to force a solution for one of my clients and will succeed for the other. However, the stress on my clients, and the costs generated by the action I have had to take, have far exceeded what would have occurred without that turmoil.

Lack of response

Sadly, the problem is not just mismanagement at operational level. Customs are not responding to representations on points of principle either, although that is not new. Twenty-five years ago in January 1978, I wrote to the chairman of the board in response to a public request by him for comments on the VAT system. My three-page letter was accompanied by 23 pages of detailed comment and recommendations. I received no response, so I put out an abbreviated version of the material as a press release.

Now, I am once again forced to go public. I attended the Hardman memorial lecture given by Richard Broadbent at the Institute of Chartered Accountants in England and Wales on 14 November 2002, and had a brief discussion with him after his speech. Having been disturbed by some of what he said and feeling the need to make more detailed comment, I sent him a seven-and-a-half page letter covering eight major policy matters on 4 December. By 15 January, no reply having been received, I checked with his office that the letter had arrived. That merely generated a brief acknowledgement from an individual at below board level, who, although senior, was unlikely to have the authority to deal with most of what I said.

I conclude from this that, if senior staff have so little perception of people relationships that they do not even reply to careful and detailed comment on policy ideas, which the chairman has himself put forward, it is people mismanagement which has got his department into the current mess.

There is no point in my repeating in this article most of the contents of my letter to Richard Broadbent, because it concerned the way in which the board should be directing the department's activities. Even if readers of Taxation agree with what I said, they can do little, if the board will not listen. Instead, here are some other points, which I have been trying, unsuccessfully, to get across to various people within the department over the last twelve months. Being matters of operational detail, it might help if readers also speak out about them. Moreover, some readers' clients are probably being hurt by them right now.

Right to a meeting

Throughout last year, my repeated requests for a meeting to discuss the practicalities and the legal basis for a statement of case lodged by Customs in a tribunal appeal were refused by the reviewing officer, then by head office policy, and then again by the solicitor handling the case. This was despite my saying that I did not, and still do not, understand the basis in the law for the arguments being quoted to me; indeed, I complained that that law had not even been set out in the statement case.

I believe it to be contrary to the Human Rights Act for the department repeatedly to refuse a meeting when a trader or his adviser asks for one. However, the head of complaints, London region, denied that there was any responsibility on the department to offer one. Admittedly, this is the first time that I have ever encountered such a situation. However, it is also the first time for some years that I have dealt with the customs side of the department; the case concerned import VAT. It has been suggested to me that officials in the customs and the excise sections are inclined to take an arrogant approach, and are reluctant to talk, compared with officers dealing with VAT.

If readers encounter such a situation, I suggest that they apply to the tribunal for a direction that Customs agree to a meeting. While there is no automatic entitlement to one merely for a rehearsal of the tribunal hearing, I believe advisers have the right to understand in detail the precise legal arguments being put forward by Customs.

Out-of-date notices

In that same case, part of the problem was that Customs were putting forward legal arguments directly contrary to what is said in Notice 702/7/93. I pointed out an early stage that the notice was out of date and grossly inadequate in its guidance. Having initially accepted that it needed to be rewritten and that I might be able to help, Customs have done nothing about it for over a year, despite my repeated requests for action. There are only two logical reasons for that neglect: disorganisation or a deliberate decision not to act because rewriting the notice would undermine the legal arguments in their statement of case.

Fortunately, Notice 702/7/93 concerns a specialist aspect of the law which few people have ever encountered, so the practical damage is likely to be limited. Unfortunately, however, it is merely an extreme example of how the department is mismanaging the publication of its notices.

Errors in notices

When consulting one of Customs' notices, one should be doubly careful. Firstly, errors on points of law are far more common than they used to be. Secondly, guidance on matters of policy, on which one used to be able to rely or with which one is supposed to comply, is sometimes omitted. This means that, in either case, few people other than experienced VAT specialists, would be aware of the point. An example is the potential liability for VAT on the costs of mobile phones provided to employees. The policy statement in Business Brief 14/99 is not mentioned in the VAT Guide, Notice 700 despite it still being in force.

Sadly, the quality of writing in the public notices has also deteriorated considerably over the last year or two. In every notice I have looked at, I have found ambiguities and poor grammar, in addition, usually, to mistakes on points of law. I have a file of e-mails and correspondence warning Customs of these. In one case, I received no response and, in others, lengthy discussions with representatives from the policy sections concerned showed they did not really understand the points I was trying to make. A request for the head of one policy section to contact me for a further discussion was ignored.

An example of the mistakes I have found follows. In July 2002, Customs agreed that there were two mistakes in Notice 700. Paragraph 8.3 says that delivery services are zero rated if the goods leave the United Kingdom, when in fact they must leave the European Union. As I write seven months later, neither that, nor the other mistake I pointed out, have been corrected.

Effective dates of policy changes

Changes of policy are often announced in new versions of notices. When asked when they took effect, Customs said it was when they were put on their website. Six months after I raised this issue, I am still arguing that the effective date should be when the notice has been publicised in VAT Notes.

The publication of Notice 708 Buildings and construction dated July 2002 illustrates why. It was not listed in VAT Notes until issue 3/2002, which was sent out in October to December 2002. The reason why that matters is that, on several occasions, I have been able to defeat all or part of an assessment by proving that the notice containing the guidance, on which it was based, had not been publicised to the trader concerned during the period assessed.

Weak advice

The National Advisory Service is bound to make mistakes from time to time, and it may be unfair for a specialist like myself to criticise on the basis of a few cases. However, I do believe that at least some of the training or guidance provided to the service is defective. An example I have encountered on two occasions, is nit-picking rulings by officers concerning zero-rated alterations to listed dwellings. Those rulings have been unsound in law and have ignored past tribunal and High Court guidance on the subject.

This may be partly because local National Advisory Service officers do not apparently have ready access to head office policy sections. Initially, they are supposed to refer to units of expertise, but those consist of officers who are themselves often out on visits and thus not available. Secondly, head office policy sections have created barriers by withholding their telephone numbers, which seems to me to be an absurd piece of mismanagement which, over time, will cost the department large sums in costs and wasted effort.

It has always been important not to rely on any guidance obtained, unless the adviser carefully records the facts he quoted, what was said to him and the National Advisory Service query reference. Even then, if the matter is of any significance, it is better to confirm it in writing, although one of the illogicalities of the system is that the written enquiries section is separate from the telephone one.

Rulings to customers

Finally, were readers aware that Customs are refusing to give rulings to customers? They say that only the supplier is entitled to one. Much of the time this may not matter, but sometimes it does. For example, with construction projects, a private or unregistered property owner, who believes that VAT is being incorrectly charged, has to begin his enquiries with the builder. If the latter claims to have had a ruling from Customs in similar circumstances and is therefore unwilling to raise the point again, or simply refuses to co-operate, an owner, who has already paid the bill, is powerless. I have pointed out to Customs that their refusal to discuss the matter with the owner encourages fraud. A builder can charge VAT on a supply he knows is zero rated, then, having collected the money, he can keep it, claiming to have realised that the VAT was not due but that the customer owes him the money anyway.

Since, many years ago, a tribunal held that a consumer's financial interest provides a right of appeal against a ruling once given, it is ridiculous that Customs should refuse to give it, assuming that all the facts are provided. I am currently arguing the matter with the National Advisory Service. In the end, I believe I will win, but it is yet another example of the absence of thought which is besetting Customs.

The National Advisory Service was set up to improve the quality of rulings and advice in general by centralising the operation. I get the impression that it has become just another section of the department, which has to work on its own without proper access to policy or to senior management. Certainly, if one questions a point of principle or asks about policy, it tends to take weeks and repeated pressure to get any response at all, let alone a coherent one from senior management.

Summary of my sadness

I am truly sad to have to write an article so critical of Customs. I know that the practical realities of life in a large civil service organisation will always mean that much of what it does is less than perfect. However, in the 1980s and 1990s, I was always able to get the mistakes I found put right, usually without too much hassle. Now, I cannot.

Most people within the department still do care about getting it right. However, I fear that their morale is lower than it has ever been and that, more and more, the disorganisation and lack of management is preventing them from performing. In the past, Customs have been a great department, which has achieved much. The department is of fundamental importance to all of us, both as a regulator of United Kingdom business in domestic and international trade, and as a collector of a substantial proportion of government revenue. We need an efficient department, which, for honest traders, puts oil in the system rather than grit.

If I am right that Customs is indeed in crisis, we shall all suffer.

A St J Price is a VAT consultant in Gloucestershire. He can be contacted on 01285 851888, fax: 01285 851889, e-mail: ASJohnPrice@btopenworld.com.

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