Jolyon Maugham has posted the following on his blog today under the heading 'Something is very wrong at HMRC'. I repost it with his permission, because in my opinion if Jolyon is right in the assertions he makes (and I very strongly suspect he is) then in my opinion the Commissioners of HMRC are guilty of misconduct in public office for failing to protect the public revenue, for which I think they should be held personally accountable:
Assume you are a taxpayer who has been underpaying tax for years. The law allows HMRC to collect some of that tax. But it also imposes limits on how far into the past HMRC can go. Underpayments further into the past than the law permits cannot be collected: the taxpayer will get away with having underpaid tax.
What are those time limits? Well, ignoring instances where the taxpayer has been dishonest, they are, in the case of VAT, a maximum of four years — but they may be as few as two.
The formal mechanic by which HMRC collects underpaid tax is an ‘assessment'. And because of the time limits, when HMRC discovers a potential underpayment by a taxpayer going back into the past, its practice is to raise an assessment to protect its position. That way, if the potential underpayment does turn out to be an actual underpayment the taxpayer doesn't get away with its underpayment of tax.
Raising a protective assessment doesn't impose any obligation on HMRC to collect the tax. Nor does it impose an obligation on the taxpayer to pay it. It's a protective or precautionary step — simple good practice — to look after the position of taxpayers generally: your position and my position.
Now.
An Employment Tribunal has decided that Uber is supplying transportation services. The consequence of that decision is that Uber should be charging VAT to customers and paying it to HMRC. And that will be true not just now but for the whole period for which Uber has operated in the UK, a period of longer than four years.
An Advocate General at the European Court of Justice has also said Uber is supplying transportation services. And I think those decisions are right. And I am a QC specialising in tax, so this is a view I am entitled to hold. I have also taken formal advice from another QC who specialises in VAT.
If we are right — QC, Employment Tribunal, Advocate General — Uber's VAT liability could very easily exceed £200 million a year.
It is, of course, possible however unlikely that we are all wrong. Uber's appeal against the Employment Tribunal could succeed. The Court might not follow its Advocate General. QCs are not always right.
So what should HMRC do in this situation? If you read the first part of this blog post, you won't find that a difficult question to answer. It should raise protective assessments before the sands of time run out. So as to protect its ability to collect from Uber the VAT that the courts presently suggest Uber must pay.
If we are all wrong, HMRC can abandon those assessments. But if we are right, raising those assessments will mean that Uber does not get away with it. And you and I do not miss out on hundreds of millions of pounds of vitally needed funding for public services.
But by failing to raise protective assessments, HMRC guarantees Uber gets away with it. Even if any remaining doubt about Uber's VAT liability disappears, HMRC will be unable to collect those hundreds of millions of pounds.
Uber says that HMRC has not raised a protective assessment. If Uber is telling the truth — and it has made a sworn witness statement to similar effect — then HMRC's conduct is completely inexplicable. HMRC is simply throwing away, and with no good reason, the chance to collect from Uber hundreds of millions of pounds.
I can see no good reason why HMRC should adopt this stance. None at all. It is inexplicable to me — unless HMRC's conduct is motivated by factors otherwise than collecting the tax demanded by the law. I do not know what those factors might be. But this smells very bad.
I think Jolyin is guilty of understatement, but I'll readily forgive him. I do not do the same of HMRC.
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Sorry – I picked this up too and I put a link in a response to one of your posts.
My feeling is that the seniors in HMRC should dismissed if this is indeed true. It is as though they are second guessing the decision of the appeal court and that it will find in Uber’s favour?
We have people at HMRC who do not seem to believe in collecting revenue for HM Government. Has there ever been a time like this before in our history?
Phew…………………!!!?
No two ways about it. HMRC are absolutely, categorically failing in their duty.
What’s more, this can’t be put down to a lack of resources (an excuse that HMRC not unreasonably puts forward on many occasions). The evidence is there from two major court cases to suggest that, at the very least, it’s arguable that Uber should be paying VAT. Having looked at those cases, I can’t readily see a reason why an assessment that Uber should pay VAT would be overturned.
So – if it’s not resources that are the problem – *why* are HMRC doing nothing? The answer can surely only be that this is a conscious decision, whether an internal policy or one that has been forced on them from above. Is this the HMRC version of the police’s infamous assertion that “we don’t prosecute fro white collar crime” put forward in the John Major years?
More widely, it is yet more evidence of how useless the UK regulatory system is. I have some sympathy with OFCOM, OFWAT et al on the grounds that they were set up from the beginning to have regulatory powers that were hopelessly inadequate to carry out the tasks the public might reasonably have expected them to; but this emphatically isn’t the case here. HMRC has the powers, it has the law, it has the case law.
This is also a good illustration of why we need a Secretary of State for HMRC. If such a position existed, s/he would be subject to calls for answering urgent questions at this very moment. What kind of government has 100+ ministers, 20-odd Cabinet ministers, and not one of them deals with the Government’s income?
As a lawyer, stories like this make me wonder why I bother. Because, for all those clients who try hard (and spend considerable resources) to do it right, what’s the point if Uber sticks two fingers up at everybody and HMRC does nothing? We might as well tell them “frankly, do what you want”.
Thanks
And agreed
I feel some need to respond but no words flow when I try to type. It does indeed “smell very bad”. Why would HMRC not do this? I have all sorts of bleak and poorly informed thoughts – can it as really as simple and straightforward as we are being ruled a bunch of greedy charlatans? (he now reaches across for his tin foil hat)
£200m is more than the Annual Tax on Enveloped Dwellings brings in each year. Indeed, it is nearly as much as the Diverted Profits Tax is estimated to collect, or most of Aggregates Levy, or about half of Cider Duty. Not small beer.
It is hard to think of any good reason why HMRC would turn down the chance to bring that amount in from one corporate taxpayer each year.
Cider duty Andrew? That’s it! HMRC are under a Cider attack no wonder their IT produces such unbelievable figures.
City Duty, indeed : statistics here. https://www.gov.uk/government/statistics/hmrc-tax-and-nics-receipts-for-the-uk See page 7. (My previous comment should have said, £200m would be most of Cider Duty, about £300m each year, or about half of Aggregates Levy, about £400m each year.)
I suppose it might be possible that Uber has obtained some sort of advance assurance from HMRC, on the basis of facts disclosed, that its tax treatment will be one thing rather than the other. Even if that is the case, HMRC would be with its rights to resile from that assurance, at least prospectively (and arguably retrospectively, if the facts or the legal analysis turn out to be different from those expected).
Bugger. Typo season. *Cider* Duty, not City Duty. Freudian slip.
Is the fix already in?
Might explain why HMRC aren’t bothering.
I suppose it is just as likely that Hanlon’s razor is in effect. “Never attribute to malice that which is adequately explained by stupidity”.
“Hanlon’s Razor” be damned. It looks to me like somone’s on the take big time or Uber have more Tory friends than we knew about.
Remember this:
https://www.theguardian.com/technology/2017/apr/13/data-watchdog-no-10-cameron-uber-correspondence-regulation
https://twitter.com/RogerGLewis/status/924155856039612417
One for PMQ´s I think Richard, Tweeted and Cheerled!!!
I hope so
There aren’t many left of centre tax people. If Jolyon and I agree I hope Labour take note
Having worked in HMRC it is quite possible that the designated team for UBER may have considered issuing a protective assessment but given the high profile company name have sought guidance or approval from HQ before doing so. If this is the case then you could be waiting for months before HQ make a decision – they were never known for the speed of their decision making and the file could be doing the rounds of various technical teams and the solicitors’ office. That is the optimistic interpretation!
Optimistic, indeed
And still irresponsible
Send them a direct to person email and see what comes back with a link back to this and another to the Justice minister
IMO
Richard, can I say that this blog just gets better and better. It’s the only one I read every day.
Thanks Carol
I appreciate that
I sometimes wonder why I feel so compelled to write but for me it seems the best method I have to change the world, even if only a little bit
If the shoe were on the other foot you can be sure that the tax payer (in this case Uber) would submit a protective claim!