Cm 6225
Spring Departmental Report
The Government's Expenditure Plans 2004-2006
DEPARTMENTAL REPORT
Expenditure Plans
May 2004
This document is part of a series of Departmental Reports
(Cm 6201 to 6231) which, along with the Main Estimates
2004-05, the document Public Expenditure Statistical Analyses
2004, and the Supply Estimates 2004-2005: Supplementary
Budgetary Information, present the Government's expenditure
plans for 2003-2006.
The complete series of Departmental Reports and Public
Expenditure Statistical Analyses 2004 is also available
as a set at a discount price.
Departmental Report 2004
Spring Departmental Report 2004 1
£14.85
Cm 6225
Departmental Report 2004
Inland Revenue
Presented to Parliament by the
Paymaster General and the Chief Secretary
to the Treasury by Command of Her Majesty
May 2004
2 Spring Departmental Report 2004
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Spring Departmental Report 2004 3
Contents
Introduction
04
Medium Term Strategy
08
Delivering Better Public Services
PSA Targets 1 to 5
10
Modernising Government
24
Valuation Office Agency
32
Annexes 1 to 6
34
4 Spring Departmental Report 2004
Introduction
This year's spring report sees the
Department in the midst of huge changes.
In his Budget statement on 17 March the
Chancellor of the Exchequer announced the
outcome of the O'Donnell Review of the
Revenue Departments.
He accepted its recommendations to create new responsibilities for tax policy with
the Treasury taking the lead on tax policy development, and to join together the
Inland Revenue and the bulk of HM Customs and Excise to form a new integrated
tax Department. The Departments have long and proud records of successful public
service delivery and by bringing them together into a new organisation we will be
aiming to improve customer service, increase efficiency and reduce compliance costs
as well as improve compliance with the law.
We will also be making plans to move some more of our people out of London and
the South East as a result of Sir Michael Lyons' review and to make further efficiency
savings as a result of Sir Peter Gershon's review. All this amounts to a substantial
agenda for change, but because of our track record with change, I am confident that
we are up to the challenges of the year ahead.
In the last year we have achieved an enormous amount - a few examples:
•Provisional figures show that we collected net tax of around £156 billion and
NICs of £72 billion, and we paid out Tax Credits gross of over £13 billion and
Child Benefit of over £9 billion. Our National Minimum Wage compliance teams
established minimum wage failures in 40% of the cases investigated during
the year, identifying wage arrears of over £2.5 million for nearly 10,000 low
paid workers.
•Over 1m people are now filing their Self-Assessment tax returns with us
electronically. Since SA online was launched three years ago we have made many
improvements to our product in response to customer feedback and these are
clearly paying dividends. 490,471 people claimed their new tax credits on line
with a further 6,714,453 carrying out entitlement checks via our website.
The speed and efficiency of our e service mean that it is now rapidly becoming
an increasingly popular contact channel for large numbers of our customers.
•We continued our work on better understanding our customers so as to enable
us to make it as easy as possible for them to fulfil their obligations. At the other
end of the spectrum we continue to refine our methods for tracking down those
Spring Departmental Report 2004 5
people who still aim to cheat or avoid the system.
•As a result of the ASPIRE competition we have entered into a contract with CGEY
to provide technology services over the next 10 years. I am confident that in CGEY
we have found a partner that can help us fulfil the Government's objectives
on modernising public services, welfare reform and the expansion of e service.
We look forward to working with CGEY but we thank EDS and Accenture (our
previous suppliers) for their support and positive approach to partnership working
over the past ten years. Due in no small part to their efforts we have achieved
huge improvements in our IT systems and services.
•We started making tax credit payments on 7 April, with more than 1 million
payments in the first week. We all know the introduction of tax credits did not go
smoothly. The early months brought frustrations and difficulties for some of our
customers and many of our staff. By July we had overcome the systems difficulties
and now six million families are now benefiting from tax credits.
I would also like to recognise the personal achievements of two of my Board
colleagues who retired this year. Michael Johns CB, Chief Executive of the Valuation
Office Agency and a Commissioner of the Board of Inland Revenue, retired on
31 March 2004 after 6 years serving on the Board. Michael's wisdom, intellectual
skills and commitment to the highest standards of public service will be greatly
missed. And, of course, Nick Montagu Chairman of the Board of Inland Revenue since
July 1997 retired on 19 March 2004. Nick provided the Department with strong
leadership through a period of unprecedented change. He was instrumental in
embedding diversity into the business of the Inland Revenue and championing
business-based diversity across the Civil Service.
He led the Inland Revenue to the front of the Government's 'e' agenda and
championed the ground breaking customised Corporation Tax portal which was itself
the inspiration for the equally ground breaking set of online services recently rolled
out to self-assessment customers. Nick also put the Department on a world stage
by fostering links and sharing best practise across international tax administrations.
We wish Nick and Michael all the best for the future.
The Departments achievements over the past year prove that we have the skills and
attributes to work alongside our colleagues in HM Customs & Excise to make the new
integrated tax Department a real success. We have already started to do so. It is a
privilege and a pleasure to fill the chairman's role at this time and help the Inland
Revenue successfully close one chapter of public service history and play its full role
in opening another.
Ann Chant CB
6 Spring Departmental Report 2004
Purpose of the Report
Status
The Inland Revenue is a Government Department managed
by a Board of Commissioners appointed by Royal Warrant.
The Board consists of:
Chairman
Ann Chant CB
Deputy Chairman
Dave Hartnett CB
Director General
Helen Ghosh
Corporate Services
Director General
Steve Heminsley
Strategic Service Delivery
The Chairman of the Board is directly accountable to the
Chancellor of the Exchequer for the Department's performance
and expenditure.
The Board is assisted by a Departmental Board comprising
the statutory Board and non-executive members, Kate Owen
(Vice President, BP Amoco), Pat Stafford, and Rene Carayol
(CEO, Voodoo group).
The Inland Revenue is responsible for:
•collecting income tax; corporation tax; capital gains tax;
petroleum revenue tax; inheritance tax, stamp duty, and
National Insurance Contributions;
•paying tax credits and child benefit;
•providing valuation services for rating; council tax; Inland
Revenue and other public sector purposes;
•providing policy advice to Ministers in all the above areas;
•administering Oil and Gas Royalties and enforcing the
National Minimum Wage on behalf of Department of
Trade and Industry;
•collecting student loan repayments.
This report summarises the strategy and plans of the
Inland Revenue and reports progress on its objectives and
performance. The report sets out the main changes in
spending plans, compared with those in the 2003 Report
(Cm 5925).
IR Funding for 2004/05 (£3.3 billion)
Operations
Policy
Corporate Services
Main Projects - E Services
Main Projects - NTC
Modernisation of PAYE
Other projects
8%
2%
8%
3%
18%
3%
58%
Policy advice and services in relation to the valuation of land
are provided by the Valuation Office Agency, an Executive
Agency within the Inland Revenue, managed by a Chief
Executive who is accountable to the Chairman of the Board,
and through the Chairman to the Chancellor of the Exchequer.
The 2002 Spending Review set new plans for public spending
for 2003-2006. The chart below shows how we will be
spending our budget for 2004/05.
Spring Departmental Report 2004 7
STEVE HEMINSLEY
Strategic Service
Delivery
ANN CHANT CB
CHAIRMAN
Service Delivery
Support & local services
Marjorie Williams
IR Southern England
Keith Cartwright
IR Central England
Ed Mckeegan
IR London
Geoff Lunn
IR Northern England
Richard Cooke
IR Northern Ireland
Tina Gallagher
IR Scotland
David Hinstridge
IR Wales
Graham Black
National Services
Tony Sleeman CBE
Contact Centres
Ian Gerrie
National Insurance
Contributions Office
Steve McGrath
Child Benefit and
Tax Credit Operations
Jim Harra
Receivables
Management Service
Gordon Smith
Large Business Office
Stuart Hartlib
Performance
Improvement Unit
Steve Johnson
Closer Working Team
Nicola Walters
HELEN GHOSH
Corporate Services
Business Services
John Yard CBE
EBusiness
Barry Glassberg
Better Guidance
Roger Hurcombe
Accommodation
Robina Dyall
Revenue Finance
Stephen Jones
Internal Audit
Melvyn Neate
Human Resources
Stephen Banyard
Strategy and Planning
Simon Norris
IR Learning
Lin Hinnigan
Change Management
Centre
Simon Norris
Marketing &
Communications
Ian Schoolar
DAVE HARTNETT CB
Revenue Policy
Personal Tax
Tory Orhnial
Business Tax
Mary Hay
Capital and Savings
Gabs Makhlouf
Savings, Pensions,
Share Schemes
Caroline Rookes
Capital Taxes
Jonathan
Leigh-Pemberton
Stamp Taxes
Jim Ferguson
Charities
Mark Nellthorp
Trusts
Andrew Edwards
International
Adam Sharples
Centre for
non-residents
Charles Hall
Energy
Ian Stewart
Cross Cutting Policy
John Middleton
Tax Law Rewrite
Robin Martin
Analysis and Research
David Ulph
Special Compliance
Office
Richard Alderman
RP Corporate Services
Neil Munro CBE
PHILIP RIDD
Solicitor
Legislation
Steve Bousher
Taxes
Ebrahim Ali
General Legal Services
William Durrans
ANDREW HUDSON
Chief Executive VOA
(from 7 June 2004)
Local Taxation
David Park
Finance, Technology
and Planning
John Keelty
Modernisation
Paul Sanderson
Human Resources
Steve Hartnell
District Valuer Services
John Wilkinson
Information Resources
Gwenda Sippings
RP Strategy and
Co-ordination
Peter Michael CBE
Organisation Chart
8 Spring Departmental Report 2004
Government Policy Themes
The Inland Revenue exists to collect direct taxes, pay out tax
credits and child benefit and administer our other statutory
obligations, but we also play an important role in delivering
other government policy objectives
•meeting the productivity challenge
•increasing employment opportunity for all
•delivering high quality public services
•building a fairer society
•protecting the environment.
Inland Revenue Core Purpose
The Inland Revenue exists to ensure that everyone
understands and receives what they are entitled to and
understands and pays what they owe so that everyone
contributes to the UK's needs .
Business Direction
Our business direction describes four areas in which we need
to develop in order to be seen as here to enable as well as
regulate .
•enabling means making it as easy as possible for people to
understand their entitlements and obligations and succeed
at their first point of contact.
•regulating means we ensure people do not evade their
obligations or claim entitlements falsely.
Customers
•We will deliver the service customers need when and where
they need it by understanding how they can most easily
comply with their obligations and obtain their entitlements.
Community
•We will do all we can to help people to comply while
effectively detecting and deterring those who choose not
to, ensuring that
-everyone makes a claim or complies who should do
-we pay out and collect the right amounts and maximise
our cost effectiveness.
Processes
•We will have simple and easy to use processes which are
designed to suit the needs of the compliant majority and
minimise the need for unnecessary contacts between
customers and our staff.
People & Knowledge
•We will be seen as an employer of choice who values each
person's contribution to the business.
Medium Term Strategy
Spring Departmental Report 2004 9
Public Service Agreement
The 2002 Spending Review settlement provided funding for
financial years 2003/04 to 2005/06. The funding agreement
reflects the need to make progress on key government
reforms. Our Public Service Agreement (PSA) 2003-2006
supports the 2002 settlement and sets out commitments
to deliver results in return for the investment being made.
Inland Revenue Public Service Agreement 2003 - 2006
Aim - Administer the tax system fairly and efficiently and make
it as easy as possible for individuals and businesses
to understand and comply with their obligations and receive
their tax credit and other entitlements.
Objectives and Performance Targets
Objective : collect the right revenue, and give the right
entitlements, at the right time.
1Deliver improvements in the number of individuals and
businesses who comply with their obligations and receive
their entitlements.
2Deliver reductions in compliance costs of small businesses.
3Ensure by 2005 that 100% of services are offered
electronically, wherever possible through a common
Government portal, and promote take-up for key services.
Value for Money
4Achieve annual efficiency savings of at least 2.5% a year
until March 2006, without detriment to accuracy or
customer satisfaction.
5Achieve a 2.5 point improvement in customer service
by March 2006, as measured by an annual customer
service index.
PSA targets will be delivered through the activities of the
Department's change programmes and business areas.
The Department's Service Delivery Agreement (SDA) shows
its key targets and activities supporting PSA delivery.
10 Spring Departmental Report 2004
Progress - 2003/04 and 2004/05 targets
We are assessing performance against this high level outcome
by our performance against our supporting Service Delivery
Agreement (SDA) targets. Table A below shows latest progress
for 2003/04 where available and our targets for 2004/05.
Full details of 2003/04 results will be in the Inland Revenue
Annual Report to be published later this year.
As at this stage last year, we do not have a full picture of our
progress against this PSA target because information on some
of the supporting SDA targets is not yet available and some
are not assessed until the end of the period. The initiatives
we introduced to refine the availability and accuracy of
management information are beginning to take effect and
overall the indications are that we have made positive progress
against the majority of the SDA targets.
Achievements
Supporting Customers
Our Contact Centres provide professional services backed with
expert support for customers at times when it is convenient for
them, so that, where possible, enquiries can be resolved and
subsequent changes made with a single call. Contact Centres
now cover around 70% of the PAYE population. They also
handle all unsolicited calls on Tax Credits and National
Insurance Contributions. Pilot studies on the handling of e-mail
have also taken place in our East Kilbride and Cardiff offices.
We also supported customers by:
•continuing to build on the pro-active support offered by our
Business Support Teams (BST) to new employers on a
variety of payroll matters by way of workshops (and, where
appropriate, one to one consultations). Customer feedback
shows that over 95% of those receiving the BST service feel
more able to comply with their obligations
•progressing our pro-active marketing of the services
provided by the BST to new and small businesses, resulting
in sustained increases in the numbers of businesses using
these services
•improving our understanding around employer end of year
errors and sharpening the focus of customer contacts and
communications to help employers avoid the more
common pitfalls.
Payment and Filing
Our Taxpayer Payment and Filing Initiative (TPFI) co-ordinates
research and delivery of improved performance on payment
as well as filing for employers and individuals. In 2003/04 TPFI
has been extended to included companies. Activities include:
•making reminder calls to taxpayers, which our research had
shown are most at risk of filing late
•encouraging prompt filing of PAYE End of Year Returns
through our first ever national advertising campaign
together with the issue of a single sheet leaflet with the
April 2003 automated payment reminders sent to
employers. This encouraged over 1.2 million employers
to file on time. This years media campaign will provide
consistent coverage between April and May
•centralising high volume debt pursuit phone calls to small
and medium sized employers in our Receivables Telephone
Centre that prompts the payment of around £2 billion
PAYE/NICs debts each year
•automating initial Self Assessment (SA) debt and returns
reminder and telephone calls. The first bulk issue of the
reminder letter to around 600,000 individuals collected
around £230 million more SA payments than in the same
period the previous year
•using our SA advertising campaign on national TV, radio and
press coverage to remind taxpayers to pay and file on time
•developing the Integrated Debt Management System which
handles around 6 million employer and company work
items a year. It provides automation and work management
support from reminders and predictive dialling telephony
through to bulk transfers of cases to the Lord Chancellor's
Department's County Court bulk Centre.
Delivering Better Public Services
PSA Target 1. Deliver improvements in the number of
individuals and businesses who comply with their obligations
and receive their entitlements.
Spring Departmental Report 2004 11
Tax Credits
Six million families are now benefiting from the new tax
credits. This means that tax credits are already reaching all
those we expected to receive them.
We have written to claimants telling them how they should
finalise their award for 2003/04 and how to make their claim
for 2004/05. This renewals process has been supported by
a media campaign designed to encourage timely responses
from claimants.
Child Benefit
We have continued to support customers wishing to receive
their Child Benefit by direct payment, and now have
arrangements with 85% of customers to pay directly into their
bank accounts.
NIC's
Improved control and input of returns by fast keying and
Intelligent Character Recognition (ICR) for transmission to the
National Insurance Recording System has improved the speed
of processing the expected 18.6 million paper End of Year
Returns (P14s).
Improving tax compliance
We have continued to develop our approach to tackling
non-compliance and in the 2003 Budget the Chancellor
provided £66m in extra funding over three years. Under the
heading of "Spend to Save" these additional funds are being
used to tackle specific forms of non-compliance and avoidance.
The funds have been allocated across four main areas of
non-compliance:
•In our Special Compliance Office, two teams have been
formed to recover tax evaded by individuals who have used
offshore trusts to conceal untaxed profits. A dedicated team
in Capital & Savings is working closely with them to tackle
Inheritance Tax issues arising from these trusts. This work is
already showing very encouraging results with the prospect
of more cases being uncovered. These teams have already
recovered several millions of pounds in previously
evaded tax.
•In our Large Business Office (LBO), a small amount of the
funding package is being used to improve our capability
to confront the largest cases of tax avoidance. The LBO has
recruited experts in leasing and banking that will allow early
access to quality legal expertise to help challenge
these schemes.
•We have also set up a small national team to co-ordinate
our work in tackling National Insurance avoidance from the
use of assets as remuneration.
•The largest amount of money, around £51million,is being
used to fund special teams to ensure that individuals who
do not submit their Self-Assessment Returns and pay the
tax owing do so. In many cases, these returns are
outstanding for a year or more.
Other projects will improve our effectiveness in collecting
outstanding tax and National Insurance liabilities in cases
of insolvency and non-payment of debt generally.
We have now completed the first year of the compliance
package announced in the 2003 Budget. We have recovered
around £100 million in unpaid tax and National Insurance
in the first year (although in fact some teams have only
been operational since September 2003). Based on this we
remain confident that overall we will deliver the three-year
£1.6 billion yield commitments (£1.3 billion in the
Financial Statement and Budget Report) we have given
to the Chancellor.
12 Spring Departmental Report 2004
Table A
SDA Target
2003/04 2003/04 2004/05
TargetProgress Target
Compliance
% of ITSA returns filed by the due date1, 2
90.6
90.6
90.6
(result)
% of ITSA returns filed within 12 months of the filing date2
96.9 97.597.5
(result)
% SA taxpayers who pay by due date
89.3
not yet
89.5
available
% SA taxpayers who pay within 12 months of due date
98.6
not yet
98.7
available
% of employers returns filed by the due date
74.5
not yet
804
available
% of employers returns filed within 12 months of the due date
95.2
98
95.2
% of employers who pay by the due date3
52.1 51.7 52.1
% of employers who pay within 12 months of the due date3
96.8
97.7
96.8
% of Companies returns filed by due date
-
-
to be
set later
% of Companies returns filed within 12 months of the due date
-
-
to be
set later
% of Companies who pay on time
-
-
to be
set later
% of Companies who pay within 12 months of the due date
-
-
to be
set later
% of individuals who submit accurate returns
70
70
70
% of employers who submit accurate returns
58
60
60
% of enquires worked to a fully satisfactory standard
89.5
85
89.5
% of full enquires which result in the detection of non-compliance
76
78
78
New tax credits
% of all new claims/renewals/Changes of Circumstances (CoCs) decided within 5 working days of receipt 55
75.1
55
% of all new claims/renewals/CoCs decided within 30 working days of receipt
95
91.7
95
% of all new claims/renewals/CoCs decided accurately
90
not yet
90
available
Child Benefit
% of all claims cleared within 5 working days
-
-
62
% of all claims cleared within 36 working days
95
92.7
93
(result)
% of all reported changes of circumstance cleared within 14 working days
95
97.9
95
(result)
% accuracy of processing claims
98
98.3
98
% accuracy of processing change of circumstances
96.5
96.9
96.5
Spring Departmental Report 2004 13
SDA Target
2003/04 2003/04 2004/05
TargetProgress Target
NICs
% of notifications recorded by:
- 31 December 2003
94
99 .4
975
(result)
- 31 March 2004
98
99.8
98
(result)
Repayments
% of repayments received in specialist repayment offices (IROs) dealt with within
97
91
97
15 working days
% of tax repayments in IROs calculated accurately
96
96.9
97
1Target based on returns issued at 31 October. We count returns received before close of play on 1 February 2004. This reflects the decision in the case of Steeden-v-Carver,
which means that we cannot impose late filing penalties until 24 hours after the statutory filing date of 31 January.
2We also exclude an estimate of returns never received
by taxpayers.
3Result reflects the % of employers paid up to date 4 working days after the due date. From April 2004 changes to management information systems will enable accurate data
to be provided for employers who pay by the due date (19th of each month).
4Target based on period of grace covered by ESCB46, where penalties will not be charged provided returns are received on or before the last business day within seven days
following the statutory filing date.
5Target based on the number of P14s processed at 31 December as a percentage of the number of P14s received on that date (previiously based on number of P14s received
at 31 March).
14 Spring Departmental Report 2004
Plans 2004/05
Ensuring compliance through enabling and regulating
Promoting Customer Compliance and tackling
Non-Compliance
The Government's objectives for the tax system are that it
should raise money to fund Government expenditure plans,
and should do so in a way which is fair, competitive and
promotes incentives to work, save and invest. In addition, the
Government is concerned to preserve the integrity of the tax
system by ensuring that everyone pays their fair share of tax
and claims their proper entitlements. A tax, contributions and
entitlements system in which everyone pays or claims what is
due - no more and no less - forms the foundation for stable
public finances and world class public services.
A new strategic framework has been developed to support
these aims. This is designed to ensure that the Inland Revenue:
•strikes a proper balance between its various compliance
activities;
•focuses on significant risks while maintaining the integrity
of the tax system by appropriate policing; and
•secures value for money by allocating its resources
efficiently.
The new framework will also, over time, enable us to:
•better support customer compliance and tackle
non-compliance;
•better inform the design of the underlying tax measures
and the way in which they are administered.
Strategic Approach
We are moving to a strategic approach in which the
performance of the full range of our compliance work is based
on the achievement of outcomes which have a measurable
impact - direct and/or indirect - on the amount of
non-compliance. The allocation of resources will be targeted
towards those areas where the impact on non-compliance
is most effective.
This new approach has five key elements:
•Identifying and measuring risk
•Identifying and devising responses appropriate to the
particular risk involved
•Researching and evaluating the intended impact of
these responses
•Reallocating resource and supporting change
•Monitoring performance and improving.
Design of underlying tax machinery
Under this new approach, barriers to compliance will be
examined and evaluated.
Spring Departmental Report 2004 15
Liaison and closer working
We will continue working with other Government
Departments and agencies. For example, the Department
of Work and Pensions as well as overseas fiscal authorities
to increase understanding and acting on the risks of
non-compliance.
Our Closer Working projects with HM Customs and Excise
will now be re-evaluated in the light of the Chancellor's
announcement that a single new Department is to be formed
covering both direct and indirect taxes. We expect that the
changes announced will remove organisational barriers to
collaboration on risks that are common to both parts of the
tax system.
Through Closer Working with Customs and Excise we have
supported compliant businesses by reducing their costs and
challenging unfair competition from non-compliant
businesses. We have increased levels of compliance in taxes
and National Insurance Contributions by further support of
the Joint Shadow Economy Teams (JoSETs). Twenty JoSETs
have been operational across the UK since April 2001 and
continue to perform strongly for all of the stakeholder
departments, the Inland Revenue, Customs and Excise and the
Department for Work and Pensions. We also have two Joint
Fashion Industry Teams (JoFITs) and a multi-agency team
which is playing a leading role in a new approach to counter
the illicit activities of labour providers. Consistent standards
for information exchange between departments have been
established in the business.
Impact on Business
We will strike a balance between effective assurance and
ensuring compliant businesses are not overburdened.
What all of this means in practice
In practical terms, the new strategy will be visible in a number
of ways. There will be:
•increased focus on changes that help eradicate error -
to free up resource to deal with deliberate non-compliance;
•increased use of enabling techniques to ensure higher rates
of customer compliance without the need for individual
enquiries in all cases;
•a more explicit focus on those areas where the risks of
non-compliance are highest;
•more use of external specialists, where currently we do not
possess relevant knowledge.
Combating fraud
Combating fraud and evasion is an important part of our
overall compliance strategy. Building on the work described
above we be looking closely at the risk from fraud and evasion
on a sectoral basis to improve identification of risks from
fraud, and provide tools to assess the most cost-effective
ways of tackling those risks.
We are also reviewing how we get more effective publicity
for our work on tackling fraud and evasion, including how
we can get better publicity for criminal prosecutions. This,
we believe, will further extend the deterrent effects of our
work in this area.
Challenging avoidance
The new strategic framework will also allow the Inland
Revenue to better co-ordinate and manage its response
to avoidance risks.
We are doing this in a number of ways. Our Special Compliance
Office and Special Investigations Section have a strong track
record in tackling the most complex tax avoidance schemes.
We are increasing the resources in this area and further
improving our effectiveness through partnerships with the
Large Business Office, Local Area offices and other operational
offices. However as well as building on these operational
approaches to avoidance we are developing new strategic
"tools" to allow us to tackle tax avoidance in ways that will
enable us to identify and close down the most abusive
schemes before they have a chance to spread. As part of
this, the Chancellor announced on 17th March 2004 new
rules on the disclosure of tax avoidance schemes. This will
require promoters of tax schemes to disclose them around
the time they sell them to clients. Some taxpayers that are
able to devise their own schemes will also be required to
disclose them.
We are also setting up an Avoidance Intelligence Unit ("AIU").
This small team will play a key role in analysing and
risk-assessing disclosures made under the new rules and
will improve the linkage between our policy teams and our
tax avoidance experts in Special Investigation Section, Special
Compliance Office and the Large Business Office. The AIU
will also build on the work we have been doing in avoidance
proofing new legislation and will have strong links with our
OECD partner countries.
16 Spring Departmental Report 2004
Criminal Prosecution
During 04/05 the prosecutions undertaken by our Special
Compliance Office will play an integral role in the delivery
of the new compliance strategy. We will be focusing on cases
where prosecution will do the most to promote compliance
and deter fraud. In particular we shall, in line with the
recommendation of the PAC, continue to ensure that our work
extends across all taxpayer groups to maintain deterrence
across the entire taxpayer base.
Improving customer compliance
The new compliance strategy is designed to improve
understanding of the nature and scale of the risks as well
as the range and cost-effectiveness of responses available.
This will allow us to use our resources most effectively in
reducing the amount of non-compliance.
The Department's enquiry powers provide a focus for getting
things right and we have developed a range of techniques
to help people within identified risk groups get their returns
right first time. Work will continue reviewing the design of the
tax system and the way it is administered to ensure that there
are no unnecessary impediments to customer compliance.
This includes the design of "products" used by our customers
(for example the ease with which a form can be completed,
or the Revenue's Internet site navigated).
Spend to Save
In Budget 2004 the Chancellor has announced a further
package of compliance measures to allow us to tackle other
areas of non-compliance by building upon our ongoing
compliance activities and the spend to save work we started
in 2003. This additional funding of £115 million over
three-years in return for additional yield of £2 billion
(£1.7 billion in the Financial Statement and Budget Report)
will build for the future across all of the risk areas. It will
support our compliance strategy through a combination of
regulatory as well as enabling activities and improvements
to our organisation so reducing the number of non-complaint
individuals and companies leading to lower levels of tax
debt and improved cash flows to the Exchequer.
National Minimum Wage (NMW)
Our core purpose is to ensure that all workers entitled to
receive NMW get it and all employers who are obliged to pay
it do so.
Targets
2004/2005
Number of completed investigations
5,200
% of cases where non-compliance identified
35%
Standards achieved in casework
83% - 87%1
% of successful Tribunal cases
90%
Number of enquiries
50,0002
Number of complaints received about
1,8503
non-payment of minimum wage
1We aim to achieve an average score for cases worked under the NMW Compliance
Quality Initiative (CQI) of between 83% and 87%.
2This figure is a forecast.
3This figure is a forecast.
Debt reduction
•developing our Joint Employer Remittance Initiative
to reduce late payments by the largest employers
•building on our successful initiative to tackle the
oldest debts
•developing a Debt Analysis Matrix. This identified a baseline
at March 2003 and data is now recorded monthly to build
a picture of the profile of debt across the year. We are using
this to accelerate cash flow and reduce outstanding debt.
Customer contact
•reviewing all the contacts made by employers, to identify
where contact adds value (to us, and to the employer
concerned) and reducing the need for non-productive
contact through better employer processes and products
•strengthening our existing Working Together relationships
with tax professionals at the national level by identifying
the key areas for improvement in our systems and involving
our partners in planning those improvements
•promoting greater understanding of the different pressures
and constraints on tax agents and Revenue staff in Enquiry
work through joint Enquiry Workshops, with a view to the
smoother working of enquiries
•appointing a Small Business Champion, who is developing
a strategy to support small, medium and new business
enterprises (SMEs). The champion is also responsible for
implementing the recommendations of the recent internal
review to improve the support given to SMEs in
partnership with other government departments and
external organisations
Spring Departmental Report 2004 17
•establishing a Steering Group to direct the team that
now manages our relationship with the Voluntary and
Community Group (VCS). We are inviting voluntary sector
representatives to be a part of that Steering Group and
we will continue to involve the Sector in the early stages
of new initiatives, projects and product development for
us to better focus on the needs of our customers.
Pensioners/Students
•taking forward recommendations of our review of the way
we deal with pensioners which should result in key
improvements over the next few years
•continuing to review student issues and, as a priority,
developing and launching a dedicated website [during
2003/04] to provide information tailored to their needs.
Tax Credits
•ensuring that there will be continuity of payment in
2004/05 for anyone receiving tax credits in 2003/2004
•writing to claimants telling them how they should finalise
their award for 2003/04 and make their claim for 2004/05,
if appropriate. This renewals process will be supported by a
comprehensive communication plan designed to encourage
accurate and timely responses from claimants. In addition
1,300 new staff have been recruited in call centres and
enhanced monitoring processes together with contingency
plans to deal with unexpected increases in demand have
been developed
•preventing non-compliance in tax credits and detecting
and correcting it where it occurs through a combination
of verification checks (carried out on all tax credit claims)
and investigations into some claims which through risk
assessment have been selected for more detailed enquiries
•expanding our risked based approach for examinations
and enquiries to include penalties for cases selected in
2004/05, both as a deterrent and as a means of
encouraging compliance
•rolling out enhanced IT support through the Data
Warehouse to enable new profiling techniques and
enhanced compliance activity in 2004/05 (as in 2003/04)
to be more easily directed at the areas of highest risk
•building expertise within Special Compliance Office with
a view to increasing the number of criminal prosecutions
for fraudulent claims to tax credits.
Other initiatives
•introducing new Child Trust Funds (CTFs) and the rollout
of a new computer system - CB2 - which will modernise
the way we deliver Child Benefit and support the
implementation of CTFs
•providing support to voluntary sector and professional
intermediaries
•expanding our generic debt and return IT system by starting
a major new project to bring SA debts and returns onto the
Integrated Debt Management System. This will be
completed in 2005
•building on our success of attracting take-up for our Online
services and other modern payment methods
•using our knowledge about our understanding of customers
and the factors that influence their behaviour towards their
dealings with us
•developing risk-profiling techniques to identify people who
should be paying tax; are entitled to repayments or may
have made incorrect claims for tax credits
•continuing to advance our customer relationship
management approach, including examining ways to
reduce non-productive contact between our customers
and ourselves
•providing better leadership and management.
18 Spring Departmental Report 2004
Progress 2003/04
Consultation has gone ahead during 2003/04 on the reform
of a number of major areas in which there is potential to
reduce compliance costs:
•Income Tax Self Assessment (ITSA)
•Corporation Tax
•Construction Industry Scheme
•Pensions
•Company vans
•Research & Development tax credit.
We have also:
•provided further help to businesses and employers by
providing electronic tools to help with the calculation
of payroll and corporation tax
•carried out a pilot of the issue of shorter tax returns
to employees and certain self employed persons
•simplified the administration of employee share schemes
•revised the rules on payments by employers towards the
costs of home working by employees
•produced revised PAYE Regulations under the Tax Law
Re-write Programme
•introduced the National Insurance Contributions and
Statutory Payments Bill in November 2003, to streamline
the administration of tax and NICs
•produced new web based guidance about tax and NICs
on expenses and benefits .
The following have also contributed to delivery of the target:
•Better Guidance Programme providing consistent, easy to
use and understand guidance to customers
•cross government guidance for people starting in business
delivered in the No Nonsense Guide to Government rules
and regulation and through www.businesslink.gov.uk -
a cross government online service providing "information,
guidance and action-support" that will make it simpler and
easier for people to find out what they need to develop and
run their business.
Plans 2004-05
During the year we will be
•consulting on the practical aspects of moving to direct
payment of the working Tax Credit, removing the need
for employers to administer this through the payroll;
•consulting on modernisation of the Accrued Income
Scheme, following the announcement in the 2004 Budget.
•working with other government departments and bodies
to implement the Government Action Plan for Small
Businesses which built upon the Cross Cutting Review
of Government Services for Small Businesses
•continuing to consult on
—Corporation Tax
—Pensions
—Construction Industry Scheme
—Income Tax Self Assessment (ITSA)
•introducing a further Tax Law Rewrite Bill before the
end of 2004
•providing information and support for small employers who
want to qualify for a financial incentive if they file end of
year returns on-line.
We will also continue to work on development of techniques
to evaluate compliance costs, and in particular to assess the
non-legislative measures that we take to reduce compliance
costs for small business.
PSA Target 2. Deliver reductions in compliance costs
of small businesses.
Spring Departmental Report 2004 19
We will:
•For Self Assessment (SA), Employers (PAYE), and Corporation
Tax (CT), ensure that customers can:
—File annual/end of year returns
—View and amend customer-specific data (such as account,
designatory details) on-line
—Make payments electronically
—Use Online Services to communicate with Inland Revenue
regarding their own specific circumstances.
•For Tax Credits we will ensure that customers can make
claims Online and view/amend customer specific data Online.
Progress in 2003/04
Inland Revenue website www.inlandrevenue.gov.uk
Our award winning website, one of the most-visited in the UK,
with up to 1 million hits a week was rebuilt over the last year.
The new design includes new screens, clearer information
structure, and improved navigation.
The approach across the whole site allows customers
to navigate by who they are ( individual, employer etc. )
or by intention ( I want to... ) or by subject ( Tax Credits,
Self Assessment etc. ) or by any combination of these three.
This means it is much easier for users both to find information
they want and to use the transactional Online Services.
Feedback from users has been positive.
Online Services
We already offer 55% of our services electronically, and this
includes:
Self Assessment Online
This service enables individuals and agents (on behalf of their
clients) to send Income Tax Self Assessment (SA), Trust and
Partnership tax returns over the Internet.
The number of SA returns sent over the Internet during
2003/04 was more than double the previous year's take up
at 708,345. Including the 398,659 SA returns received from
agents via our Electronic Lodgement service, more than 1.1
million SA returns were submitted electronically in 2003/04.
PAYE Online for Employers
This service enables employers, agents, payroll bureaux
and other intermediaries to send and receive a wide range
of PAYE forms and returns via the Internet or our Electronic
Data Interchange (EDI) service.
More than 6 million employee summaries (P14s) were
received online during 2003/04.
Tax Credits Online
This service enables customers to check whether they qualify
for tax credits, submit an online claim form, and notify
changes of circumstances.
Corporation Tax Online
This services enables companies or their agents to view their
Corporation Tax payments and liabilities, and to file
Corporation Tax returns over the Internet.
Stamp Duty Land Tax Online
This service, launched in December 2003, allows solicitors,
conveyancers or their clients to complete the new Stamp Duty
Land Tax forms Online before printing, signing, and posting
these to us. The online help, data validation, and tax
calculation ensures that these forms will be processed quickly.
Later in 2004, customers will be able to submit these forms
over the internet.
Child Benefit Online
This service helps customers to check their eligibility to
Child Benefit, send an online claim form, or report a change
of circumstances online
Payment Online
We offer a range of ways organisations and taxpayers can
pay electronically. Self Assessment tax and PAYE deductions
can be paid by Debit card over the Internet. Self Assessment
tax can be paid by Debit card over the phone. Self Assessment
tax, PAYE deductions, and Corporation Tax can all be paid
using the electronic banking facilities offered by banks.
PSA Target 3. Ensure by 2005 that 100% of services are
offered electronically, wherever possible through a common
Government portal, and promote take-up for key services.
20 Spring Departmental Report 2004
Other Online services
We also provide further help to employers and companies
through a range of tax tools and calculators to help with the
calculation of payroll and corporation tax. These include
Maternity Pay calculator, Car and Fuel benefit calculators.
Cross Departmental Initiatives
We continue to contribute to www.BusinessLink.gov.uk
a cross-government initiative, which provides information,
guidance, and action-support for small and medium-sized
businesses. In addition to a wide spectrum of
cross-departmental information on starting in business,
the site provides easy to follow information on tax,
National Insurance and payroll.
We are also closely involved with Directgov , the new
cross-departmental portal offering a range of rich Online
services for citizens. Directgov was recently launched by the
e-Envoy and will replace UKonline as the primary focus for
online citizen interaction with government. We are both
sponsoring and leading the development of 'Money and
Government', a core component of Directgov, and are
committed to working closely with colleagues in the Office
of the e-Envoy and DWP to deliver a high quality service
covering transactions between citizens and government.
Plans 2004-05
Our key priorities are to:
•Make further progress towards achieving 100% online
availability of our core services (Self Assessment, PAYE,
Corporation Tax and Tax Credits) by 2005/06;
•Promote increased and sustained levels of customer
take-up of key services; and thereby
—Generate the administrative efficiency savings (through
reduced local office workload) necessary to justify total
programme investment in the long term.
—Develop proposals aligned with emerging requirements
from the Gershon and O'Donnell Reviews.
We plan to
•Ensure that existing Online Services (offered through the
Internet, Electronic Lodgement and EDI) are robust and
reliable, and continually improve performance and
customer satisfaction
•Continue to work in close consultation with customer
groups to design new online services, and improve existing
online services
•Implement new portal services for individual taxpayers
(and their agents)
•Further improve the usability of the Online services for SA,
Corporation Tax and PAYE to help drive take-up of these
services to higher levels.
•Invest further in infrastructural improvements - particularly
in our portal architecture - to support customer
requirements, ensure greater operational stability, and
support future developments.
•Support the development of Online Services across the
Department (e.g. Modernising PAYE Processes for
Customers, New Tax Credits, Stamp Duty, Pension
Simplification, Child Trust Fund and Construction
Industry Scheme)
•Start to introduce electronic communication between
Inland Revenue and our customers.
Take Up by 2005/06
Take up targets for each online service, taking account of
varying rates of expected take-up by the different customer
groups concerned (individuals, employers and companies)
are shown below:
Individuals
25% of SA returns filed by 2005/06.
Employers
45% of P14s for the year 2004/05 to be filed in 2005/06.
55% of P14s for the year 2005/06 to be filed in 2006/07.
Companies
CT Large Companies
75% of CT returns filed by 2005/06 and 75% of companies
actively using the CT portal facilities by 2005/06.
CT Medium-sized Companies
59% of CT returns filed by 2005/06 and 59% of companies
actively using the CT portal facilities by 2005/06.
CT Smaller Companies
11% of CT returns filed by 2005/06 and 11% of companies
actively using the CT portal facilities by 2005/06.
Spring Departmental Report 2004 21
These SR2002 efficiency savings are expressed in terms of
savings in the Department's administration costs. In monetary
terms, this requires the Department to make savings of
£m68.5 in 2003/04, £m137.0 in 2004/05 and £m205.4
in 2005/06.
Savings fall under 3 generic types:
•Where we deliver new work for which we were not funded
•Where we did the same amount of work as planned for less
money than we had planned
•Where we have absorbed a volume growth in work without
additional funding.
Assessment of progress and plans for 2004/05 and 2005/06
We are on course to achieve the 2.5% target in 2003/04.
There is a broad range of work underway which we expect to
deliver the required levels of savings in 2004/05 and 2005/06.
The savings are being calculated on a consistent basis
in accordance with approved methodology.
Delivering new work for which we were not funded
The challenging programme of work we face includes some
activities for which funding was not provided in SR2002.
Examples of such unfunded work include the Modernisation
of Stamp Duty, introduction of the Child Trust Fund,
pensions simplification and the reform of the Construction
Industry Scheme.
This work is therefore being funded from existing baselines
by making savings from other activities. Some of these savings
arise from across the board budget cuts and others from
reviews or programme revisions.
Doing the same amount of work as planned for less money
than we had planned
There is a wide range of review, initiative and change
programme activity contributing to efficiency savings under
this category. There is a mixture of external and internal
drivers to the work, and overall it represents a very significant
push for further efficiencies.
An Efficiency Forum has been formed to facilitate
achievement of savings here, primarily through involvement
with a series of management and efficiency reviews.
Savings and expected savings in this category are likely
to come from
•Continuing investments in E Business
•Modernising PAYE Processes for Customers
•Better Quality Service & Business Reviews
•Modernising Corporate Support
•The change of IT partner following the ASPIRE competition.
In addition we are developing proposals in response to the
Gershon, O'Donnell and Lyons reviews and have several
other pieces of work underway looking at our processes.
Part of the above reflects the very significant procurement
savings generated, building on the figures shown in the
OGC report for 2002/03.
Absorbing a volume growth in work without
additional funding
We have experienced workload growth in several parts
of our business:
•Service delivery
•Corporation Tax
•Trusts
•Inheritance Tax
•Stamp Duty
These were not predicted or specifically funded in SR2002,
and have therefore been met from efficiencies.
Accuracy & Customer Satisfaction
We are not able to establish direct causal links between
accuracy and customer satisfaction levels and the activities
that have delivered efficiency savings. But our aim, as
reflected in other PSAs, is that they are improved.
PSA Target 4. Achieve annual efficiency savings of at least
2.5% a year until March 2006, without detriment to accuracy
or customer satisfaction.
22 Spring Departmental Report 2004
Procurement and Commercial Activities
Our corporate procurement function oversees the
Department's £1 billion annual external spend, providing
essential procurement and contract management services
across the Department, commercial solutions, value for money
initiatives and commercial risk management. We also have an
important role in supporting key Departmental projects and
commercial activities in the wider Government arena, liaising
closely with the Office of Government Commerce (OGC).
Progress against Key Objectives in 2003/04
•Reported £61m Departmental Value for Money savings for
2002/03 against OGC's target of £1 billion over 3 years -
the highest percentage saving against expenditure of all
Government Departments.
•Involved in wider Government and OGC activities, including
work on establishing IR's Centre of Excellence and
Gateway reviews.
•Fully supported pan-government strategic supplier
management including
—direct involvement in OGC negotiations with key suppliers
—developing and sharing commercial best practice
—over £100m was spent across Government through our
e-IROS contract for IT hardware and software; we have
also moved to OGC's S-CAT framework contracts for the
majority of our consultancy requirements.
•Provided commercial input to key Departmental projects,
including ASPIRE (Acquiring Strategic Partners for the Inland
Revenue), new tax credits, national roll-out of Call Centres,
Child Benefit, Universal Banking and Card Account with the
Post Office.
Plans for 2004/05
•Deliver minimum £5m target savings in key business areas,
including postal and print services.
•Contribute to the Gershon and O'Donnell Reviews to deliver
further cost and operational efficiencies in procurement
projects and back office functions.
•Continue to work with Other Government Departments
(OGDs) and OGC to maximise Government buying power,
secure best value for money and disseminate best
commercial practice.
•Provide commercial input to the ASPIRE transition,
e-business initiatives and major Departmental projects.
•Make it easier for suppliers, in particular Small & Medium
Enterprises (SMEs), to do business with the Revenue by
simplifying our tendering procedures and enhancing our
"e-capability", through improved websites, use of
e-commerce tools and e-auctions.
Working with the Private Sector
The Department has a strategic partnership with EDS, which
started in 1994 and will end in June 2004. This partnership
has contributed significantly to our successes over the years,
giving us access to the latest IT developments in a range of
areas, such as e-commerce both internally and externally.
The contract for the Department's IT services was the subject
of a competition - ASPIRE - which commenced in 2002.
In December 2003 the Department announced Cap Gemini
Ernst and Young (CGE&Y) as its preferred supplier. The ASPIRE
contract was signed on 5 January 2004. EDS will continue
to work constructively with us to ensure the effective delivery
of systems in the transitional period until CGE&Y take over
on 1 July 2004.
The Department also has a PFI contract with Accenture for the
running and enhancement of the NIRS2 system. This contract
has been extended until April 2005 in order to develop the
changes to NIRS needed to support the government's NICs
and welfare reform programme.
Once the ASPIRE contract commences on 1 July 2004, CGE&Y
will play a key role in changing the way we carry out our
business. CGE&Y have demonstrated throughout the
competition that they have the skills that we need to make
a reality of these changes and others that the future may
bring, while still supporting our daily business.
Under the selling into wider markets initiative we continue
to look for opportunities to exploit departmental assets,
in conjunction with the private sector as appropriate.
Spring Departmental Report 2004 23
Progress 2003/04
The customer service performance indicator is based on
an annual survey of our main customer groups. It reflects
their perception of the ease of dealing effectively with the
processes, forms and guidance which are core to their group,
and the accessibility, speed, clarity and usefulness of help the
Revenue provides to them in writing, over the phone, face
to face or by internet.
The benchmark score, which was set in 2001/02, was 68.6.
Results from the 2002/03 exercise showed an improvement
of 1.2 points to 69.8.
The 2003/04 survey produced an indicator (rounded down)
of 67 (out of 100).
This can be broken down between core processes and contact
as shown in the diagram below.
This represents an overall decrease of 2 points on last year's
indicator, attributable mainly to contact issues, as the score
for core processes remained the same as last year.
For tax credits customers, this appears to relate mainly to the
difficulties experienced during the introduction of new tax
credits. It is also likely that resources used to support new tax
credits business during this time impacted on the contact
results for other customer groups.
PSA Target 5. Achieve a 2.5 point improvement in customer
service by March 2006, as measured by an annual customer
service index.
Plans 2004/05
Having overcome most of the early difficulties around tax
credits, we are now focusing our attention on ensuring that
the renewals process goes as smoothly as possible in 2004/05.
We have increased our telephone capacity, which should
improve customer experience during this period and ensure
that a better service is provided to other customer groups.
We have also launched an advertising campaign to guide tax
credits claimants through the renewals process.
More generally, we are continuing to look at ways of
simplifying our forms and guidance, where possible, to make
them easier to understand.
We plan to carry out the next CSPI survey around October -
December 2004.
Core Processes
Contact
Overall
0
20
40
60
80
67
71
63
24 Spring Departmental Report 2004
Modernising Government
Policy
We support Ministers with advice and analysis on direct tax,
tax credits and National Insurance contributions. The advice
Ministers receive ranges from changes in the main rates and
allowances to structural reforms and changes in policy in
specific areas.
Our objective is to provide high quality, timely, fit for
purpose advice that helps the Government meet its objectives.
This work is reflected in the following key policy changes
announced in Budget 2004:
Meeting the Productivity Challenge
•As part of the Corporate Tax Reform review a new relief is
being introduced for the expenses of managing investments
for companies with investment business. In addition,
transfer pricing will apply to transactions between
UK connected parties as well as cross-border transactions
•The first year capital allowance available to small businesses
investing in plant and machinery will be increased to 50%.
•The Business Premises Renovation Allowance will provide
100% capital allowances for the costs of renovating business
properties that have been vacant for at least a year
•Improvements are to be made to the incentives to invest
in Enterprise Investment Schemes
•Improvements are to be made to Research and
Development tax credits, extending the support and
clarifying definitions
•The introduction of further tax incentives for small
businesses
•The continuation of relief for produ