Ministry of Defence Main Building Whitehall London SW1A 2HB United Kingdom Ref: FOI2020/00271 E-mail: DefRes-Parliamentary@mod.gov.uk s 5th February 2020 , Thank you for your email of 8th January 2020 requesting the following information: “1. The number of fruitless payments (payments for which liability not to have been incurred or whether the demand for the goods and services in questions could have been cancelled in time to avoid liability) in excess of £30,000 made by or paid for by your department or its predecessor in the following financial years: 2016/17, 2017/18 and 2018/19 2. What each payment was for 3. The value of each payment 4. The reason why the payment was made 5. The reason why the payment was classified as fruitless 6. Whether any disciplinary action was taken as a result of the payment (if there was any disciplinary action, please specify what the action was)” I am treating your correspondence as a request for information under the Freedom of Information Act 2000 (FOIA). A search for the information has now been completed within the Ministry of Defence, and I can confirm that all the information in scope of your request is held. The information for financial year 2016/17 has already been published in response to a previous FOI under reference number FOI2017/04594 and a copy of this response is at Annex A. Please find at Annex B and C details of fruitless payments for financial year 2017/18 and 2018/19 as defined in the Ministry of Defence Financial Accounting & Reporting Manual (JSP 472): “Fruitless payments. Payments where the Department receives nothing useful in return and: should not have incurred the liability; or could have taken appropriate action to avoid incurring the liability. For example: the cost of repairing incorrectly packed equipment damaged in transit, the cost of rectifying design faults arising from poor specification, failure to cancel travel, accommodation and training bookings in time to obtain a refund”. Please note there are a number of measures being taken by the MOD to tackle the Interest being charged by HMRC for VAT owed by the department which include: 1. The new Contract, Purchasing and Finance system has a tax engine to help determine the correct VAT code. 2. Additional training is being provided to assist MOD management group staff in determining the correct VAT codes, and lessons are learned from any previous mis-coding, reviewing existing contracts to ensure compliance and making the appropriate corrections where necessary. 3. Specialist finance staff are also available to advise on VAT issues, arranges reviews and ensures corrections are processed. 4. Guidance is available from the specialist MOD VAT central team who may themselves contact HMRC if it is required. 5. Where the MOD believe the HMRC ruling does not take full account of an exemption or a new category of exemption is required, an appeal may be raised. If you are not satisfied with this response or you wish to complain about any aspect of the handling of your request, then you should contact us in the first instance at the address above. If informal resolution is not possible and you are still dissatisfied then you may apply for an independent internal review by contacting the Information Rights Compliance team, Ground Floor, MOD Main Building, Whitehall, SW1A 2HB (e-mail CIO-FOI-IR@mod.uk). Please note that any request for an internal review must be made within 40 working days of the date on which the attempt to reach informal resolution has come to an end. If you remain dissatisfied following an internal review, you may take your complaint to the Information Commissioner under the provisions of Section 50 of the Freedom of Information Act. Please note that the Information Commissioner will not normally investigate your case until the MOD internal review process has been completed. Further details of the role and powers of the Information Commissioner can be found on the Commissioner's website, http://www.ico.org.uk. Yours sincerely, Defence Resources Secretariat Annex A – 2016/17 2) What the payment was for 3) Value of payment 4) Reason for payment 5) Why the payment was Fruitless No benefit to the MOD 6) Disciplinary action taken Interest charged by HMRC for VAT owed Interest paid to HMRC for underpayment of VAT £39,968 VAT coding error legal requirement £36,879 When set up the contract was incorrectly categorised. This was discovered in FY14/15 and steps were immediately taken to repay the amount owed. It was not realised at the time that the interest should have been treated as a fruitless payment, hence only reported in FY16/17 Land Rover stolen from RAF base Interest charge from HMRC would have been avoided if the contract had been correctly categorised No Negligent RTA White Fleet £39,101 As the vehicle was leased, it is not deemed a stolen asset, but we still had to pay back the full value to the lease company No Interest charged by HMRC for VAT owed £35,424 Late payments to HMRC attract interest charge No Interest charged by HMRC for VAT owed £31,595 Interest charged by HMRC for VAT owed £30,275 Late payment of bill caused by problems associated with the Contracting, Purchasing & Finance (CP&F) system introduction Late payments to HMRC attract interest charge Correct VAT treatment would have avoided charge Interest payment could have been avoided if paid on time No Interest charged by HMRC for VAT owed £36,196 Late payments to HMRC attract interest charge Interest payment imposed by HMRC due to payment incorrectly identified as COSVAT £32,418 Late payments to HMRC attract interest charge Correct VAT treatment would have avoided charge Correct VAT treatment would have avoided charge Correct VAT treatment would have avoided charge No No No No Interest charged by HMRC for nonpayment of VAT £175,731 Late payments to HMRC attract interest charge Interest payment imposed by HMRC due to payments incorrectly identified as COSVAT Interest payment imposed by HMRC due to payments incorrectly identified as COSVAT £154,570 Late payments to HMRC attract interest charge £129,962 Late payments to HMRC attract interest charge Total number of fruitless payments for 2016/17: 11 Correct VAT treatment would have avoided charge Correct VAT treatment would have avoided charge No Correct VAT treatment would have avoided charge No No Annex B – 2017/18 2) What the payment was for 3) Value of payment 4) Reason for payment Interest payment on late payment of Invoices £98,909.65 Interest payment on late payment of Invoices £124,809.77 Interest on VAT payment to HMRC £31,697.56 Interest on VAT payment to HMRC £67,319.49 Software £115,013.65 Interest became due on commercial invoices that payment had been with-held but subsequently was adjudged needed to be paid Interest became due on commercial invoices that payment had been with-held but subsequently was adjudged needed to be paid After several years, interpretation of VAT treatment on an activity was reviewed and adjudged to be inappropriate. This meant that an intergovernmental payment to HMRC was due for backpayments of VAT and interest on these payments After several years, interpretation of VAT treatment on an activity was reviewed and adjudged to be inappropriate. This meant that an intergovernmental payment to HMRC was due for backpayments of VAT and interest on these payments Software Purchase 5) Why the payment was Fruitless Had payment on the invoice not been withheld, payment would have been made and no late 6) Disciplinary action taken Had payment on the invoice not been with-held, payment would have been made and no late No Had the interpretation of the VAT treatment been appropriate initially, interest payments would not have been necessary No Had the interpretation of the VAT treatment been appropriate initially, interest payments would not have been necessary. No Software purchased to enable a particular development was no longer needed due to changes in delivery timescales in the wider project. This is part of what is termed routine impairment of software and is No No Late payment interest charge £57,724.62 Interest on VAT liability £69,131.04 Interest on VAT liability £39,693.88 Interest on VAT liability £47,765.09 Interest on VAT liability £33,563.67 Interest on VAT liability £84,302.41 Interest on VAT liability £35,311.35 Interest on VAT liability £86,886.01 Interest on VAT liability £38,184.10 Interest on VAT liability £69,809.90 Interest on VAT liability £43,632.98 Interest on VAT liability £33,400.32 Interest on VAT liability £35,863.63 Interest on VAT liability £35,558.74 Interest on VAT liability £35,445.71 Interest and compensation payable to contractor due to issues with CP&F matching causing delay in payment being made within specified period VAT coding reviews highlighted incorrect VAT coding, interest paid to HMRC on underpaid VAT VAT coding reviews highlighted incorrect VAT coding, interest paid to HMRC on underpaid VAT Interest paid to HMRC on underpaid VAT Interest paid to HMRC on underpaid VAT Interest paid to HMRC on underpaid VAT Interest paid to HMRC on underpaid VAT Interest paid to HMRC on underpaid VAT Interest paid to HMRC on underpaid VAT Interest paid to HMRC on underpaid VAT VAT Interest following a contract review VAT Interest following a contract review Interest paid to HMRC on underpaid VAT Interest paid to HMRC on underpaid VAT Interest paid to HMRC on underpaid VAT common especially when using “Agile” development methodology Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Interest on VAT liability £45,719.07 Interest on VAT liability £99,651.45 Interest on VAT liability £62,726.43 Interest on VAT liability £135,325.22 Interest on VAT liability £146,743.22 Minimum Order Quantity Contractual payment £363,000.00 £3,274,704.00 VAT penalty and interest payment to HMRC. £61,436.67 Rental on MoD houses £539,859.71 Late interest payment Interest payment to HMRC £44,554.64 £42,436.58 Interest paid to HMRC on underpaid VAT Interest paid to HMRC on underpaid VAT Interest paid to HMRC on underpaid VAT Interest paid to HMRC on underpaid VAT Interest paid to HMRC on underpaid VAT Contractor had minimum order quantity for operational ration packs Leased gas cannisters not returnable to contractor. Wrongly VAT coded landing and handling transactions incurred charges. Payments contractually due rental for 182 demolished properties for a 12 month period Rent was not paid on time Underpayment of VAT due. Total number of fruitless payments for 2017/18: 31 Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Minimum order quantity was higher than requirement, but it was not possible to procure a smaller quantity Payment could have been avoided No This payment could have been avoided if the transactions were correctly coded MoD has no beneficial use of the properties No This payment could have been avoided. This payment could have been avoided No No No No Annex C – 2018/19 2) What the payment was for 3) Value of payment 4) Reason for payment VAT Interest/penalty £77,928.56 Demurrage Charge £37,530.22 Late payment interest due to issues with 3-way matching on CP&F causing delays in paying invoices within the specified period Demurrage Charge VAT Interest/penalty £92,855.98 VAT Interest/penalty £64,402.19 VAT Interest/penalty £34,929.96 VAT Interest/penalty £59,560.86 VAT Interest/penalty £65,068.82 VAT Interest/penalty £31,706.49 VAT Interest/penalty £68,906.24 VAT Interest/penalty £172,790.23 VAT Interest/penalty £184,423.20 VAT Interest/penalty £171,476.61 Payment for work not completed £177,357.71 VAT Interest/penalty VAT Interest/penalty HMRC Interest Payment £34,805.24 £51,574.40 £55,040.57 Payment of interest charges to HMRC following incorrect recovery of VAT Interest charges to HMRC following incorrect recovery of VAT Interest charges to HMRC following incorrect recovery of VAT VAT liability and interest charges due to HMRC Interest to HMRC on an outstanding VAT balance Part of PDS PVA008 VAT exercise Interest on underpaid VAT to HMRC Interest on underpaid VAT to HMRC Interest on underpaid VAT to HMRC Interest on underpaid VAT to HMRC Safety provision payments for work not completed Interest charges from HMRC VAT Interest payment After several years, interpretation of VAT treatment on an activity was reviewed and adjudged to be inappropriate. This 5) Why the payment was Fruitless Payment could have been avoided 6) Disciplinary action taken Payment could have been avoided Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided No Payment could have been avoided Payment could have been avoided Had the interpretation of the VAT treatment been appropriate initially, interest payments would not have been necessary No No No No No HMRC Interest Payment £43,646.95 McKinsey Consultancy advice £157,500 Rental on MoD houses £515,203.59 Interest payment to HMRC Contract termination costs for RNAS Culdrose Air Day 2017, paid to organiser AHA Events £58,690.15 Fine imposed by HM Treasury for Contract Letting Standards £149,000 £39,782.86 meant that an intergovernmental payment to HMRC was due for backpayments of VAT and interest on these payments Interest on late payment of tax due review of the costs of school bus journeys in Cyprus leading to costs over several years being reclassified as a Benefit in Kind McKinsey were contracted to provide consultancy advice to support an independent review. Per the nature of the contract, DNO was required to formally notify McKinsey of the end date of its work in order to end the payments for McKinsey’s services Contractually due rental for 184 demolished properties for a 12month period. Underpayment of VAT due For work carried out by AHA Events in anticipation of RNAS Culdrose Air Day 2017, prior to cancellation The case to let the Defence Learning and Management Capability (DLMC) Had the interpretation of the tax treatment been appropriate from the start, interest payments would not have been necessary No DNO did not submit the end notice on the contract in a timely manner, which resulted in McKinsey being contractually entitled to payment for two weeks where they did not perform any work No MoD has no beneficial use of the properties No This payment could have been avoided The decision to cancel RNAS Culdrose Air Day 2017 was made (and no further Air Days have been held) after work had already started on planning and booking displays, contractors etc, therefore organiser AHA Events had incurred costs for which we were responsible under the terms of the contract we had with AHA Events In consultation with the CO, HMT proposed that the Department agreed No No No Bridging Capability contract beyond 13 November 2016 was initially rejected by Minister for the Cabinet Office (CO) and Paymaster General (MCO), and thereafter referred to HM Treasury (HMT) as contentious Total number of fruitless payments for 2018/19: 22 to the payment of a fine of 1% of the value of the contract to reflect a number of process omissions. The Department received no benefit as a result of the payment