HMRC » Tax Research UK

Hartnett is right, and yet so, so wrong on the tax gap, for which he’s the main culprit

HMRC, Tax avoidance, Tax evasion, Tax gap, Uncategorized 9 Responses »

Jan 282012

People who receive cash-in-hand payments for goods and services are harming the economy, according to HM Revenue & Customs (HMRC) most senior taxman Dave Hartnett.

Speaking to the Daily Telegraph, he criticised tradesmen and other workers who try to get out of paying tax by asking for their payment in cash and said there will be a crackdown to catch individuals who do so from April 2012 onwards.

Mr Hartnett claimed evading VAT or income tax is ‘diddling’ the economy and will lead to further cuts for things like hospitals and schools.

“Tax provides the funding to run the country: hospitals, schools and everything else. Every time someone pays cash in order not to pay VAT, the nation gets diddled,” he remarked.

Of course Hartnett is right: the tax gap, about which I have campaigned for years, and which I forced (via the TUC) onto HMRC’s agenda and in turn into national debate, is of course a major factor in the management of the deficit. Given that the gap is £120 billion that has to be true.

But let’s be clear, welcome as Hartnett’s recognition of this obvious fact is, he has ultimate responsibility for the fact that the gap is this big for two reasons.

First of all, he’s denied the size of the gap, persistently – and the propaganda his department put out under his direction about how small the gap supposedly is in his view has been used by him and his colleagues to leave this matter alone and to deny its significance. HMRC say the tax gap is just £35 billion right now (see the table, here). The numbers are grossly inaccurate for reasons I explain here, here and at length here. The consequence is obvious: too little attention has been paid to the issue and that is because HMRC worked persistently to hide its own incompetence to hide the fact.

Second, using the incorrect data his department produced Hartnett justified reducing the staff in HMRC. The numbers will fall from 100,000 in 2005 to about 50,000 in 2015. And like it or not collecting criminals requires human activity to detect and prove the crime. Tax evasion is a crime and there aren’t enough people now employed to detect much of it – so the tax gap has grown. Hartnett is responsible for that. And we see the result in cuts in services, pensions, disability living allowances, education, health, defence and so much more.

So sure, Hartnett’s right – people should not pay in cash knowing the cash will not be declared to tax authorities. But the biggest culprit by far in the creation of the massive UK tax gap that threatens our pubic services is Hartnett himself – and he’s just trying to deflect the truth by making the claims he’s now seeking to make in valedictory effort to justify his actions.

No wonder HMRC feel outnumbered

HMRC 9 Responses »

Jan 042012

HMRC issued their stuff with 20 rebuttals of the allegations made by the Parliamentary Accounts Committee before Christmas. I got sent a copy. I was fascinated by one comment:

17. HMRC have very few people with “deep knowledge of tax affairs”

We have more than 15,000 people working in tax professional roles here in HMRC. Most are expert in tax law and more than 2,000 have completed our four-year tax training and development programme. Our Tax Academy will ensure that we have the right number of tax professionals going forward.

So there are 2,000 fully trained people at HMRC.

The Chartered Institute of Tax has 15,000 members.

And add to that the members specialising in tax in the ICAEW, ACCA, Law Society, The Bar, Scottish and Irish institutes, and many more.

In that case does anyone think 2,000 fully qualified tax inspectors is enough? Only Dave Hartnett, presumably.

When will we start investing properly in tax collection and stop these people on whom the tax life blood of our economy depends being outnumbered.

HMRC have all the data we need to assess tax risk – so why don’t they publish it?

Economics, HMRC 11 Responses »

Dec 222011

Oliver Huitson had a thoughtful piece on tax transparency on Open Democracy yesterday. Having noted my call for the corporation tax returns of large companies to be put on line he said:

But there is a limit to how far the general consumer will acquaint themselves with the returns published and the problem of “we need to know” would, to a lesser degree, still remain. What seems to be needed, in conjunction with public returns, is a simple, visible indicator of tax probity at the transaction level. The “green, amber, red” nutritional information provided on food packaging could potentially be adapted for tax purposes for all firms over a certain size and/or all publicly listed companies. If firms lack a physical good for packaging, they can be required to display their tax rating prominently on all literature and websites. We already have substantial amounts of compulsory information we require UK firms to provide. Costs of implementation, both to the state and the firm, would be relatively miniscule in comparison to the scale of tax lost – currently estimated at around £25bn a year, or around 15% of the deficit (the figure is just for avoidance, not evasion). There is no reason why only food producers should have to show consumers the information they would rather hide.

In the land of market efficiency knowledge is king, and those who purport to uphold free-market principles should recognise the importance of tax knowledge; consumers have a right to know who they are dealing with if they are to arrive at rational outcomes for their purchases. For we don’t simply rely on the goods and services we purchase, we rely also, to a great extent, on citizens and firms contributing to the collective costs of running a civilized society. More than ever, we need transparency and knowledge to empower the public to make the right choices on which firms to do business with.

The information to provide the appropriate risk warnings on tax to consumers does all exist. H M Revenue & Customs have risk assessed all the large companies in the UK – that’s about 700 of them. And in each case they have given them a tax risk rating – low, medium or high.

The rating is a combination of two things, broadly speaking. the first is the inherent risk in the industry in which they operate. So, for example, banking and pharmaceuticals will always have higher tax risk. But as importantly, the companies attitude to risk is taken into account. So if the company is risk averse, avoids tax products to minimise risk, is open in its dealings and clearly wants to settle its tax bills openly and accountably it is given a low risk status, and gets a lighter touch tax regime as a result. There is a payback for the company with low risk in this system. The corollary ios that high risk companies should get more attention.

I believe HMRC should publish these risk assessments.

Of course this is market sensitive information. So it should be. Many of us want low risk investments. Those who do not take unnecessary tax risk and who pay their way to society should be given a market advantage.

And this does not divulge taxpayer details: just HMRC management data. I believe parliament should demand it be put in the public domain, now. It would transform attitudes to tax, investment and portfolio management, all for the better. What’s stopping them?

From the Guardian letters page this morning – action is needed on tax

HMRC, Tax justice 1 Response »

Dec 222011

The following are on the Guardian letters page this morning. I am a signatory to both:

The public accounts committee’s report into HMRC‘s tax settlements made for compelling reading (Revenue hid ‘sweetheart’ tax deals for big business, MPs say, 20 December). But more fascinating was the feeble response by HMRC and the striking lack of response from either Vodafoneor Goldman Sachs.

Gone are the days when HMRC and Vodafone would come together as an unstoppable dream team proffering denials of tax avoidance as an “urban myth”. Now, we see HMRC weakly saying the committee is misinformed and is basing its conclusions on partial information. We know that the committee did everything in its power to get to the truth, but HMRC obstructed the inquiry by using the veil of secrecy that is taxpayer confidentiality.

It is imperative that the UK’s political and business culture changes so that rich individuals and corporations treat tax avoidance as taboo. It is also crucial that the culture at HMRC changes so that it clamps down on tax avoidance. If this were the norm, the UK could raise sufficient income to protect the services currently under threat from cuts, set an international standard for tax justice, and make progress towards achieving equality in the UK and around the world.

So while we support the efforts of the public accounts committee, we also support the action by UK Uncut Legal Action to challenge HMRC in the high court so that the decision to let Goldman Sachs off its unpaid tax is declared unlawful and the £20m is given back to the taxpayer. It is undeniably in the public interest that this case should go through the courts in order to ensure transparency, accountability and fairness.

Katy Clark MP, Virendra Sharma MP, Jeremy Corbyn MP, John McDonnell MP, Caroline Lucas MP Jonathan Edwards MP, Diane Abbott MP, Paul KennyGMB, Mark SerwotkaPCS, Christine BlowerNational Union of Teachers, Len McCluskeyUnite, Nicholas Shaxsonauthor of Treasure Islands: Tax Havens and the Men Who Stole the World, Richard Murphy, Tax Research, Clifford SingerFalse Economy,Neal LawsonCompass,Greg MuttittWar on Want, John ChristensenTax Justice Network

And:

• We would like to thank you for highlighting the disgraceful treatment of Osita Mba, a personal friend, whose whistleblowing on a deal between HMRC and Goldman Sachs has earned him not praise but disciplinary action and the threat of losing his job and/or prosecution (Report, 15 December).

Without protection, whistleblowers will be reluctant to come forward and divulge information that is in the public interest. We have collected more than 7,300 signatures in a petition in support of Osita and the important role whistleblowers play in serving the public interest. As one of our petition signers, Ben Tisnell, states, “Whistleblowing is a courageous act of public service; those exposing wrongdoing should expect protection in any civil society.” We firmly agree with his view – whistleblowers should not face condemnation but should be protected.
Kerry-Anne Mendoza, Katherine Segal, Maria Murselland 7,300 others

Please support both actions this Christmas. They’re about your freedoms.

Time for corporation tax returns to go on line

Ethics, HMRC, Tax justice Comments Off

Dec 212011

There’s a fascinating editorial in the FT today. It says:

The need for austerity has forced the government to increase the burden on British taxpayers. At such times, the public must have confidence in the fairness of the tax system. Not only should tax justice be done; it should be seen to be done.

Some of us have said that for some time. Good to see they’ve signed up.

They continue, having reviewed the Parliamentary Accounts Committee report:

While HMRC accepts that it could tighten governance – for instance, dividing the negotiation and separation of settlements, and bringing in an independent assessor to look at deals – there is a case for going further. There are good reasons why everyone should not be able to pick through every individual’s tax returns, but it is weaker in the case of companies (where there is also a greater case for scrutiny given the heftier clout such corporations wield).

Given the complexity of tax, public disclosure of returns may be an ineffective tool. A better way forward might be to require all settlements over a certain threshold to be blessed by a judge before becoming effective. This would preserve flexibility for the taxman, while making sure that the public interest is not left outside the room when deals are cut.

Note they only say that public disclosure of tax returns ‘may be’ an ineffective tool. The possibility that it may also be an effective tool has by default been admitted by the FT as a consequence.

I tweeted that suggestion last night. My friend and colleague Prem Sikka has long argued for it. I think such disclosure a corollary of the right to limited liability – which demands transparency in exchange for the privileges granted.

Without diminishing the suggestion made by the FT of a judge led reviews, I think tax returns on line should happen.

More than that, I think companies should also, as I suggest in the Code of Conduct I have republished today, be required to disclose their tax planning explicitly and all their accounting entries for tax. That would really change the scene, and much for the better. Why so? Because most tax planning is not in the interest of shareholder’s as it misallocates resources within corporations to their detriment. It’s actually designed to trigger executive share bonus schemes – and those are now severely discredited. So the tax planning that drives them should be exposed.

Sky, yesterday

HMRC, Tax Justice Network 8 Responses »

Dec 212011

I’ve just discovered my broadcast on Sky yesterday morning is available on the web, here.

Live from my Downham Market studio! Good job the camera didn’t sweep round the room or it would have landed on the model railway that my sons and I share that I happen to share my work space with.

The way to solve the crisis at HMRC

HMRC 4 Responses »

Dec 212011

This is from the Channel 4 web site, and yes, I am the Mr Murphy in question:

Following the outcry over the PAC’s report, Mr Murphy thinks there needs to be a shift in attitude at HMRC: “The only way to change this culture is to change the board of directors and include more people who know about tax and are not connected to big business.”

Mr Murphy’s suggestion as to how to tackle tax avoidance and evasion was echoed by Graham Black, president of the Association of Revenue and Customs, the union representing senior HMRC professionals. He said: “The problem is not that tax inspectors are ‘too cosy’ with large business – it is that there are not enough tax professionals in the department to tackle the scale of the tax being lost.

Mr Black added: “Senior staff strive constantly to treat all taxpayers fairly, but resources are too stretched to battle the major companies advised by an army of expensive advisers.

“The attacks on HMRC officials have at times been overly aggressive, these are public servants carrying out important and difficult jobs. The real problem has been with successive governments cutting the country’s only money-generating department.”

Quite so.

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

HMRC 3 Responses »

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.