I was going to write a blog this morning highlighting the concerns that the Public Accounts Committee have raised about HMRC's favourable tax service to the wealthy, that the PAC thinks extends to providing them with tax avoidance advice. And then I re-read the press release and decided that their own words did the job perfectly adequately. So this is what they said for those who want to know, because it probably won't be widely reported in full:
The Government must be tougher and clearer in its approach to taxing the very wealthy, the Committee of Public Accounts says today.
In a new Report, the Committee sets out measures to enable HM Revenue & Customs (HMRC) to improve tax collection and “give the public greater confidence that there is not one set of rules for the rich and another for everyone else”.
It urges HMRC to be more transparent about its work, seek new powers where required and do more to tackle those involved in tax avoidance and evasion.
The Committee questions HMRC's strategy for dealing with the very wealthy, which suggests “they get help with their tax affairs that is not available to other taxpayers”.
Since 2009 HMRC has operated a specialist unit to collect tax from high net worth individuals: people who have wealth of more than £20 million and who are each assigned a ‘customer relationship manager' to administer their tax affairs.
The Committee expresses alarm that HMRC has around one-third of these individuals under enquiry at any one time and highlights the fact that “the amount of tax paid by this very wealthy group of individuals has actually fallen by £1 billion since the unit was set up”.
It calls on HMRC to consider what further powers could help it improve its understanding of the very wealthy, and formally evaluate the effectiveness of the high net worth unit.
In particular, HMRC should assess what more it could do to deter very wealthy taxpayers from bending or breaking the law, highlighting changing behaviour that has seen avoidance “moving from off the peg marketed tax avoidance schemes to complex bespoke schemes”.
The Committee also concludes the taxation rules for ‘image rights', for example in sport and the entertainment industry, are being exploited and calls on the Government to take urgent action to address this.
HMRC's lack of transparency has eroded public trust in a fair tax system, says the Committee, which urges the authority to publish more information about its work generally and also explain “how income tax receipts have fallen by £1 billion for high net worth individuals while income tax paid overall has increased by £23 billion”.
Meg Hillier MP, Chair of the PAC, said today: “HMRC's claims about the success of its strategy to deal with the very wealthy just don't stack up.
“The tax take for this group of people has fallen by £1 billion since HMRC set up its dedicated unit. At the same time, income tax paid by everyone else has risen by £23 billion.
“Cosy terms such as ‘customer relationship manager' and HMRC's reluctance to be open add to the picture of arrangements that, while beyond the reach of ordinary taxpayers, are also ill-suited to the increasingly sophisticated methods the super-rich can use to reduce the tax they pay.
“If the public are to have faith in the tax system then it must be seen to have fairness at its heart. It also needs to work properly. In our view HMRC is failing on both counts.
“HMRC must play a stronger role in identifying tax measures which are not being used as Parliament intended and push harder for reform where the rules are open to abuse.
“It must be willing to engage in an honest and open assessment of its compliance activity and adapt its approach swiftly, making the case for new powers where it needs them.
“We were encouraged by the evidence HMRC's senior management gave to the Committee on image rights and we look forward to news of meaningful action in this area.
“But this is just one part of an increasingly complex system and we will expect HMRC to respond positively to the full recommendations set out in our Report.”
The full report is here.
And do remember that the PAC always publishes consensual, cross party, reports. This is all parties saying this. And it is damning.
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Wasn’t 2009-10 an exceptional year for income tax payments by HNWI? It was the year before the 50 per cent additional rate of income tax was introduced. If you look at the data referred, figure 4 in the NAO report, you see the take was £4.4bn in 2009-10 but then 2.8, 3.0, 2.6, 3.9 in the next few years, and then £3.5bn in 2014-15. What was the tax take from this group in 2008-9?
If you picked two other years, you could (truthfully) say that the income tax paid by HNWI increased from £2.8bn in 2010-11 to £3.9bn in 2013-14, an increase of 44 per cent. What is the trend?
NAO report: https://www.nao.org.uk/wp-content/uploads/2016/11/HMRCs-approach-to-collecting-tax-from-high-net-worth-individuals.pdf
Why end there? 2013/14 was another distorted year
You are manipulating the data
I don’t have to stop in 2013-14. If you prefer, I can compare 2010-11 to 2014-15, and say that the tax take from HNWI went from £2.8b to £3.5bn, an increase of 25% in 4 years.
My *point* is that cherry-picking a high year like 2009-10 as the starting point is just as bad as cherry-picking a low year like 2010-11. Each year is noisy. You need to look at the trend. To me, from figure 4, the tax take looks broadly flat, but if 2009-10 is an outlier, the trend might be gradually up, from around £3bn (in the three years from 2000-11 to 2012-13) to around £3.5bn (in 2013-14 and 2014-15).
But now you;re cherry picking starts again
That is why I asked what the figure was in 2008-9, so we could see if 2009-10 is an outlier, as I suspect it is. You get a very different picture if you start in 2010-11 or 2011-12. You need to smooth out the annual bumps, and ideally try to fit a trend line, not just compare pairs of years.
I strongly suspect the reason why receipts from HNWI fell by £1bn from 2009-10 to 2014-15 is that 2009-10 was an outlier with unusually high receipts (due to the 50% rate being introduced in the following year), and that 2014-15 is much closer to trend – actually higher than three of the previous four years.
To test this out, I put these numbers into Excel. The best fit straight line for all five years is slightly down but essentially flat, about £3.4bn each year. If you leave out 2009-10, firstly the line is a much better fit, and secondly it goes up about £0.25bn each year, from about £2.7bn to about £3.7bn.
Essentially flat with some inflation and growth
So a fall then
Richard
Tax is incredibly complicated and it must be easy to misunderstand things.
Which of the PAC members would you say had the most specialist tax knowledge?
You entirely miss the point
Tax must be comprehensible to non-experts
I think the headline to Richards article is unfair. 🙂
I have full trust in HMRC to…. give the rich an easy ride, fail to address large-scale tax dodging by corporates & to top it – to have been doing all this for decades – whilst at the same time being “groomed” by the Uk’s tax dodging industry.
If HMRC were a country it would now be classified as a failed-state – e.g. Somalia, Syria, Afghanistan. A super-market near me is closing for a total rennovation – time for the same to happen to HMRC – as is – HMRC couldn’t catch a cold let alone clear out the infestation of the UK with high-net-worth tax dodgers/corporates.
It would be interesting to submit a FoI request for details of how many staff have left the specialist unit for high net-worth individuals(i.e. customer reltions managers [note to HMRC – they are not your ‘customers’, not under any definition of the term]) since it was established, and where did they subsequently take up employment (e.g. elsewhere in HMRC, in the public sector, or private sector).
Please do
I will publish the findings…
I have to say I hate the idea of being a ‘customer’ of HMRC – I work for a large(ish) MNC so have a CRM but I really don’t feel like a customer … nor should I IMO. Unfortunately I don’t have £20m+ so can’t comment form a personal perspective.
On another note, I saw the BBC focussing a bit on Footballers using image right companies (Other entertainers do this too of course) and the fact the PAC thought government should do more to tighten up on the rule which they felt were being abused.
I do feel that sometimes HMRC staff are constrained because they are implementing rules put in place by the government, but as you say the government probably won’t respond to the PAC comments nor change the rules so Footballers etc all will continue to benefit from an absurd set of rules.
Rant over
I recall when I worked in HMRC objecting several times to the use of the term “customer” after all what are they buying and if they do not like the product what choice have they ? In Customs and Excise we called those we dealt with “traders” which was much more accurate. I was eventually taken to task by management for not adhering to “corporate behaviour” !
Which is why it’s not HMRC I ever have issue with (well, almost ever) but it’s senior management
A week ago, for the second time in two years, a client received demand from DMB, HMRC’s debt chasers, for about £4,700 of unpaid PAYE which inevitably troubled him. When I saw the demand, it was asking for alledgedly unpaid PAYE that pre-dated a similar letter he almost exactly two years ago.
That first letter had led to my discovery that HMRC’s PAYE records contained two discrepancies between what the client had submitted via RTi. Although DMB had suspended the demand, it took eighteen months for a promised call to come from the “corrections team”, at the end of which I was assured the debt had gone away. I therefore fired off a letter to DMB asking what the hell was going on.
Meanwhile the distressed client called DMB himself to try to resolve the problem himself. Their first response was to tell him that there was a substantial credit on his account that all but cleared the latest alleged debt and asked him if he’d like to set if off against the the £4,700!
Yesterday, I received a call from DMB in response to my letter, in the course of which I was told that demands are issued automatically by computer in a way that shuts out human intervention but that the computer is programmed in such a way as to ignore existing credit balances and preclude human intervention. I was also told that HMRC are aware of the problem and hope to have resolved it within the next two years. A formal compalaint will follow…..in February!
It’s an absolute disgrace that this sort of harassment, because that’s what it is, of innocent people is allowed to continue while the high rollers are pampered by their CRMs.
If this is too time-consuming to moderate, please feel free to ignore it!
The people I speak to at HMRC are generally helpful but HMRC management seem as though they’d be unable to get of a paper bag, much less do an effective job of tax collection.
I think this says most of what we need to know about digitisation at HMRC
Thanks Nick