Extra-statutory Concession A19

Part of the debate – in Westminster Hall at 5:14 pm on 4th December 2012.

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Photo of David Gauke David Gauke The Exchequer Secretary 5:14 pm, 4th December 2012

If I may, I shall come back to that specific point, because I want to deal with another issue raised by my hon. Friend, which was whether the P14 forms could be used for information and why that does not happen. I just point out that due to the volumes received each year—approximately 60 million—P14 forms are processed over several months. That is an automated process. There is currently no scope within the process that would enable HMRC to identify and amend a tax code for the current year on receipt of the previous year’s P14.

My hon. Friend asked about the ESC A19 consultation. The outcome of that consultation has yet to be decided. Obviously, he will be keen to know what it is. When that has been concluded, I will ensure that he is fully aware of it.

It is right to say that HMRC has delivered a real change in the operation of PAYE and brought its legacy issues up to date. That means that 85% of PAYE customers will have paid the right tax during the year. The remaining 15% will be due a refund or owe tax for a variety of reasons other than HMRC error. Furthermore, the vast majority of customers will be notified of their tax position well before the end of the tax year.

ESC A19 is designed to apply routinely when HMRC has failed to act on information received and also fails to notify the customer of their arrears for a full 12 months after the end of the tax year. This year, HMRC has received significantly fewer requests, and most of those were received immediately following the issue of the tax calculation. The vast majority were not eligible for the concession because there had been notification of the arrears within the 12-month deadline. The occasions on which taxpayers will need to make a request under ESC A19 in the future are significantly diminished. HMRC does not envisage the problems and complaints that arose from its implementation of the concession in the exceptional circumstances of the past two years arising to the same extent in the future.

However, my hon. Friend raises an important point about the difficulty that some taxpayers have when they simply have a tax code. That can make it difficult for them to assess exactly what the right amount of tax to be paid is and, if they are paying the wrong amount, what can be done about it. My hon. Friend will be pleased about the progress that we are making with tax statements. We are making much more information available to taxpayers, so that they can see what tax has been paid. The way I see that developing is that ultimately it should provide a much clearer route—much greater clarity to taxpayers—to ensure that the correct amount of tax has been collected.

Let me return to regulation 72, which my hon. Friend raised a moment or so ago. He is correct about the process. The NPS is fully automated and cost-effective and deals with 1.5 million underpayment cases per annum without recourse to this process—without going into regulation 72. These cases do not arise only because of employer error. Regulation 72 is really an anti-avoidance measure to prevent collusion between employer and employee. I hope that that provides some clarity to my hon. Friend.

It is important to distinguish between HMRC’s obligation to apologise and provide redress for customers who experience poor service and its collection and management discretions in effect to withdraw tax rightly due from the Consolidated Fund. HMRC has a statutory obligation to collect the right amount of tax from each taxpayer and to be fair to all taxpayers in that respect.

ESC A19 was intended to remedy the hardship and injustice of unexpected demands caused by the then Inland Revenue’s error and delay. Although HMRC’s tax commissioners can forgo tax in cases of financial hardship, its discretions to forgo tax that is rightly due are limited and are certainly restricted to the strict application of the conditions of the concession.

Compensation payments to remedy the cost and distress of poor service are ex gratia and are applied using the guidelines in the “Managing Public Money” rulebook. Those must not allow recipients to gain financial advantage as a result of poor customer service. It would be acting outside the parameters of the authority delegated to HMRC to provide redress that clearly linked someone’s tax liability with the amount of their compensation. To be fair, HMRC does have to operate a difficult balance.

We must recognise that the complaints and problems that we have heard about today, although serious and distressing for the individuals involved, have arisen in exceptional circumstances. HMRC has recognised and apologised for poor service and is taking steps to put things right for the future, particularly for pensioners and other vulnerable customers. It is working closely with professional organisations and charities to understand customer needs and improve services.

The need for customers to turn to ESC A19 for redress in response to an unexpected tax demand is diminishing. I would like to reassure my hon. Friend that HMRC will compensate customers for poor service, using its authority within “Managing Public Money” rules, and use its collection and management discretions to forgo tax where that is appropriate and necessary and where it has the power to do so.

Question put and agreed to.

Sitting adjourned.