1.  INTRODUCTION

  1.1  The VAT in Industry Group (VIG) is a forum for VAT advisers in Industry. It's objecives are to provide members with the opportunity to:

—  discuss aspects of the tax, which are of a general concern;

—  exchange ideas on the practical operation of UK and European VAT law;

—  exchange information on a confidential basis in order to benefit member's better understanding of VAT law and of HM Customs & Excise's interpretation of the law.

—  make representations on a non-political basis and to establish contact with relevant bodies with the intention of promoting a better understanding of Industry's views in relation to the operation of VAT.

  1.2  Our members are all employed as VAT specialists within large multi-national organisations. Membership is limited to 21 and is by invitation only. As can be seen from the attached list the group represents many of the UK's largest taxpayers.

2.  SUMMARY

  2.1  In a self assessment tax regime such as VAT and most other UK indirect (and now direct) taxes, it is imperative that the system of tax collection runs smoothly.

  2.2  All businesses making supplies in the UK accept that they will potentially, on the government's behalf, be collecting and remitting VAT, other Indirect Taxes and/or Statistical Information. It is in the interest of both the taxpayer and tax collector that the burden this process places on businesses should be kept to a minimum. Accordingly the legislative framework within which businesses operate should not be overly complex.

  2.3  It is perhaps trite to say that one of HM Customs paramount objectives is "to collect the right amount of tax at the right time". Equally valid in business is the belief that it is an objective of even the most compliant taxpayer "to pay the least amount of tax at the latest possible time". Importantly, C&E and business must together accept that these are not mutually exclusive objectives; rather they are the same objective.

3.  ENCOURAGING AND ENFORCING COMPLIANCE

  3.1  It is I trust accepted by C&E that amongst the members of the VIIG they are dealing with some of the most complex and yet compliant organisations on the VAT register, as evidence by the fact that they have recruited and retained experienced VAT managers to ensure precisely this. Nevertheless, from time to time misdeclarations of tax still occur, and this will always be the case. The position is exacerbated by the fact that VAT is becoming far too complicated for even those organisations who are arguably best equipped to deal with it. C&E should be exploring ways of simplifying the law without opening up scope for avoidance.

  3.2  Much of the present complexity arises out of HM Customs introduction of ever more convoluted law to counter perceived mischief or avoidance. When new, often poorly drafted, anti-avoidance provisions are enacted and they catch innocent commercial transactions, the effect is counter-productive. At the risk of going off on a tangent C&E must accept that where a business structures its operations in a particular way, which effectively mitigates its tax liability, this is not avoidance, rather it is applying the tax correctly!

  3.3  Over recent years C&E have established nationwide dedicated teams of officers whose sole purpose is to counter avoidance. In our view there is little hard evidence to support such an expenditure of public money. Whilst we accept that C&E must be seen to tackle avoidance in a professional and effective manner, we believe that the current resources allocated to this task are having an adverse impact on the effectiveness of the Department's other VAT audit and control activities.

  3.4  One of the most often cited criticisms of C&E concerns the frequent absence of any commercial awareness of their visiting staff. This is a recurring problem despite regular visits to VIIG members' businesses. Time and again our members are struck by the lack of understanding of their business, often by so called Large Trader Teams supposedly dedicated to work on the affairs of such taxpayers. When such officers are then in meetings with (say) divisional accountants who are, as a result, less than impressed with the level of the officer's understanding of the VAT issues let alone the commercial issues that matter to him. It hardly encourages the accountant to take VAT as seriously as we would all wish them to do. The problem here seems to be one of staff training by C&E.

  3.5  Following on from the above there have been occasions, (a recent example is the vending machine issue and the right over land question), where C&E seem determined to hold a particular line. This attitude applies even if that means repeated trips to the courts, (the cases of Sinclair Collis and BT refer), when there is no tax at risk. In the cited example, we believe that there is scope to treat the siting of vending machines as taxable at the standard rate. C&E refuse to accept the point, whilst at the same time they are singularly unable to explain why they will not change the law or what tax they perceive to be at risk.

  3.6  On the subject of the INTRASTAT statistical returns there seems to be a genuine empathy amongst visiting officers that these represent a real burden upon the businesses that have to file them. At a national (policy) level however, our members' perception is that this is not necessarily the case. When an essentially compliant business notifies errors in relation to earlier filings, the use of heavy handed warning letters addressed to the main board directors is most counter productive.

4.  CLOSER WORKING WITH THE INLAND REVENUE

  4.1  Our members had a wide range of views on this issue. On the one hand some members point out that the potential from a tax gathering perspective seems obvious, although it is as yet not proven. There is a degree of resignation amongst some of our members that a merged "Super-Department" will come into being in the near future. The benefits of merger and streamlining that we consider may exist (principally for the government) are in those areas such as basic training of staff, computer systems training and auditing techniques, "back office" administration, legal services, unification of registration and recording of primary factual information on taxpayers and so forth.

  4.2  However, counter arguments were in the majority and some of the observations and concerns cited included that the taxes managed by the two Departments operate very differently and require quite different skills to audit them. We therefore see very few areas of overlap where assurance is concerned.

  Our members also have concerns that where information is presently shared it is not always treated with the sensitivity it deserves. Commercial confidences can be jeopardised and even broken as a result. It is a fact that the two taxes operate under different statutes and in the case of VAT, the primary legislation is European rather than UK. Irrespective of the level of enhanced training in any future merged department we consider that there will always be a need for dedicated specialists in both taxes.

18 October 1999