When it comes to self loathing, no one and nothing does it better than politicians and the State; especially when they viciously turn on one of their own departments.
Therefore it should come as no surprise whatever to read the "public damnation" of HMRC by the Public Accounts Committee.
PAC Chairman, Margaret Hodge, expresses "righteous anger" at how HMRC handles tax disputes with large corporations and the specific and "systemic failures" within HMRC.
PAC, ever mindful that the government is skint (and desperately needs money in order to keep itslef in the style to which it has become accustomed), expresses outrage at the £25BN of uncollected tax.
For good measure, PAC also lambaste HMRC for trying to maintain confidentiality and for not being transparent.
Well, all of these criticisms may well be valid. However, may I make a few observations from my humble perspective of being a "mere citizen" and not a politician:
1 HMRC is the product of the politicians, in terms of its structure, budget and how it is managed (eg politicians appoint the senior mandarins etc). Therefore the "buck" stops at the feet of the politicians, when it comes to apportioning blame for the failure of HMRC.
2 Has HMRC only just now started "doing deals" with major corporations?
I think not!
This has always been standard practice, the corporations and HMRC "negotiate" a settlement in order to minimise the costs and time spent in a protracted legal battle that neither side is certain who will win.
Why now are politicians (some of whom serve on the boards of large companies) expressing surprise at this and becoming excised over this?
3 To hear politicians bemoan the lack of transparency in an organisation is akin to watching a dog trying to walk on its hind legs.
Hypocrisy writ large!
4 The failings of HMRC are the product of a botched restructuring, poorly skilled senior managers, poor quality training, misdirection of resources, the politicisation of HMRC and an unduly complex and cumbersome tax system etc etc. All of these issues come firmly back to roost in the crow's nest of the government (Labour and Tory administrations alike).
Until the politicians "fess up" to the fact that they are responsible for this failed state "enterprise", nothing will improve.
Here is the
summary of the report:
"The Commons Public Accounts Committee publishes its 61st Report of
the Session which, on the basis of evidence from the Cabinet Office and
HM Revenue and Customs (HMRC), examined tax disputes.
The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:
"This report is a damning indictment of HMRC and the way its
senior officials handle tax disputes with large corporations. We
uncovered both specific and systemic failures which must be addressed.
There is more than £25 billion outstanding in unresolved tax
bills and it is essential that there should be proper accountability to
Parliament for the settlements reached by HMRC.
Having looked at the two cases in the public domain, we are
concerned that many millions of pounds may be lost to the public purse.
It is extremely disappointing that senior HMRC officials
were not prepared to cooperate with our inquiry in a spirit of openness.
We accept that there is a need for confidentiality to protect
individual taxpayers, but this must not be used as a cloak to protect
the Department from scrutiny.
It is absurd that we had to rely on the media and the
actions of a whistleblower to find out about the details of individual
settlements. Parliament and the public have legitimate concerns that
large companies are being treated more favourably than ordinary
taxpayers, whether they be small businesses or hard-working families.
The Department's working practices must be seen by the
taxpaying public to be absolutely impartial. The impression being given
at the moment is quite the opposite, of far too cosy a relationship
between HMRC and large companies.
In several cases, HMRC chose to depart from its normal
governance procedures. It is extraordinary that the same officials who
negotiated deals also approved them. In one instance, a mistake led to a
potential £20 million of interest on a tax liability not being
collected. Parliament and the public must be assured that settlements do
not short-change the Exchequer."
Margaret Hodge was speaking as the committee published its 61st
Report of this Session which, on the basis of evidence from the Cabinet
Secretary and HM Revenue & Customs (the Department), examined tax
disputes.
At 31 March 2011 HM Revenue & Customs (the
Department) was seeking to resolve tax issues valued at over £25 billion
with large companies, some of which included disputes over outstanding
tax. The Department must collect as much outstanding tax as possible and
be held properly to account for how it resolves tax disputes. We have
serious concerns about how the Department handled some cases involving
large settlements, where governance arrangements were bypassed or
overlooked until it was too late. In some cases the same officials
negotiated and approved the settlements, which is clearly unacceptable.
Investigation
of these specific cases has led to serious concern about systemic
issues which must be addressed with the utmost urgency. There needs to
be proper separation between the negotiation of tax settlements and the
authorization of such settlements. And the Department must address
issues of accountability so that Parliament and the public can be
satisfied that best value is secured.
The Department has made
matters worse by trying to avoid scrutiny of these settlements and has
consistently failed to give straight answers to our questions about
specific cases, which has severely hampered our ability to hold it to
account for the settlements reached.
The Department has insisted
on keeping confidential the details of specific settlements with large
companies, even where there have been legitimate concerns about the
handling of cases. Details of some cases only reached the public domain
because the press secured the details. We recognise the general
intention of the legislation is to keep taxpayers' details confidential,
but there is a provision which allows the Commissioners to authorise
disclosure in certain circumstances. Furthermore, HMRC has a clear duty
to assist Parliament in its work to establish value for money and
detailed information can be necessary if Parliament is to properly meet
its obligations. Given the public interest in these very large
settlements, it is not unreasonable that they should be subject to more
specific scrutiny. As it stands, the Department’s decision to withhold
details from us reduces transparency and makes it impossible for
Parliament to hold Commissioners to account. This situation is entirely
unacceptable.
We discovered that the Department's governance
processes for large settlements were not applied consistently. In one
case, a mistake was not picked up until too late because the Department
failed to follow its own governance procedures. The C&AG told us
that this resulted in a loss of up to £8 million in interest forgone. We
have since received evidence from a whistleblower that the total value
of interest payable in respect of this particular settlement could be as
high as £20 million. Our understanding of how this case was settled is
inhibited by the imprecise, inconsistent and potentially misleading
answers given to us by senior departmental officials, including the
Permanent Secretary for Tax. In particular, his evidence to the Treasury
Select Committee on his relationship with Goldman Sachs is less than
clear given his evidence to us that he facilitated a settlement with the
company over their tax dispute. We expect far greater candour from
public officials involved in administering such an important area of
government, especially when there is a question about whether HMRC acted
within the law and within its protocols. We are concerned that
whistleblowers using the provisions of the Public Interest Disclosure
Act 1998 face threats of dismissal for providing important and relevant
information.
The Department accepts that its governance
arrangements have not provided sufficient assurance and that independent
scrutiny of large settlements is needed. It has appointed two new
Commissioners with tax expertise, and plans to introduce a new assessor
role to permit independent review of large settlements before they are
finalised. The Cabinet Secretary assured us that proposals would be
submitted to the Public Accounts Committee by Christmas. We welcome
these measures, but they will not by themselves guarantee proper
accountability. In future, the Department needs to ensure it follows its
own governance procedures and checks without exception. In particular,
it needs to make sure that in all cases there is a clear separation
between the roles of those negotiating and those signing off
settlements.
We saw little evidence of a culture of personal
accountability within the Department. We were told that one individual
was held accountable for the mistake which led to a loss of the interest
due to the Department. However, those at the top of the Department also
need to take responsibility for how the overall system has been
designed and operated, since that is the context in which mistakes have
occurred.
We have serious concerns that large companies are
treated more favourably by the Department than other taxpayers. We were
told by the Cabinet Secretary that the relationship management approach
adopted for large companies had been very successful in terms of tax
collection. But for the public to have confidence in this approach, the
Department's working practices must be seen to be absolutely impartial.
The Department has left itself open to suspicion that its relationships
with large companies are too cosy. We are also concerned that large
companies appear to receive preferential treatment compared to small
businesses and individuals – for example, in settling the totals due at
less than the sum claimed by HMRC and in the time they are allowed to
pay their tax liabilities without incurring interest charges. In order
to maintain public confidence, the Department must ensure it avoids any
perception of undue leniency in its dealings with large companies and
must be seen to treat every taxpayer equally before the law.
We
welcome the Comptroller and Auditor General's proposal to conduct
further work to consider the reasonableness of the settlements reached
in the specific cases where normal governance processes were not
followed, and to report on whether proper legal advice was secured in a
timely manner and that HMRC complied with its own published procedures
and protocols. The Department has agreed to co-operate fully with this
inquiry and with any subsequent hearings we hold."
Here is
HMRC's response:
HM Revenue & Customs (HMRC) has today responded to the
report of the Public Accounts Committee into tax disputes. An HMRC
spokesman said:
“HM Revenue & Customs rejects the conclusion of the Public
Accounts Committee that there are systemic failures in the management of
tax disputes. The report is based on partial information, inaccurate
opinion and some misunderstanding of facts.
HMRC's internal
processes are robust and this was confirmed by a recent review by the
National Audit Office of large business settlements. We agree that
public confidence in our processes is important, and as we have already
informed the Public Accounts Committee we propose to make further
improvements to our governance and to increase transparency about our
work with large business. We also welcome the further review that the
National Audit Office is to carry out as an opportunity to confirm this
and clear up the concerns about foregone millions.”
In response to the specific criticisms, the spokesman said:
1. “specific and systemic failures”
“We
acknowledge that a mistake was made in one settlement and explained how
this arose. We reject the suggestion that this is evidence of systemic
failure. This assertion, based on untested, leaked information, is
without foundation. ”
2. “more than £25 billion outstanding in unresolved tax bills”
“We
explained to the Committee and again in a letter to the Committee Chair
in November that this figure is a ballpark estimate of maximum
potential tax liabilities, before a full investigation of the specific
facts has taken place, and before applying any reliefs or allowances. It
is not actual tax either owed or unpaid. In many cases, when HMRC has
looked at the full facts it becomes clear that there is no further
liability at all. Tax under consideration is an administrative tool to
help us to focus our resources on cases where potential tax liabilities
appear to be greatest. It is not tax owed.”
3. “many millions of pounds may be lost to the public purse”
“HMRC’s
job is to bring in the tax that’s owed and that’s what we’re doing. We
collected a record £468 billion in taxes last year, including more than
£13 billion extra from our compliance work. We drew the NAO’s attention
to an error in a single case which they then estimated to be between £5
and £8 million.
4. “a mistake led to a potential £20 million of interest on a tax liability not being collected”
“We
do not agree this figure. We drew the attention of the Comptroller and
Auditor General to an error, which he then estimated as between £5
million and £8 million.
5. “it is extremely disappointing that
senior HMRC officials were not prepared to cooperate with our inquiry in
a spirit of openness. We accept that there is a need for
confidentiality to protect individual taxpayers, but this must not be
used as a cloak to protect the Department from scrutiny…It is absurd
that we had to rely on the media and the actions of a whistleblower to
find out about the details of individual settlements.”
“Senior
HMRC officials sought to be co-operative by providing as much
information as possible within the legal constraints of taxpayer
confidentiality under which they work. Taxpayer confidentiality is a
legal requirement, fundamental to tax administration in the UK and
across the world. Parliamentary scrutiny is delivered via the NAO to
whom HMRC provide unfettered access to all their papers.”
6.
“Parliament and the public have legitimate concerns that large companies
are being treated more favourably than ordinary taxpayers… “
“HMRC
treats all taxpayers even-handedly, supporting the majority who comply
with their duty to pay their taxes, and cracking down hard on evaders,
avoiders and fraudsters.
“It is wrong to suggest that HMRC
officials are too lenient on large businesses. Large businesses pay
around 60 per cent of total UK tax receipts, and account for more than
half of the £13.9 billion additional compliance revenues that we brought
in last year.
“Large business tax settlements are a vital part
of how HMRC secures tax revenues for the country and without them
Britain’s public finances would be seriously damaged. HMRC's large
business strategy is now being adopted by other tax administrations
around the world.
7. “in several cases, HMRC chose to depart from
its normal governance procedures. It is extraordinary that the same
officials who negotiated deals also approved them.”
“We have
already informed the Committee of the action we have taken to ensure
that in any case where an HMRC Commissioner has been involved in
negotiations, the settlement decision is made under a ‘dual key’
approach by two different Commissioners. We have also written to the
Committee with proposals to further strengthen our internal governance.
These further changes will be agreed with our new Chief Executive in the
New Year.
Tax does have to be taxing.
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