There's an interesting comment on the blog this morning from Tim Knight that says:
It seems to me that the auditor of an enterprise ought to be responsible to the beneficial owners of that enterprise. That cannot be the managers themselves (the auditors are there to audit the managers and management). It cannot be the directors (they are all part of the management/director club marking each others cards). It cannot be the formal shareholders (they are too diffused). So the beneficial owners need some agency whose interests are directly-aligned to the interests of the formal shareholders. How about H M Revenue & Customs?
Because of the existence of Corporation Tax (currently at 23%), the citizenship of each nation is the beneficial owner of 23% of the net profits of every enterprise operating in that nation, and H M Revenue & Customs is (or ought to be) the guardian of that 23% on behalf of the citizenship. H M Revenue & Customs ought to have 23% of the general voting power on every board of directors, sole oversight of the senior management remuneration committee, sole oversight of the appointment of the auditors, and the right to a prominent section of the annual report to 'objectively mark the cards' of the directors and management).
We are not looking for entrepreneurial insights, instincts, experience, and expertise here; just 'due diligence' (on behalf of the beneficial owners). In particular, H M Revenue & Customs should 'audit the auditors' for due diligence.
I think the idea is fascinating. Instinctively I like it.
My problem with it is that HMRC has been largely captured and is now under the influence of the Big 4 firms of accountants and large corporate interests, as its Board membership clearly shows. That poses the question as to whether it can now be objective about raising tax. And in turn that leads me to now wonder whether it could take on this role.
This should not be the case. This country prospered with a strong and independent civil service. That is being debased by corporate influence that denies almost anyone in HMRC the prospect of advancement to the senior levels of the organisation. This cannot be chance. This must be design. And it is a design for failure.
There's more on this, by the way, in 'Over here and under-taxed'.
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I don’t have a problem with Big 4 and Large corporate interests being part of the non-exec board of HMRC as they will have some useful insights that should be of benefit to HMRC
What does concern me is that there is no representation of the smaller businesses. The Big 4 cannot claim to represent them.
To be a successful board, its membership should reflect HMRC’s customer base i.e. the whole spectrum of businesses. As it currently stands, it’s no wonder that small businesses are losing out.
You miss the point: HMRC should do its job without external influence
In terms of neutrality, I would totally agree with you, all these people will have other interest at heart, rather than just the good of HMRC and not involving them would be preferable.
However, my view was that all companies can benefit from the presence of non-executive directors to provide some challenge to the running of the organisation and HMRC may be no different.
I, sadly, have little faith in the ability of central government departments to run themselves effectively and am therefore in favour of the NED route.
Therefore, if HMRC persist with the NED route, given that it’s impossible for the NEDs not to have some form of bias, the board should be balanced out to represent the wider customer base.
Happy to disagree on this point but I’m still massively in favour of the changes being promoted by this site.
Surely all HMRC has is the right to 23% of the profit, so any interest they have is just as preference share holders. Not even that: prefs give you the first share of profit, whereas tax is just a share of it. It’s rather unusual for a preference share to have a vote.
HMRC already have the power to appoint liquidators and wind a business up if they feel like it. That sounds like a fair amount of control.
Also I read a recent newsletter for businesses about developments in accounting and finance. Every single article was about tax, and how to make sure your reporting to HMRC was right. If that doesn’t make HMRC a major stakeholder already, and a significant influence on how businesses are run, I don’t know what does.
You entirely miss the point, as ever
And don’t forget to add to that the employment background of the Minister responsible (Gauke), and his wife (as Marina Hyde pointed out in Saturday’s Guardian in an excellent demolition of the recent ‘naming and shaming’ exercise by HMRC). Taken together what a package that makes!
And yes, of course it’s by design. The result being an organisation that no longer serves the public interest. Furthermore, its actions over the last few years (from Vodaphone to the naming and shaming farce) illustrate very clearly that HMRC senior management are more than prepared to interpret and implement legislation (and the regulations and powers that flow from it) in a partial and discriminatory manner depending on their judgement of the economic status of a taxpayer.
Leaving aside whether this is ethical we might ask whether it’s legal or indeed constitutional, given that the legislation in question (and thus the intent of Parliament) doesn’t distinguish between one taxpayer and another: if a wrong has been committed then due process and punishement should follow.
In fact I’d go so far as to say that I wonder if the people and organisations named and shamed last week have a case against HMRC on the grounds that they appear to be the victims (albeit guilty of offences) of biased and discriminatory behaviour. Call it institutional bias if you like (although it’s far more than that as the government itself is supportive of this behaviour) but the outcome is deeply worrying.
We know, for example, that within HMRC the Large Business Service employs customer relations managers for ‘customer facilitation’ purposes – whatever that might mean. While it’s perfectly understandable that any large organisation should have departments and units that deal with specific operational areas it would seem that the way in which this department works in terms of applying tax policy and rules and regulations differs from the mainstream HMRC. That could not happen without the endoresement of senior management. And it further suggests the existence of an underlying philosophy and set of values and beliefs (i.e. culture)in at least some parts of HMRC that’s more akin perhaps to the type of culture that developed – and no doubt continues – in parts of the banking and financial services sector. Is that really appropriate for an organisation such as HMRC? Of course not.
I’m sure you’ve called for this in your most recent book, Richard, which I haven’t yet and had chance to read. But to my mind what we’ve seen happen at HMRC over the last five or so years now warrants a major independent inquiry, because no amount of tinkering with the Board and senior management is going to fix this. Labour would do well to add this to their ‘to do’ list for urgent action as and when they form the next government.
Ivan
Those issues are not in the book
Better do another one
You’re right, of course
And the morale of those outside the LBS has been destroyed by the favourable treatment it is given
Richard
Customer Relationship Managers in HMRC are, in my experience, just a single point of contact for whatever tax problem you have with whichever group, rather than having to keep going to different people. It;s a great advantage tot he taxpayer – or, rather, it avoids a disadvantage that woudl otherwise exist.
If anything, the fact that they deal with the same group for a few years makes them better at keeping track of what’s going on. Knowing the sort of issues that comes up means they can focus on the sensitive ones, and ask some probing questions.
Though they do get rotated off periodically, so there’s no chance to get cosy (or “captured”, as some would put it, though how you can capture someone with a cup of tea and some chocolate biscuits a few times a year is beyond me).
I’d like it if the same approach could be filtered down to smaller taxpayers, though I accept that for most there’s no need: if your dealings are going to be ad hoc and sporadic, there’s no benefit in having an assigned Inspector. The Agent Account Manager programme is a useful step along that road (although I’ve only needed to use it a few times).
That’snot what staff outside LBS say
Why, what do they say?
Bear in mind I’m only speaking from my experience of dealing with LBS from outside.
What is the point? So far as I can tell, the poster’s point is that as HMRC ends up with 23% of the profit it should have 23% of the votes. I just don’t see how that follows, going by normal commercial practice. If you want to follow something other than normal commercial practice, then what’s your rationale for doing so?
If the point is simply that HMRC should be able to audit auditors, then they already do so. In my experience they’ve always been happy to challenge accounting practices whether or not they’ve been signed off by auditors.
Of course they don’t always get it right. On one memorable occasion I was told by an inspector that a “provision” for several millions should never have been made as it wasn’t in accordance with FRS12, and my aduit colleagues’ mentions of SSAP9 met with blank stares. But at least he was willing to drill into the accounting and challenge the auditors’ view, even though he eventually agreed that it was correct.