Edward Troup has been executive chairman of HMRC since 2016. He was appointed HMRC tax assurance commissioner and permanent secretary for tax in 2012. He was previously director-general of budget, tax and welfare in the Treasury and earlier, head of tax strategy at Simmons & Simmons. He began his career as a tax lawyer and was special adviser on tax to chancellor Kenneth Clarke between 1995 and 1997. The interview took place on 9 October 2017.
I began by reminding Edward about his 1997 article ‘Double trouble over tax’, published in the Financial Times, which advocated the merger of the Inland Revenue and Customs & Excise. He had described having two separate national tax departments as a ‘peculiarly British anomaly’ that ‘quietly contributed to bad policy making, poor tax collection, and continued frustration of businesses’. I asked Edward how the merger had worked out in practice.
‘I joined the Treasury in 2004, on the point of the merger of the Revenue and Customs, to create the department we have now. I was involved in the policy side at the Treasury. My responsibilities included inducting policy colleagues from the two departments into a combined function within the Treasury, working within the policy partnership with the new department,’ Edward said.
‘There have been challenges over the 13 years since then, but I believe that the policy advice given to ministers reflects a better understanding across taxes, and of the impact of policy changes on businesses and on tax administration. HMRC’s advice is now better integrated with the economic and wider advice from the Treasury. We are in a much better world than we were 20 years ago, when I was in the Treasury as a special adviser.
‘I was not involved in tax administration at the time of the merger, but for the past five years, I have been involved heavily with tax administration. We would have liked to achieve things faster, but the customer centric approach is now a part of the DNA of this department: thinking about what we do through the customer lens, rather than through the tax product lens; always thinking about what we do in the context of the taxpayers, with whom we interact. And we design our processes and, increasingly, our digital offerings, so that they reflect the customer as a single entity with a single business or set of activities, from which we have to draw the information to collect tax.
‘The experience of the taxpayers, while never free of frustrations in dealing with tax, is in a much better place, and much slicker. And to be honest, although the tax system has become more complicated, more complex, over that period, I believe the actual cost of engaging with it has fallen quite significantly over that time.’
How has the merger affected HMRC’s relationship with minsters and the Treasury? ‘The relationship with ministers and what they demand is very much a personal matter; they inevitably have different styles and different preferences, beyond their political choices,’ Edward said. ‘The merger was more about better policy advice and better tax administration. HMRC’s relationship with the Treasury has been extremely good, because of the interchange of staff, and through a whole lot of closer working and exchange of skills. For example, we run a policy professionalism school for colleagues from both departments, to talk about the shared challenges of making policy and bringing on the younger cadre of policy professionals to work in both departments. These changes have improved policy making and policy advice. And one should never underestimate the advantages of the co-location of the policy teams.’
As regards the impact on policy and the consultation process of the return to an autumn budget, Edward said, ‘The broad cycle of the budget will remain the same, and continue to involve announcements about broad proposals. As in previous budgets, those proposals will be put out for consultation and discussion, with draft legislation, and enactment at a future date. The key difference, which the chancellor wants, is to have a single fiscal event. I would put more weight on the reversion to a single fiscal event than the move to a November budget. A single fiscal event will bring greater focus once a year. It will hopefully reduce the workflow and the burden on us, and, just as importantly, on businesses and their advisers in dealing with changes during the rest of the year. But we shall see how that progresses over the next few years.’
I asked what HMRC and the Treasury are doing to address the risks posed by the exchequer’s reliance on the top 1% of taxpayers, who contribute over a quarter of all income tax receipts. ‘The Office for Budget Responsibility (OBR) has identified the risk of over reliance on a smaller proportion of individuals,’ Edward said. ‘That is a policy risk to be managed with the Treasury, but is obviously also a compliance risk. Tax revenues have been resilient. Both the two main sources of revenue, personal taxes (income tax and NICs) and consumption taxes (principally VAT) have held up well. We have seen the tax gap continue on a broadly downward trend, maintaining what, internationally, is a very low level. Managing any tax collection system involves risks. Those risks vary from time to time.’ The potential impact of any flight of large numbers of high-paid City workers, because of uncertainty about Brexit, is ‘a question for the Treasury and the OBR because they forecast tax revenues, and have to make assessments of long-term fiscal risks.’
Edward politely declined to answer questions about the continuing erosion of the tax base through the growth of the gig economy, following the government’s decision not to reintroduce its Budget 2017 proposals to increase the NICs payable by self-employed workers. He said that they were a policy matter for the Treasury. I asked Edward about the government’s response to the Taylor Review. Edward said that HMRC and the Treasury would respond in relation to tax, but ‘to the extent those are policy questions, those are, indeed, for the Treasury. To the extent that they go to the rather tricky issue of what is the definition of an employed or a self-employed person, then this is very clearly a matter for HMRC. (The timing of any response is a matter for the Treasury.)’
‘And in terms of personal service companies, we have the rules in IR35, the scope of which has been extended, or rather, the burden of which has been extended by shifting the responsibility for the tax payment to the engager, in the case of the public sector. It is clearly necessary for HMRC to ensure compliance with rules that are designed to ensure that an individual, who is for practical purposes an employee, should pay the same tax as someone who is actually employed. To the extent that the opportunity offers itself, we will be looking for ways of ensuring that what parliament intended, in terms of collecting tax on employment, is collected. We’ll be working with the Treasury to look at areas where there is disguised self-employment, or where the benefits of employment are being obtained without the amount of tax which parliament has set out as being applicable to employees being paid.’
What are the Treasury and HMRC planning to do to address the risks to the erosion of the tax base posed by technological change, such as the potential replacement of workers by AI-infused robots and the impact of fuel efficient and fully electric cars on fuel duty? Edward responded: ‘There’s clearly a legitimate debate for the economists, as to whether technological change, which produces benefits for everyone, also creates or reduces employment. And that is absolutely a question for the economists and for the Treasury.
‘It is reflected in the fact that we are seeing changing forms of employment, and indeed, changing forms of earning money in ways other than employment. HMRC’s business model 20 years ago was geared and built around a simple series of propositions as to the ways of earning money: PAYE, through employment and self-employment, in what you might call a traditional form. And what we’ve seen is a whole range of ways of earning a living, which can be either between the two boundaries or, indeed, span the boundaries, in that you can have an employee on a self-employed income, and you can have a self-employed person who has some sort of part-time job, as well.’
I reminded Edward about the government’s recent announcement that it intended to replace vehicles that currently operate on fossil fuels with fully electric cars, which would have a substantial impact on the yield from fuel-duty, and that the chief economist of the Bank of England had said that up to 15m jobs could be at risk of automation. He said: ‘I don’t think the Bank of England has forecast the loss of 15m jobs. But I’m not quite sure what the point is for us.
‘We need to be responsive to the robustness of the tax bases. The OBR publishes a forecast of risks to tax revenues, including some declines. I think everyone hopes that tobacco duties will fall to zero, because it would be very nice if people did not smoke. But otherwise, the OBR forecast that tax revenues, broadly, do hold up across the piece in different ways and with different fiscal effects. And the simple point that tax is not paid by machines, but paid by people, reinforces the logic of our underlying business model. That is to look for ways of interacting with people, with taxpayers, in ways which allow us to gather the information to assess the tax, or for them to self-assess the tax, and for payment to be made.
‘Whatever model of tax policy you assume, it does ultimately have three elements: the gathering of information; the computation of the tax liability and the payment, or if needs be, the collection that follows from that. And they’re our basic business models for the future; we think, at least for the period we can see in the next five or ten plus years, that is a good place to be.’
On how HMRC is progressing with delivering its new customs declarations service (CDS) and its preparedness for Brexit, Edward said that the CDS, which will replace the CHIEF system, ‘is on track to be in place for January 2019. But as it is an IT project, there are risks, which we are managing. We’ve had a number of reviews of it, and the delivery date of January 2019 remains where we are. That gives us some months ahead of the earliest date, which we will need to implement it. It is a robust system, which has flexibility to adapt to different tariffs and different customs regimes. I expect it to be able to deliver whatever is demanded of it. HMRC has very good track record of delivery.
‘HMRC is giving advice to ministers on the other aspects of the tax system, which will be affected by Brexit. We’ve been clear to select committees and others that customs is the principal area where change will necessarily happen when we leave the Customs Union. There will be other areas where changes will be needed, but not to anything like the scale and degree, or the operational impact, that customs will have.’
I remarked that while tax advisers had welcomed the government’s recent announcement that it was relaxing the timetable for implementing MTD, it had been suggested that HMRC had been pretty grudging about recognising the pivotal role that agents would play in ensuring that taxpayers complied with their obligations. Edward said: ‘I’m sorry if agents feel that, because agents have, for many years, been, and continue to be, an essential part of the tax system.
‘The relationship between HMRC and agents has developed over the years. To be honest, I think ten years ago or more, there was a sense that agents were more interested in finding ways in which their clients could not pay tax. Of course, an agent’s role is to help his client pay the right amount of tax, but that does not mean it is to pay the maximum amount of tax possible. There will always be differences of view between the tax administration and agents, but I think that that’s healthy. It’s part of the way a good tax system works. I would put on record our thanks to the agents in the journey, which we’ve been on together in relation to avoidance.
‘As to whether we have been grudging about the role of agents in MTD, we need to continue to work with agents. But we recognise that as the world changes to digital, the way in which tax agents work is also changing. Gone, I think, should be the days where the agent’s role was to receive a plastic bag full of receipts and invoices from a small business, and spend most of the time he spends on the customer in sorting them into a series of accounts, and hence a tax return, and sending them across to HMRC. I do not regard that as value added. I think the role of the agent is to help businesses arrange and organise their affairs, so that they can deal with tax efficiently, we hope, through using good online software and tools, to enable them to keep their business records.’
I pressed Edward on why small businesses should not be able to hire somebody to do the kind of things that they don’t feel comfortable doing themselves or because they’re too busy running their businesses. Tax advisers were supportive of MTD, but concerned about the timing and scope of online access for agents, quarterly updates and tax estimates.
Edward said: ‘I’m not suggesting that a business should be doing something which it does not feel comfortable doing. And I certainly think that agents have a real added value to give to businesses. We do want to encourage increased take-up of electronic accounting software to keep business records and to make tax returns. But the choice as to how much the business does itself, and what it leaves to its agents, absolutely, I completely accept is down to the business.
‘Regarding the extent to which agents are able to access online services on behalf of their clients, I think that looking back two or three years, we were slow in prioritising that, but we have become much more aware of the value of the agent community, and the multiplier effect which agents have, in terms of the number of individual businesses that a single agent can reach. This means that we should have put more priority on that. We are now doing that. The agent online service facility for agents to access their clients’ records is being rolled out. I hope that agents will increasingly feel that they are getting the priority, which we think they should, alongside their clients, in being able to access digital services.’
Has HMRC’s first strategic objective to ‘maximise revenues due and bear down on avoidance and evasion’ resulted in a single-minded focus on raising yield, rather than making sure it collects the right amount of tax at the right time? Edward said: ‘I don’t think there has been a shift in the strategic focus. Or rather, if there has been a shift, it’s probably been almost the opposite to the one you describe, in that we want to maximise the amount of revenue which ought to be paid that is actually paid. Through the recent internal reorganisations and how we are working we have recognised that good customer service is the key to good compliance. Our preference always is to help, genuinely help, the taxpayer pay the right amount, rather than wait for him or her to get it wrong, and for us to collect or seek to chase tax after the wrong amount has been paid.
‘The principles underlying our compliance approach are to promote, prevent and respond: promote good compliance; prevent non-compliance, and respond in what is still, numerically, a minority of cases where the right amount of tax is not paid. This is absolutely the right approach. There is an awareness of learning lessons, and of seeking to prevent the repetition of that type of non-compliance. Our customer service offering helps individuals pay the right amount, and not make the same mistakes again. Yes, we have yield as a target, but that does not get in the way of us always working to get the right amount of tax, first and foremost, by good voluntary compliance.’
Regarding whether HMRC staff were still trained or instructed to be as vigilant in ensuring that taxpayers receive their entitlements as they are in making sure that the tax is paid, Edward said: ‘Inevitably, in a department of 56,000 people, we have to differentiate the skills and the tasks that individuals have. Colleagues working in customer services are trying to help the taxpayer get it right. Whether it’s to pay the right amount of tax credits, or it’s to give the right amount of relief for their expenses or their marriage allowance, or whatever it is, they make sure that the right amount of tax is paid. Whereas colleagues involved in criminal investigation are, understandably, trained to follow up suspected criminal activity. It is not their prime focus to check whether the alleged criminal has had the benefit of whatever relief they might be entitled to; it’s about making sure that justice is done, and where wrongdoing has been done, that we pursue any penalties that are due.’
I noted that only 1.9m of the 4.2m entitled to marriage allowance (worth £230 a year) actually claimed it. I suggested that if this were in fact tax that people owed HMRC, there would probably be massive publicity and action to recover the tax due. There seemed to be no comparable publicity to make sure that people received their entitlement. Edward said that HMRC ‘has put quite a lot of publicity over the last period of time in seeking to promote the marriage allowance and ensure take-up. It is surprisingly difficult, in all sorts of contexts, to encourage people to take up their rights. We’re not alone as an organisation in finding that. We’ve had success in trying to push up the take-up of marriage allowance, and we will continue to do so. You’re also wrong in saying that for £230, HMRC would run a huge publicity campaign to seek to collect it’. When I pointed out that the tax at stake would be substantial, because it would be due from 2.3m taxpayers, Edward conceded that ‘we probably would do something; we do campaigns in all sorts of different directions.’
I asked Edward about the significant extension in HMRC’s powers that had occurred with the huge increase in the volume of legislation in recent years to combat tax avoidance and evasion, often with very little parliamentary debate or scrutiny; for example, the appeal rights governing accelerated payment notices (APNs) and follower notices that required the upfront payment of the tax at dispute before adjudication. He said that apart from the suggestion relating to APNs, he did not recognise that there has been a significant change in the extent of HMRC’s powers in recent years. ‘We have a strong and well-debated set of basic powers, core powers, which allow us to do the job, which parliament has given us. It is important to understand the context relating to the example of APNs as one where there was no right of appeal.
‘APNs apply to cases where there has been an established tax avoidance scheme, or an established decision in the favour of HMRC. Almost by definition, the taxpayers involved have knowingly gone into a scheme or arrangement which has, allegedly, entitled them to pay less tax than would otherwise be due on what, typically, have been large amounts of income. And then, when challenged by us, they have sought to use the appeal process in order to delay payment of the tax. The APNs have been put in place to require the tax to be paid before any further dispute is continued. It puts those taxpayers on a level footing with the rest of the taxpaying population, who do have to pay their tax upfront, through PAYE, or whatever means, while not taking away their underlying right of appeal.
‘We have had challenges to APNs under judicial review, so there is a right of redress. And we’ve also had numerous appeals related to the underlying avoidance schemes. Our success rate on appeal is well over 80%. We stand by and completely defend what we are doing there, the way we are doing it, and our own internal governance process. APNs can only be issued where there has been a disclosed tax avoidance scheme, or a decision in our favour, which effectively the taxpayer in question is seeking to ignore or to go against. APNs are issued, subject to internal scrutiny and assurance. We have collected around £4bn for the benefit of the wider law-abiding taxpaying population through the use of APNs.
‘I don’t feel there is a great groundswell of concern about the use of our powers, although I’m always sensitive to the fact that the government, having given us powers, expects us to exercise them fairly and in an even-handed manner. The National Audit Office has been satisfied, and I do feel that we have reassured the public that when we are given powers, we exercise them in a fair and even handed way for the benefit of all taxpayers, whilst respecting the rights of the individual.’
I noted the welcome for HMRC’s recent announcement of a new service to help middle-sized businesses with turnovers of over £10m or more than 20 employees. I suggested that small businesses and individual taxpayers were equally in need of similar help with their tax queries in the form of accurate information and HMRC’s technical expertise. Edward said: ‘It is absolutely right that every taxpayer, whatever their size, should have as good a service as possible from HMRC. But the reality is that there are five million businesses and 30 plus million taxpayers, and we neither have the resources, nor would it be appropriate for parliament to vote us the resources, to give one-to-one service to every taxpayer. What we do is to devote our resources to those taxpayers where there are risks of them getting it wrong, and so the likelihood of loss to the exchequer, and where the challenge of getting it right is greatest. We have always, or at least in recent years, “man marked” our very largest businesses with customer relationship managers.
‘This is not to give them a special deal, but to make sure we are absolutely on top of them, and the chances of them not paying the right amount of tax are as low as possible. Of course, we would like to give an equivalent service to every one of the smallest businesses, but we cannot expect to have the resources to do so. Taxpayers, collectively, would complain if we employed the hundreds of thousands of people that would imply. We seek to replicate an equivalent level of service through our digital offerings, through our online help, through the web chats you can get, and through the customer contact through phone calls.’
I invited Edward to elaborate on his response to the adjudicator’s recent report (which praised the progress that HMRC has made in handling complaints against the department). Specifically, this focused on recognising the importance of listening to customer feedback and learning from it, and what HMRC was doing to embed this in its culture. ‘In the time I’ve been here, we have moved to seeing everything we do through our customers’ eyes. This has had a broad impact on our service, but particularly on complaints. We have seen a change of our internal culture from regarding complaints as something slightly awkward, which have to be dealt with, to seeing them for what they are, which is free and very valuable customer feedback. And it is valuable customer feedback precisely because it has been about something where something has gone wrong.
‘We recognise that with the number of customers we have, there will always be occasions where things go wrong. There will always be complaints. But we have become much better at learning from complaints, not just to prevent the same situation arising in the future, but also to identify what it is about our underlying systems, which has allowed this to arise in the first place. I’m very proud of what we’ve done on dealing with complaints.’
On how the HMRC Charter is reflected in the department’s culture, Edward said: ‘The charter, which in different forms has been around for over 20 years now, is intended to give our customers an external reference point of the values and expectations by which we want to work. The reconstituted Charter Committee is chaired by one of our non-executive directors, and includes external participants, who are not part of HMRC, to challenge us on how we are actually living the values of the charter. We have some way to go yet in changing the culture of the department to think about things from the customer’s perspective. (But HMRC’s customer service group lives and breathes what is reflected in the charter values!) There’s no evidence that a legally enforceable charter actually has more impact than one that sets out the aspirations of the organisation. What matters is the spirit in which the organisation actually uses and adopts the charter.’
Regarding the impact that HMRC’s plans to centralise all its staffing in 13 regional centres would have on the levels of service to vulnerable taxpayers and small businesses, Edward said: ‘We need to ask how customer service is best delivered in the 21st century. We closed our public enquiry offices more than two years ago, and replaced them with a “needs enhanced support” (NES) service. We have teams of very, very dedicated individuals around the country, who identify our most vulnerable, hard to reach customers, and literally go out to meet them, whether in their own homes or in local centres. This model has proved extremely effective. It’s had a much better impact on our service than simply opening up an enquiry office in a shopping centre, where the hard to reach and the vulnerable often couldn’t get anyway.
‘The other aspect of our business, which can require face-to-face contact, is compliance and intervention work. We don’t have offices in every town, but we undertake effective compliance work through task forces, and through teams visiting locations. Increasingly, of course, our intelligence and intervention is based on online data, on returns submitted to us, and on the intelligence we receive from other sources. The importance of face-to-face intervention and compliance is diminishing, but there always will be businesses that require such intervention. For example, while there is cash, there will be cash in hand businesses, and we will continue to use task forces, as well as teams that go round to particular areas of the country, to chase up particular interventions.’
I asked Edward about HMRC CEO Jon Thompson’s remark, when he gave evidence to the PAC earlier this year, that there might be a potential loss of corporate memory from the centralisation of offices. Edward said: ‘Jon was referring to the fact that like a number of tax administrations around the world, HMRC has a workforce of a particular demographic, many of whom have retired in recent years. I have just finished chairing a forum on tax administration, which brings together 50 tax commissioners from around the OECD, and discovered that it is not an uncommon problem.
‘Demographic change is a challenge and an opportunity. It is a challenge in the loss of corporate memory, which we, like other tax administrations, and indeed other knowledge based organisations, are facing up to. But it’s also an opportunity, because alongside the loss of some of the more experienced staff, as they retire, we have a programme of recruitment for over 250 tax graduates into our tax professional programme each year. And that has allowed us to build a new cadre of professionals with the skills that are needed in an age where the approach and access to knowledge is different.’
I referred to Edward’s imminent retirement at the end of the year, and asked him what he would look back upon as his personal milestones or ‘greatest hits’. He said: ‘I am one of a fantastic team of thousands of people around this department who make HMRC the organisation that it is. We have managed to restore a fair degree of the confidence in the integrity of our approach, which was challenged five years ago. I have never believed that we were not working with integrity. But there was perception that we were not, and I think that I have, as the first tax assurance commissioner, been able to help the department restore the perception of integrity, and professionalism, and being even handed, which it deserved.
‘As HMRC moves into its second decade, I hope that I have also been able to build some of the institutional links, both with the Treasury and with the outside world, which are absolutely essential to ensure that the tax system for the future is fit for purpose and in the support that we give to the Treasury. And to ensure that the tax system for the future is fully integrated into the workings of the economy, both in the way Britain is now, and in the way Britain is going to be.
‘I hope, particularly for readers of Tax Journal, that I have helped Jim Harra, who will become the most senior tax professional in the department after I have retired, to build relationships with the professional bodies, and indeed, with many, many individual tax agents. That will enable us to help the businesses and individuals of Britain pay the right amount of tax. We are a compliance organisation, but compliance is a two-way street, and I think the agents and we share this role in working together to make sure that everyone complies with their obligations.’
‘As regards what advice I would give my successor, I think it is to remind the tax professionals in HMRC that tax is something that touches everybody’s lives. And while, as individual professionals, and as a department, we need to really understand our subject, we can’t do our job well unless we also understand both the individuals and businesses who make up the world we work in, and some of the wider forces and issues around the changes in the economy that are going on at the moment.’
And finally, on how Edward intends to occupy himself in the future, he said: ‘I have described myself as having taken the “tax drug” for 38 years, and it’s been a very pleasurable experience. I’m going to wait to see and find out whether I am physically addicted to it and cannot give it up, or whether I can become a purely recreational user.’ I thanked Edward for his contribution and for sparing time for the interview.
