HMRC’s client base is as varied and demanding as any private sector service provider. Customers range from individuals (by far the largest group), some of them extremely wealthy, through to small-, medium- and large-sized businesses. Like a modern business it is data-led, and increasingly engages with customers online. That means it prioritises security and investment in new technology such as blockchain, robotics, software and artificial intelligence (AI).
Operating in a globalised marketplace, there is naturally a trade angle. HMRC ensures customs declarations, duties and tariffs are done by the book so that imports and exports run smoothly.
And its revenue is in the billions: a record £605.8bn over the last year, which was £30.9bn more than the year before. If it were a FTSE company, its shareholders would be delighted.
But of course it’s not. HMRC collects those billions of pounds to pay for the UK’s public services – the schools, hospitals and all services citizens rely upon – and it pursues those trying to evade paying the right amount of tax.
It also helps families and individuals with financial support such as tax credits and Child Benefit, and it enforces the National Minimum Wage. And it has a newer remit – to support businesses in continuing to meet their obligations after the UK exits the EU; and to advise the government on that front.
In HMRC’s latest annual report and account it says: “We have a pivotal role in ensuring that after EU exit, goods continue to flow into and out of the UK and that any tax and duties are collected.
“As we head towards EU exit, detailed planning is under way to inform and support the government in reaching a successful outcome in the negotiations. The new Customs Declaration Service, which is designed to support any new UK customs regime, is on track to be delivered in January 2019.”
Good, altruistic work all in all. But for every positive story – exposing employers who underpay staff, protecting people from text scammers, helping business prepare for Brexit – there is the not so good. The use of accelerated payment notices, for example; so-called sweetheart deals with big businesses such as Google and Starbucks; the time taken to answer a telephone; or supposed disproportionate treatment of smaller businesses. What is HMRC’s strategy for managing its brand and reputation?
“The first thing to say is, we do not do sweetheart deals,” says Jon Thompson, chief executive and permanent secretary of HMRC since April 2016. “HMRC had a moment in 2012, the Public Accounts Committee did an extensive independent review run by a QC, and after that it radically altered its governance.
“We’re reasonably absolute about this. We work out what the tax is and then you have to pay it. If you don’t like it then you can litigate it or there’s a settlement strategy or independent arbitration. But there’s not a negotiation. People still talk about ‘sweetheart deals’ but that’s history.”
The disparity between the headlines is largely due to HMRC’s dual role, believes Thompson, which creates an “inherent tension”.
He explains: “We want to serve the vast majority, the honest majority, really well, and in a way that’s reassuring and convenient. That’s 90% of customers to which we’re trying to give one message. And then there are people who are thinking ‘I might avoid/evade/deliberately go about some criminal act’, and to those we say we will clamp down on you. We will get the tax that’s due and we will use all the powers that we’ve got. And those two things are quite tense.
We continually talk about it at board level.” Thompson says that HMRC has “a fantastic record” of catching those who are not inclined to pay their taxes. “Last year a record number of people were convicted of evasion, nearly 900.” But he is also mindful of how the opposing messages affect perception. “Opinion varies about where we should be on that spectrum.”
As hackers around the world become increasingly bold and more sophisticated, Thompson says “protecting data is the number one business risk for us”. Since 2007, when HMRC lost two computer discs containing confidential details of child benefit recipients, he says, security has been at the heart of the organisation. “That was a wake-up call. We have tens of billions of pieces of data, 45 million customers. It’s important that we are trusted with the protection of that data.”
One of HMRC’s most high-profile exercises is driven by technology. Making Tax Digital is an initiative designed to make the UK tax system as effective, efficient and easy for taxpayers as possible, and transform HMRC into one of the most digitally advanced tax administrations in the world.
It begins on 1 April 2019 with MTD for VAT – “there’s a final decision to be made in October to say ‘OK we definitely are going in April 2019’, but at this point we are reasonably confident” – while other components, such as income tax and corporation tax, have been put on hold.
Many business organisations have voiced their reservations about this project. ICAEW broadly supports the initiative but in its representation (18/18) on the draft regulations it said it wants to see the project working well before it becomes mandatory and is concerned about the large amounts of data that will be held in the cloud and “transferred between HMRC and businesses on a regular basis”. The British Chambers of Commerce recently said 24% of UK businesses have not even heard of the programme.
“If that is true then it is a bit of a concern,” says Thompson. “Ministers made a savvy decision to start with businesses above the VAT threshold because those are the larger businesses, with a turnover above £85,000, and you’d expect most
of those would be working digitally,” he says. “This is the direction of travel,” he adds. He has learned that if you really want to make a difference you have to change something.
“You can use different words, transformation or whatever, but you almost certainly have to change course and change can be difficult. I’ve learned about being clear where you’re trying to get to as an organisation. What is the purpose and can people row behind that?
“We’re here to collect the taxes that pay for public services, and that has fantastic resonance with colleagues up and down the country. But we need to continue to change because the nature of the economy is changing, tax is changing and we
need to stay relevant.”
That means investing in staff, and Thompson is leading a gargantuan project alongside his day job. As head of government operational delivery he is responsible for training “about 60%” of the civil service so that all employees have a professional route available to them. “You want to cross the border, get a visa, submit a tax return, claim a benefit… there are about 240,000 civil servants doing that sort of work for you.
What is our offer for those colleagues, what sort of learning would support them being more effective, how can they map out their career?” It’s about professionalising service, adds
Thompson. “At HMRC we want to collect tax as effortlessly as we can so we need to have a good customer services offer. We’ve been able to maintain customer service standards for two and a half years since the low point in 2015.
We’re meeting the targets set by ministers.” HMRC, however, is a non-ministerial department. Thompson works closely with ministers but is not a politician. He started in local government attracted by county council training – “they would invest in you to do the Association of Accounting Technicians”.
Although he did a private sector spell at Ernst & Young and Eagle Star, he wanted to work in the public sector and joined the civil service.
Previous roles have included DG corporate services at the Department of Children, Schools and Families – “I negotiated one of the education spending reviews in 2007 for the Blair/Brown government; that was a pretty fantastic thing to try and do” – and permanent secretary at the Ministry of Defence where he helped its then secretary of state Philip Hammond balance the books.
“At that point I thought, ‘I’m not sure there’s anything better I can do as a finance director in the public service than put the Ministry of Defence on the straight and narrow’.”
Thompson is a member of the Chartered Institute of Management Accountants (CIMA), and the Chartered Institute of Public Finance (CIPFA) and continues to invest in his own education.
He took on a coach to help him make the transition from the FD to CEO role: “If you’re going to be successful you’ve got to love learning throughout your career.” Experience helps, he adds. “It’s better second time round. When I was permanent secretary of the MoD, some things worked and some didn’t. You apply lessons from what worked and lose the things that didn’t. You turn up with a better box of ideas about how to be the chief exec.”
Inevitably, talk must turn to Brexit after his statement to the Treasury Select Committee in June about the cost implications of a no-deal Brexit (£17bn-£20bn if intra-EU traders have to start making customs declarations). Has he any advice from his scrutiny of EU trade data, VAT data and customs declarations?
“I can only talk about the perspective from HMRC,” explains Thompson. “And the plan is to raise general awareness with the 145,000 businesses who currently trade intra-EU and who trade above the VAT threshold. There are approximately another 100,000 below the VAT threshold. Those businesses should at least think through what to do if they had to complete a declaration.”
Thompson says Brexit has changed his plans and personnel. “When I took this job it was essentially to run the operational delivery of collecting taxes and paying people the welfare they’re due, and there was this huge transformational programme. Then Brexit came along. We did a full reprioritisation of projects – an organisation has a certain amount of bandwidth – we stopped more than 30 and stretched others. We are going to need something approaching 5,000 extra staff.”
He seems to be taking it in his stride, and is keen to reiterate HMRC’s two-pronged approach: “The vast majority of people strive to do the right thing and our job is increasingly about trying to help them do the right thing as effortlessly as possible. But we have to be upfront about human nature… Some people will try to evade, they’ll try to hide, they’ll try everything they can including resorting to the law, interestingly.
There is a perception, that isn’t really backed up by fact, that somehow we don’t do enough with large businesses and with small businesses we do too much. The tax gap report sets it out clearly: half the tax gap is with SMEs. That’s where things like MTD for business will help you to get it right because it’s mostly about error, it’s not about fraud.” The UK tax gap in 2016/17 was £33bn (that’s 5.7% of revenue destined for public services), £2.5bn of which was listed as “mistakes”.
What sort of mistakes? “The two biggest factors in the tax gap are legal interpretation, particularly on VAT, and error. The biggest error, I think, is relatively straightforward things like transpositions. It would be surprising how many errors you can make on a transposition from a paper record and your VAT return. The evidence suggests the difference between a paper record and the VAT returns is something like £600m in the favour of customers.”
Before anyone starts protesting, Thompson adds: “You’re not deliberately going about it, you’re slightly careless or making a simple error. The application of new technology should straighten that out.”
So there is Jon Thompson: the straight-talker you need in a time of obfuscation. A man who has dedicated years to good financial management in the public sector and is now tasked with the unenviable task of helping the government deal with the impacts of EU exit on the UK’s border – and collecting the billions of pounds that might otherwise be lost to the UK through fraud or tax evasion. And training the civil service. The next time you think about griping over HMRC, consider that.