Taking forward the BRTF Report: Admin Burdens and the Standard Cost Model in HMRC Presentation to the BRCC Craig Richardson, HMRC Analysis Steve Webster, HMRC Better Regulation Unit

Overview Quick recap of the policy situation Outline the methodology Where we’ve got to so far How we’d like to get the BRCC involved

Budget 2005 Government accepted both the BRTF and Hampton Reports. – Recommendation 1 of the BRTF report states: “The UK can considerably reduce the regulatory burden on business by adopting the successful Dutch approach to reducing the administrative costs. This approach involves first measuring administrative burdens and then setting a target to reduce them. The golden rule is that what gets measured gets done.” Timetable is tight: –By May 2006 measure the Admin Burdens (AB) and set a target for reduction

HMRC Remit HMRC is not within the scope of either the BRTF or Hampton reviews –But we are committed to measuring AB and setting ourselves a challenging but achievable target to reduce it. –Chancellors’ Budget 2005 report states: “…. both departments are already developing stretching targets that will be consistent with the new department’s objective to ensure that the tax system is fair for all business. They will be published and progress against them monitored.”

How it fits together Regulation Information Obligation 1 Information Obligation 2 Information Obligation n Data Requirement 1 Data Requirement 2 Data Requirement n Activity 1 Activity 2 Activity n Internal costs - Hourly rate - Time - Overheads External costs - Hourly rate - Time Acquisitions (Monetary value) Admin Burdens - The part of administrative costs that the businesses sustain simply because it is a requirement from regulation.

How it fits together Regulation Information Obligation 1 Information Obligation 2 Information Obligation n Data Requirement 1 Data Requirement 2 Data Requirement n Activity 1 Activity 2 Activity n Internal costs - Hourly rate - Time - Overheads External costs - Hourly rate - Time Acquisitions (Monetary value) Regulation - a rule with which failure to comply would result in conflict with the law or being ineligible for continued funding, grants and other applied for schemes

How it fits together Regulation Information Obligation 1 Information Obligation 2 Information Obligation n Data Requirement 1 Data Requirement 2 Data Requirement n Activity 1 Activity 2 Activity n Internal costs - Hourly rate - Time - Overheads External costs - Hourly rate - Time Acquisitions (Monetary value) Information obligation - a duty to procure or prepare information and make it available to a public authority, as well as a duty to facilitate the collection or preparation of information by others, e.g. by permitting and co-operating with an audit, visit or inspection.

How it fits together Regulation Information Obligation 1 Information Obligation 2 Information Obligation n Data Requirement 1 Data Requirement 2 Data Requirement n Activity 1 Activity 2 Activity n Internal costs - Hourly rate - Time - Overheads External costs - Hourly rate - Time Acquisitions (Monetary value) Data requirement - Each information obligation consists of a range of different information or data that the businesses shall provide in order to be able to comply with the information obligation

How it fits together Regulation Information Obligation 1 Information Obligation 2 Information Obligation n Data Requirement 1 Data Requirement 2 Data Requirement n Activity 1 Activity 2 Activity n Internal costs - Hourly rate - Time - Overheads External costs - Hourly rate - Time Acquisitions (Monetary value) Activity - Each activity is a particular task or process that must be completed. Several activities may be required to complete a data return.

Measurement Methodology Value each activity to required to return each piece of data: –Admin Burden = P x Q –P = Tariff (gross costs, wage costs and material and overhead costs) x Time (how long it takes to perform the activity). –Q = Number of businesses (the number of businesses that the regulation applies to) x Frequency (the number of times that a business delivers this each year). –Burden for a regulation = sum of cost of all activities that make up the data requirements that make up the obligations imposed by that regulation...

Implementation Implementation of the SCM has two phases: 1. Mapping – identifies which regulations HMRC has on stock 2. Measurement / Data collection –attempts to place an indicative value on the cost to the economy of firms complying with the information obligations contained in the regulation –mixture of face-to-face interviews and panels of experts to work out how long activities take, and wages of those who do them

Timetable Sept 05Oct 05Nov 05Dec 05Jan 06Feb 06 Start up Phase 0 Preparatory Analysis Phase 1 Time and cost data and standardisation Phase 2 Calculation, Data submission and reports Phase Preparatory analysis completeEnd of interviewsFirst draft report submitted to HMRC

Mapping process Currently being carried out –Large piece of work –Identifying obligations where possible, rather than regulations –Having to take a pragmatic approach, not much detail in the actual regulations –Aim to give consultants as much information as possible, e.g. links to firms, guidance etc Aim to complete by early September

Measuring Costs (1) NOT designed to be a statistically representative process! –Bringing in contractors to carry out the measurement –Talk to at least 3 firms for each segment of the obligation –identify the actual activities undertaken by business, the time and level of resources required and particular irritations –Aim to get a “standardised” estimate for a “typically efficient” firm - if there’s a wide variety of estimates more interviews will be needed

Measuring Costs (2) –40% of regulations will be covered by face-to- face interviews –Smaller/lower priority obligations may be covered by telephone interviews, or a panel of experts –Panels can extrapolate results from knowledge of processes and also results from the face-to-face interviews. –Interviews will also collect info on: –irritation burdens –Best practice

This is complicated by... Segmentation: Need to split results down (e.g. by firm size) and ensure certain groups are covered (e.g. digital and non-digital returns) One-off costs: e.g. start-up, closure etc. Different firms each year, but still a recurring burden which HMRC needs to measure Visits/Inspections: may be hard to get a standardised estimate of time taken to deal with Joint costs: Some costs, e.g. record keeping for incorporated firms, may be split with or owned by other depts. Unincorporated firms/Partnerships: self employed in particular may be hard to include

And there’s also... Internal and external costs: need to be identified, costed differently Data that’s used for more than one regulation: need to ensure its only counted once Parts of the methodology are still being developed by Cabinet Office: –Which regs are in/out of process? –Aim to develop “case law” as work progresses

Progress Currently have an Invitation to Tender out in the field using the OGC S-Cat procurement process –Looking for firms that can provide: –Skills - knowledge of the tax system and how it translates into business processes –People - will require a considerable number of people to digest the mapping results and carry out a large number of interviews –Tenders due in by start of August - aim to have contractor in place in early September

What will we do with the results? Use the baseline to set a target to reduce administrative burdens Identify areas where there is potential to reduce burden Provide a “cookery book” of costs –Likely to be used to value future improvements as part of RIA process, track against the published target

Involving the BRCC (1) We’d really like to have your support and involvement in this work. There’s a number of ways to get involved: –Contacting firms: would your members be interested in being involved with the measurement process? –Quality Assurance: we would like to set up a sub-group of the BRCC as an Advisory Group for the project –updated on the progress –asked to comment on emerging results –Use your experience to help us to monitor the results and quality assure the outcomes

Involving the BRCC (2) –Would people be willing to be involved as part of a panel of experts to help with the measurement? –Feed into simplification plans