Her Majesty's Revenue and Customs

Her Majesty's Revenue and Customs (HMRC) is a new department of the British Government created by the merger of the Inland Revenue and Her Majesty's Customs and Excise which came into formal effect on 18 April, 2005.

HMRC is responsible for the collection of direct taxes (such as income tax and corporation tax), indirect taxes (such as value added tax) and some import controls, and also for national insurance contributions, and for the distribution of child benefit and some other forms of state support.

New department

The proposed merger was announced by Chancellor of the Exchequer Gordon Brown in the Budget on 17 March, 2004. The name for the new department and its first executive chairman, David Varney, were announced on 9 May, 2004. Varney joined the nascent department in September 2004, and staff started moving from Somerset House and Kings Beam House into HMRC's new headquarters building at 1 Parliament Street in Whitehall on 21 November 2004.

The planned new department was announced formally in the Queen's Speech of 2004 and a bill, the Commissioners for Revenue and Customs Bill, was introduced into the House of Commons on 24 September 2004, and received Royal Assent as the Commissioners for Revenue and Customs Act 2005 on 7 April 2005. The Act also creates a Revenue and Customs Prosecutions Office (RCPO) responsible for the prosecution of all Revenue and Customs cases.

The Inland Revenue and Customs have very different historical bases, internal cultures and legal powers. The merger was described by the Financial Times on 9 July, 2004, as "mating the C&E terrier with the IR retriever". For an interim period officers of HMRC are empowered to use existing Inland Revenue powers in relation to matters within the remit of the Inland Revenue (such as income tax, stamp duty and tax credits) and existing Customs powers in relation to matters within the remit of HMCE (such as value added tax and excise duties). However, a major review of the powers required by HMRC was announced at the time of the 2004 Pre-Budget Report on 9 December 2004, covering the suitibility of existing powers, new powers that might be required, and consolidating the existing compliance regimes for surcharges, interest, penalties and appeal, which may lead to a single, consolidated enforcement regime for all UK taxes, and a consultation document was published after the 2005 Budget on 24 March 2005.

HMRC is expected to concentrate on reducing the estimated £30 billion "tax gap"—the gap between the tax that is actually paid and the tax that would be due if all tax avoidance and tax evasion were eliminated. After the Pre-Budget Report of 2 December 2004, the Inland Revenue announced measures that, according to statements the companies made to the Stock Exchange, wiped £800m off the value of Legal and General and would cost Aviva (Norwich Union) policy holders £300m, so it appears that some of this gap has already been reduced. HMRC will aim to cut underpayment of direct tax and national insurance contributions by at least £3 billion a year from the 2007/8 financial year.

Efficiency gains and job cuts

As part of the Spending Review on 12 July, 2004, Gordon Brown estimated that 12,500 jobs will be lost as result of the merger by March 2008(the estimate at the time of the Budget was 10,500) – around 14% of the combined headcount of Customs (around 23,000) and Inland Revenue (around 68,000). In addition, 2,500 staff will be redeployed to "front-line" activities. This will save around £300 million in staff costs, out of a total annual budget of £4 billion (by way of comparison, the Inland Revenue and Customs together collect approximately £325 billion each year).

Commentators have asked whether this level of staff reduction really amounts to job cuts rather than efficiency gains from the merger. Many Customs staff (around 7,000) are involved in investigatory activities, compared to 13,000 at the Inland Revenue. However, reductions in this area could adversely affect the tax yield: the total expected saving of staff costs is only around 0.08% of the revenue raised. The majority of the Inland Revenue staff (around 37,000) are employed in data capture and processing, but only 1,000 Customs staff perform this function. Job reductions may have been expected in this area in any event, with ever-increasing numbers of tax returns being filed on-line.

The total number of job losses includes policy functions within the Inland Revenue and Customs (around 250 posts) that will move into the Treasury, so that the Treasury becomes responsible for "strategy and tax policy development" and HMRC handles "policy maintenance". In addition, certain investigatory functions (around 1,500 posts) will move to the proposed Serious Organised Crime Agency, as well as prosecutions moving to the new RCPO.

External links

• HMRC website (http://www.hmrc.gov.uk/)
• Commissioners for Revenue and Customs Act 2005 (http://www.legislation.hmso.gov.uk/acts/acts2005/20050011.htm)
• Treasury Press Release (http://www.gnn.gov.uk/content/detail.asp?ReleaseID=117153&NewsAreaID=2&NavigatedFromSearch=True) (13 May 2004)
• Treasury Press Release (http://www.gnn.gov.uk/content/detail.asp?ReleaseID=122869&NewsAreaID=2&NavigatedFromSearch=True) (12 July 2004)
• Treasury Press Release (http://www.hm-treasury.gov.uk/newsroom_and_speeches/press/2004/press_96_04.cfm) (25 November 2004)
• HM Revenue and Customs and the Taxpayer: Modernising Powers, Deterrents and Safeguards (http://www.inlandrevenue.gov.uk/consult_new/hmrc-taxpayer.pdf) (Consultation document, 24 March 2005)