2011 December » Tax Research UK

Want to demand change to the management at HMRC? You can do so here

Dec 212011

38 Degrees is running a campaign to demand better accountability at HMRC. You can sign up here.

The demand is for better independent directors of HMRC. The existing non-execs are noted here, but for the sake of saving you the click the HMRC page says:

HM Revenue & Customs’ (HMRC) Non-Executive Directors are senior business figures from outside the department who bring a diverse mix of expertise and skills from across both public and private sector. HMRC looks to its Non-Executive Directors to:

bring guidance and advice

support and challenge management about the department’s strategic direction

provide support in monitoring and reviewing progress

Colin Cobain

Colin is a highly successful Chief Information Officer (CIO) who has won many awards for his work in retail. He was formerly Group CIO of Tesco where he played a key role in transforming their technological capability. Colin is currently a non-executive Chairman of Safe Surgery Systems and Interim CIO at Supervalu, a $45 billion retailer/wholesaler in the US.

Having started his career with the Mars group, he has also been Chief Executive at Incepto, Complementary Channels Director, Systems and Logistics Director, Systems and Business Development Director, Director of Retail Developments and Head of MIS all in the Kingfisher plc group; Colin has also been IT Director at Rumbelows, part of Thorn EMI plc.

Philippa Hird

Philippa is an experienced Human Resources professional specialising in effective delivery of complex change. She was until recently Group Human Resources Director of ITV. Prior to ITV, she held Personnel Director roles at Granada plc and Granada Media Group. Her current roles are board member of Polka Theatre in Wimbledon and governor of Wimbledon Chase primary school.

Previously she was a board member of Opportunity Now and of Skillset and Vice President of the Chartered Institute of Personnel and Development (CIPD).

Phil Hodkinson

In early 2008, Phil was appointed as external adviser to the HMRC senior management team and the audit committee. He supported the Department in the wake of the data loss and implementation of the Capability Review and provides valuable consistency for the Board.

He brings with him significant finance experience having previously been Group Finance Director of HBOS plc and Chairman of Insight Investment prior to his retirement in 2007. Phil is also a non-executive Director and audit committee Chair of BT Group plc, non-executive Director and audit committee Chair of Travelex Holdings, non-executive Director of Resolution Ltd, Trustee of Christian Aid, Trustee of Business in the Community and more recently joined the Board of Trustees of BBC Children in Need.

Phil chairs the HMRC Ethics and Responsibilities Committee.

Previously he has been CEO of UK Life Business at Zurich Financial Services, a consulting actuary, Chair of the ABI’s Raising Standards accreditation scheme and a member of the DTI operating and financial review working group.

John Spence

John’s background is in the banking sector. His career with Lloyds TSB spanned 32 years from 1973 to 2005. Senior appointments included Managing Director of Business Banking, Chief Executive of Lloyds TSB Scotland, and Managing Director of Retail Distribution encompassing UK branch networks, ATMs, telephony and internet banking.

He is involved in a wide range of charities and church organisations as well as a number of business focused organisations (such as Business in the Community). John chairs the HMRC Audit and Risk Committee.

So two were directors of failed banks requiring enormous bail outs. That’s enormously encouraging. And note they are all ‘senior business figures’ – no wonder HMRC is so cosy with the business community.

Each of these directors may well be very personally honourable. But the point is a simple one: they’ve been chosen for the wrong reasons, represent the wrong interests and clearly haven’t held HMRC to account in its relationships with the community they all come from – big business. And that’s not good enough, especially as two of the executive directors are also closely associated with their business pasts as well, meaning big business thinking dominates the nine person board of our tax authority.

No wonder things have gone wrong.

The cosiness of the tax avoidance industry

Big 4, HMRC 9 Responses »

Dec 212011

This is my friend Prof Prem Sikka in the Guardian yesterday:

[The Parliamentary Accounts Committee] laments HMRC’s cosy relationship with large companies, but is silent on the cosiness with the tax avoidance industry. It notes that HMRC officials attended numerous lunches, dinners and receptions organised by PricewaterhouseCoopers (PwC), KPMG, Deloitte and Ernst & Young. The lavish hospitality is organised to promote private interests rather than enhance HMRC accountability.

Many former ministers act as advisers to big accounting firms. For example, Labour grandee Lord Peter Mandelson has been an adviser to Ernst & Young. Former ministers Lord Digby Jones and Lord Norman Warner of Brockley have been advisers to Deloitte. Former Labour home secretary Jacqui Smith is a consultant for KPMG. Former Conservative minister Sir Malcolm Rifkind has been an adviser to PwC. Do such political links skew the relationship between government departments and the private sector?

The links between the big accountancy firms and the Treasury attract no comments from the committee. For example, former PwC staffer Mark Hoban is the current financial secretary to the Treasury. Sir Nicholas Montagu, one-time chief of the Inland Revenue, joined PricewaterhouseCoopers in 2004 before moving on to other lucrative commercial appointments. PwC partner Richard Abadie has been the head of private finance initiative policy at the Treasury. In June 2009, former PwC partner Amyas Morse was appointed UK comptroller and auditor general and became responsible for directing the National Audit Office. Former PwC tax partner John Whiting is the director of the newly established Office of Tax Simplification, advising the government on simplification of tax laws. Chris Tailby, one-time tax partner at PricewaterhouseCoopers became head (until 2009) of anti-avoidance at HMRC. In July 2010, partners from KPMG, Ernst & Young, Grant Thornton and BDO became members of the government appointed Tax Professionals Forum and help shape the UK tax laws.

And he has only scratched the tip of the iceberg.

The revolving door is a massive problem, not least as many of these firms have had prosecutions or professional judgements against them for tax abuse in the last decade whilst at the same time they operate in all the major tax havens where they work day in and day out to undermine our democracy and that of other states by seeking to actively undermine our tax systems, laws and regulations, all of which, in my opinion, should debar them from consulting for the government.

Tax need not be an ethics free zone – what we need is a Code of Conduct

Code of Conduct, Economics, HMRC, Tax Justice Network 1 Response »

Dec 212011

What the PAC report on HMRC’s management of the tax affairs of large corporations has shown is that tax management has become an ethics free zone. That need not be the case. I argued very strongly for a Code of Conduct for tax a couple or so years ago, and as a result drafted the Tax Justice Network and Association for Accountancy and Business Affairs Code of Conduct on taxation. This is available here.

The actual Code is just two pages long and reads as follows:

A Code of Conduct for Taxation

Objective

This Code of Conduct relates to the payment of taxes due to a State or other appropriate authority designated by it.

Scope

This Code applies to:

Governments and their agencies in their role as tax legislators, assessors and collectors;

Taxpayers, whether individuals, corporate bodies or otherwise;

Tax agents, whether they are undertaking tax planning or assisting with tax compliance.

Application

It is intended that this Code be voluntarily adopted by States and should be used to guide the conduct of taxpayers and their agents who choose to comply with it whether or not they reside in a State which has adopted the Code.

The Code

The Code is divided under six sections, each of which includes three statements of principle.

1. Government

a. The intention of legislation is clear and a General Anti-Avoidance Principle (‘Gantip’) is in use;

b. No incentives are offered to encourage the artificial relocation of international or interstate transactions;

c. Full support is given to other countries and taxation authorities to assist the collection of tax due to them.

2. Accounting

a. Transparent recording of the structure of all taxable entities is available on public record;

b. The accounts of all material entities are available on public record;

c. Taxable transactions are recorded where their economic benefit can be best determined to arise.

3. Planning

a. Tax planning seeks to comply with the spirit as well as the letter of the law;

b. Tax planning seeks to reflect the economic substance of the transactions undertaken;

c. No steps are put into a transaction solely or mainly to secure a tax advantage.

4. Reporting

a. Tax planning will be consistently disclosed to all tax authorities affected by it;

b. Data on a transaction will be consistently reported to all tax authorities affected by it;

c. Taxation reporting will reflect the whole economic substance and not just the form of transactions.

5. Management

a. Taxpayers shall not suffer discrimination for reason of their race, ethnicity, nationality, national origin, gender, sexual orientation, disability, legal structure or taxation residence; and nor shall discrimination occur for reason of income, age, marital or family status unless social policy shall suggest it appropriate.

b. All parties shall act in good faith at all times with regard to the management of taxation liabilities;

c. Taxpayers will settle all obligations due by them at the time they are due for payment.

6. Accountability

a. Governments shall publish budgets setting out their expenditure plans in advance of them being incurred, and they shall require parliamentary approval;

b. Governments shall account on a regular and timely basis for the taxation revenues it has raised:

c. Governments shall account for the expenditure of funds under its command on a regular and timely basis.

Enforcement

States seeking to comply with the Code will voluntarily submit themselves to annual appraisal of their Conduct. These appraisals will in turn be reviewed by a committee of independent experts appointed by participating States. Differences of opinion will be resolved by binding arbitration.

Any taxpayer or agent wishing to comply with the Code may do so. A State should presume that a person professing compliance with the Code has done so when dealing with any tax return they submit. In consequence the administrative burdens imposed upon that person should be reduced. In the event of evidence of non-compliance being found any consequential penalty imposed should be doubled.

I believe that this is the right direction of travel for tax management: those agreeing to not abuse the tax code should get a lighter touch regime from HMRC. Those not signing up should expect the consequences. And we’d need to know who is who.

But note too, I’m not offering a light touch to government: legislation needs improving and so does government accountability to meet the standards set by this Code. Getting this relationship right is a two way street. What’s more it’s a long street and there’s some way to travel down it. I just wish the willingness to make the changes existed, not least on the side of government.

This is a bank made crisis

Economics 11 Responses »

Dec 212011

Think Left is a site I enjoy. I hope they’ll forgive me borrowing a little but of one of their blogs this morning, but it’s good and compelling. As they say”

“Ann Pettifor chose this graph as the most significant one of 2011.

“This is the chart that struck me most forcibly, both for what it tells us about the debts of the private sector, in particular the private finance sector; but also because of what the Treasury chose not to tell us: that the public debt to GDP ratio is tiny compared to private sector debt to GDP ratio.”

Ann Pettifor http://www.debtonation.org/2011/12/my-graph-of-2011-along-with-top-economists/

In other words, the Brown government did not ‘max out the credit card’. The increase in the debt to GDP ratio is the result of debt created by the financial sector, aka The City of London.

The UK’s staggering debt is now nearly 1000% of GDP as the Morgan and Stanley chart below indicates… but it is notable that neither the UK government debt or personal household debt to GDP are very different from the other countries compared on the chart. It is solely the size of the financial sector debt which pushes up the total.

It was also financial sector debt which brought down Ireland and Iceland. Privatisation of profits and socialization of losses. Unfortunately, under our present system, governments always end up having to rescue their financial sectors when they are about to fail from their risk-taking gambling … and that is the very good reason why our banks are unlikely to leave the UK in a mass exodus if they were properly controlled. What country would want to take on the risk of bailing out the UK’s financial sector?

http://articles.businessinsider.com/2011-12-04/markets/30473957_1_household-debt-uk-safe-haven

Precisely.

This was a bank made crisis. And we’re stuck with that.

Which is why they must pay for it still.

UK Uncut Legal Action starts legal proceedings against HMRC over Goldman Sachs tax bill

HMRC 15 Responses »

Dec 202011

UK Uncut Legal Action have announced this morning that they will issue legal proceedings against HMRC on Thursday 22 Dec. Their press release says:

Adding to the parliamentary pressure on HMRC this week from the Public Accounts Committee, UK Uncut Legal Action, an NGO inspired by the anti-cuts direct action group UK Uncut announced today it will issue proceedings in the High Court on Thursday. The campaigning group made the decision to go forward with the case after receiving what they term a ‘dismissive’ response from HMRC to letters from their lawyers demanding the alleged sweetheart deal agreed between David Hartnett and Goldman Sachs is quashed.

This announcement from UK Uncut Legal Action comes as the Public Accounts Committee today releases a report into the dealings between large companies and the HMRC, and the way that the tax office has handled high value tax settlements with companies including Vodafone and Goldman Sachs. The report is expected to trigger the launch of the National Audit Office’s investigation of 10 particular tax disputes by the retired judge Sir Andrew Park.

UK Uncut Legal Action have welcomed scrutiny into tax deals from both the National Audit Office and the Public Accounts Committee reports but claim the legal action they are taking is the only mechanism that can result in a declaration that the Goldman Sachs tax deal was unlawful, as well as returning £20 million to the public purse.

Leigh Day & Co who are acting for UK Uncut Legal Action, confirmed in a letter sent in October that if the settlement reached between HMRC and Goldman Sachs, allegedly allowing the company off £20million worth of tax owed, was not reversed it would issue these proceedings which seek specific disclosure for all internal documents regarding the process by which agreement was reached.

Richard Stein from Leigh Day & Co said: “We wrote to the HMRC in October asking them to quash the deal and reclaim the millions unpaid in taxes from one of the world’s richest banks but received no response. We chased again in November and they claimed they needed more time.

“They have now replied with what we feel is an extremely weak argument as to why this decision cannot be reversed, therefore, we will now progress this legal action and issue proceedings in the High Court.”

UK Uncut Legal Action has also launched a public fundraising appeal, which has raised nearly £10,000 in two weeks with over two thousand people making small donations. This represents what the campaign group is calling a ’people’s court case’ against HMRC. Support for this legal action has also been voiced by over 3000 individuals from the public and leading anti-poverty NGOs, MPs and Unions, such as Unite, PCS, GMB, Compass, and the Tax Justice Network, who have signed onto a UK Uncut Legal Action statement which says: “It is undeniably in the public interest that this important case should go through the UK courts in order to ensure transparency, accountability and fairness.”

Tim Street, director of UK Uncut Legal Action said:

“There is overwhelming public support from Unions, NGOs, MPs and thousands of ordinary people who want to see this dodgy tax deal challenged in the courts. It shows the deep level of outrage that people feel over state sanctioned tax dodging by big business, while government destroys public services that ordinary people rely on, saying that there is no money.”

He continued, “It shows that the government is making a political choice to turn a blind eye to tax dodging- which loses the public purse £25bn billion a year. The government is slashing public services and the support for the poorest instead of clamping down on rich tax dodgers. This cannot be allowed to continue. Dave Hartnett’s retirement is welcome news for campaigners but HMRC needs a massive culture change to stop special treatment for corporations and secret unlawful handshake deals”

I think this is welcome action, and is important to ensure faith is restored in HMRC. Unless they are challenged and required to recreate the right balance in the management of tax affairs then there will undoubtedly be ongoing concerns. If this action puts pressure on HMRC to address those concerns then it has to be welcome.

HMRC: stopping the rot

HMRC 2 Responses »

Dec 202011

The Guardian argues with regard to HMRC this morning that:

The permanent secretary has already said he will retire, but the rot at the top reaches beyond one individual. The priority must be to bring in non-executive directors who can speak for taxpayers, workers and civil society and challenge those of the over-represented voice of the business world – and make sure it pays its dues.

I could not agree more.

We must retore the belief in tax

HMRC, Uncategorized 6 Responses »

Dec 202011

The Parliamentary Accounts Committee has said today that there must be a detailed review of errors made in tax settlement cases by HMRC, and that is welcome.

It also says that there needs to be a thorough review of governance at HMRC and that is more welcome. That is a matter of even bigger concern than the errors made because this is an organisation with enormous responsibility for the economic well being of the country that has clearly lost its way. That is profoundly worrying. Only real change, including of many on the Board, can rectify this fault, and those coming in need to demonstrate first that they know about tax and second that they are committed to collecting it.

More important than either issue though is the issue the PAC missed. This is the need to reform how we assess and collect tax on this country. Easy, lazy and simply flawed arguments for reform from those who have never been near the sharp end of tax are easy to propose, as we saw in the Guardian yesterday, and they serve no interests bar those of the elite that usually promote them. What we do need is a thorough rethinking of the whole tax system.

I do, of course, address some of these issues in The Courageous State, and I will be going much further in my next book – which will be solely dedicated to tax. For now let me address some of the key issues.

First, we need to reform the legal structure of small business so that it is distinct from large businesses. Only that way can we deliver the appropriate tax systems designed to meet the needs of each of them.

Second, the idea that a group of companies is made up of entirely separate units for tax – which hands all the weaponry of tax abuse to companies, has to be shattered. Unitary taxation has to come into play. Unitary taxation has a role here.

Third we have to rethink the concept of tax residence in a globalised era.

Fourth accounting to meet the needs of tax authorities has to be a priority – and as much so as accounting for shareholders who have no interest in the company in which they hold shares. This is where country-by-country reporting comes in.

Fifth, we need to ensure tax is not lost t tax havens. Withholding taxes need to play a much bigger part in tax than they do now.

Sixth, wealth taxes undoubtedly matter, but we have to shatter tax haven secrecy first.

Seventh, we have to ensure Revenue authorities can access data easily on those who abuse. Why shouldn’t the power to investigate be granted to tax agencies that need it to protect honest tax payers from abuse?

Eight, Companies House has to work if tax is to be collected – and it is a miserable failure right now due to our obsession with deregulation.

I could go on. My point is all this is possible and the right direction for travel. What is needed is the will to collect tax and a belief in what tax can do – both of which seem to be lost to a ruling leite in this country. And it’s that belief we have to restore as much as the technical ability to collect tax.

It’s a big deal.

It can be done.

HMRC is neither fair nor even handed

HMRC 3 Responses »

Dec 202011

This comes from the Parliamentary Accounts Committee report published this morning on HMRC:

The Department is not being even handed in its treatment of taxpayers. It is unfair that large companies can settle their tax disputes with the advice of professionals at less than the full amount due and that they have been allowed up to 10 years to pay their tax liabilities, while small businesses and individuals on tax credits are not allowed similar leeway. The Department has promised to look into the treatment of these groups of taxpayers in terms of its fairness and reasonableness. It should report back to us on any actions taken to address the wider policy or process issues identified as a result of its examination.

There has long been concern that this is the case.And it is absurd that the concern has been ignored, and even made into a matter of policy which favours big business.

It is time that the Board of HMRC was radically reshuffled to ensure that such favour, bias and unreasonable conduct cannot happen again.

The Parliamentary Accounts Committee report on HMRC: the press release in full

HMRC 9 Responses »

Dec 202011

This is the text of the full Parliamentary Accounts Committee press release on H M Revenue & Customs issued at 00.01 today:

HM Revenue and Customs 2010-11 Accounts: 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 61^st 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.