Graham Black of the Association of Revenue & Customs - the union for senior staff at H M Revenue & Customs - had a first rate article in the Guardian yesterday. As he put it:
Our chancellor has never been noted for his great communication skills. Over the past few months, however, it would seem that on the issue of tax avoidance, George Osborne has been very clear.
He was going to come down on avoiders like a "tonne of bricks" and, naturally, he was shocked to find that the wealthy were paying little tax. He would introduce a general anti-avoidance rule to deal with all this, and he had invested £900m in HM Revenue & Customs (HMRC) to tackle evasion and avoidance. Understandable, when the country faces a huge deficit and, on the government's own conservative estimate, at least £40bn of taxes are going uncollected. What better way to show that we are all in it together.
But,as Graham knows (and as Graham knows I know - for we are well acquainted) he had his tongue firmly in his cheek when saying all that. Graham is not convinced. As he puts it:
But is the government tough on avoidance? It has produced a report on an anti-avoidance rule. Who did it ask to develop this — a member of HMRC perhaps, or a barrister used by HMRC to combat avoidance? No, it used Graham Aaronson QC, well known for representing large business and wealthy people in tax disputes. And Aaronson's suggestion is a rule so narrowly drawn that it will legitimise most of what the public recognises as avoidance.
Precisely so - because what the tax abuse industry will say is what is not covered by the GAAR is acceptable tax avoidance - and Aaranson's done his mates a good turn as a result.
There's more than that though:
What of all those extra resources for HMRC? When it was formed by merging the Inland Revenue and Customs & Excise in 2005, it had nearly 100,000 staff. Now it has 65,000, and this will continue to fall over the next two years to 56,000. This is an almost 50% cut that has far outstripped the genuine savings from merger and IT improvements.
Any organisation facing 10 years of successive cuts would struggle with the consequences, and the problems HMRC has faced in recent years stem from this. In the spending review, the Treasury intended to cut the HMRC budget by a further £3bn over three years, but only cut it by just under £2bn — and this is what Osborne calls an investment of £900m. I know of nowhere else where a £2bn cut is described in such a way.
Precisely. It is Orwellian to do so. Disingenuous if you like. Or just a lie. I can live with all those descriptions. They're all true. And this has consequences. As Graham notes:
Despite what the chancellor says, the number of such professionals is falling, by around 450 by 2015, and many of those have gone already. Even the part of HMRC that deals with the largest corporates is continuing to shrink, and will do so by 20% by 2015.
Staggering, isn't it? As Graham asks:
Does it make sense to cut the one part of the government that brings cash in, when we are having to cut back on services to the vulnerable across the board?
The answer is of course no. And as Graham makes clear - and I completely agree - more staff, with a proper anti-avoidance rule will help no end to beat tax avoidance. ARC reckons the yield on investment is 20:1. So do I. £1 billion of spend and £20 billion of yield, I reckon. They're slightly less ambitious, but let's not worry about that now. The issue is, as Graham again says:
In Britain, we have a remarkably compliant tax population that knows taxes are a price we pay for a decent society. It will continue to do so while the system is seen to be fair and policed in an even-handed way. If we continue to facilitate avoidance and cut the resources HMRC has to combat it, then we may lose that general level of compliance. And, once lost, it will be difficult to regain.
Quite so.
And very well said.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Its totally typical of every govt we’ve had for 30 years (to my knowledge). They have no idea about practicalities. They all spout rhetoric about “good for business” etc, with no knowledge of the subject; other than back-handers and the promise of a directorship (Nigel Lawson).
If you were running a company that was having trouble getting money in, would you increase or decrease your invoicing department?
It’s really that simple.
Hello Richard
Excellent post.
I think the big problem is with the courts and legislature setting out the ‘law’ — it invariably leads to wealthy taxpayers trying to get around the system.
I expect your right wing trolls to come out and say ‘but tax avoidance is legal’. But surely the law is just one minor consideration. What about democracy? What about society? What about the courageous state we desperately need to help the poor?
My proposals:
I totally agree with a GAAR as you suggest, but I propose wording along the lines that as long as an HMRC officer acting in good faith believes that tax should be levied in a particular situation, then it is levied. The onus on the taxpayer in any court challenge would be to prove bad faith (e.g. some kind of corrupt or malicious intent) on the part of the officer. If that cannot be proven, the assessment stands.
I would propose incentivising the HMRC officials — perhaps a percentage on what they recover? I don’t mind people being well paid if they are doing important work, and this is very important.
I also fully agree that we need a lot more HMRC staff. Am happy to defer to your greater knowledge on exact numbers required. But is there a reason why taxpayers (other than those just paying PAYE) should not have one officer allocated to spending at least 1 day a year on their affairs? No doubt more days for large corporations and wealthy individuals? With this ratio (which should be enshrined in law, perhaps at EU level), HMRC should then be one of the nation’s largest employers and rightly so, given the essential work they carry out for the prosperity of the nation.
I’d be grateful for your feedback (and that of your other visitors — no right wing trolls please) on my proposals.
Kind regards
Chris
Chris
I admit I do not have your confidence in the sound judgement of every officer of HMRC. I’m afraid I have seen errors, and some downright, blatant, beheaded its obligations, and whilst that is unfortunate, it has to be allowed for in any system. So there have to be more checks and balances than you suggest.
I also very much doubt that it is worthwhile allocating one day to each and every person’s tax affairs—some people just don’t justify that! Some justify a lot more though, and are properly degree of risk assessment is essential – but appropriate transparency about the affairs of taxpayers is also a key part of that, and to achieve that we need more information supplied, and in a better statistically manipulable format than is given at present, where vast numbers of taxpayers can simply not disclose enough of their trading information (for example) for anyone to decide what is really going on.
What I have no doubt about is that the tax yield could rise enormously with 20,000 more people, specifically trained, working at HMRC – and that we would all be much better off as a result (unless were attacks data, of course)
Thank you for your prompt and helpful reply.
With my ratio, I did realise not everyone will need 1 day’s attention, though my proposed ratio was intended purely as an average. But my broader point is that all taxpayers (other than PAYEs and others with very simple tax affairs) should have their tax affairs thoroughly explored very regularly. With the further reporting requirements, this will take officer time (and there is no point submitting it if nobody will read it).
On the issue of ‘checks and balances’, what do you propose? The courts are useless at protecting the state. They will just try to impose ‘the law’, which often involves looking at the black letter of it.
As for the issue of errors, yes, human error will be involved as with every human activity. But shouldnt the checks and balances only kick in where there is bad faith (and you can possibly add to this ‘manifest error’), with the benefit of the doubt always belonging to the tax official where it belongs. And perhaps the final decision belongs to an official of sufficient seniority etc.
Think of cricket or rugby – the umpire or ref is always ‘right’ even when he is wrong. Sometimes the call will go your way, sometimes it won’t – and it evens out over time. These sports need that philiosophy to function, otherwise there would be chaos. Why can’t our society take the same view with tax?
I think you need some experience in dealing with Inspectors, Chris. They are not referees and cannot be. If you were on the end of a detailed investigation I think you may have a very different.
The courts have to be the last arbiter not Inspectors.
“Think of cricket or rugby — the umpire or ref is always ‘right’ even when he is wrong. Sometimes the call will go your way, sometimes it won’t — and it evens out over time.”
In a free society, one word: chilling.
Thank you Paul and Roger for your kind replies.
One question for you both please: if the matter is left to the courts, then presumably the court decides whether or not a particular taxpayer owes a particular tax if the matter is disputed in the courts.
If the court decrees the tax is not owed, then presumably the addition of a further 2,000 or 20,000 or 200,000 more HMRC staff would not make a jot of difference to elimination of ‘tax avoidance’ (ie tax which the courts say is not payable but the spirit of the law says is payable). Such additional staff would could not render something which is ‘not payable’ suddenly ‘payable’ if contrary to a court ruling.
However, our host, Richard seems to suggest that more staff WOULD make a difference to reduce tax avoidance.
Do you (Paul and Roger) disagree with Richard on this? If so, why? This is a genuine question.
Thanks in advance.
I note your concern that a court may decide that tax is not owed, but you may wish to review recent court decisions to determine how often that occurs. In the case of aggressive tax avoidance it is rare that the courts ever rule in the taxpayer’s favour. In fact it is quite clear that the courts will generally bend the legislation as far as possible to interpret it in favour of HM Treasury. Some of the very thin arguments that HMRC win cases with wouldn’t stand a chance if they were made by a taxpayer.
The challenge for HMRC is not winning in the courts. The challenge is identifying avoidance and taking it to the courts in the first place.
The only recent example that contradicts this view was the ‘SHIPS 2’ scheme which followed the letter of the legislation very precisely and left the Court of Appeal indicating that whilst they really didn’t like it or think it was right they were bound by the letter of the law. This is the very scheme that prompted the GAAR and the only example anybody ever comes up with when looking at where it would apply.
Richard, I know you know this, and I’m sure Graham Black knows this too (as many readers of your blog do), but the government – and the previous one too – are not serious about tax abuse, and particularly not by large corporations, and never will be until the corporate capture of politics in this country is ended. Consequently, neither will the subject be of much real interest (except in the context I describe below) to a whole raft of senior people at HMRC as they take their lead from the government of the day.
This situation applies to many other countries as well, but we have the double whammy of the power and influence of the City to deal with as well. I can only see the US as in a worse state of corporate capture than we are (given the power of Wall Street).
So, from a policy perspective let’s be absolutely clear about what’s going on (in summary, at least). Since the emergency budget shortly after the ConDem government was formed, the official narrative has been that we are ‘all in this together’ and that the pain of austerity politics is being shared. This is the message that has to be maintained to ensure the government maintains credibility, because not only does/did it sell well with the general population but it’s also the underlying justification for a coalition government. Consequently policies, or statements of intent, have to be produced that can be presented as delivering on this position.
Until the recent budget the ConDems and the government PR machine had been pretty good at maintaining this charade. And even the last budget contained elements of this, such as the raising of the basic rate of tax. And the ‘tough on tax avoidance’ message – another important element in what is basically PR based policy making – was also getting widespread and sympathetic reporting (such as Aaronson’s work on a GAAR).
But the reality is that all the government really wants to do is window dressing – just enough concessionary activity to maintain the lie – while on many other fronts they put in place policies that are far more advantageous to those who really control politics. I’ll only cite one as you cover many every week on this blog: the tax agreement with the Swiss. These you’ll note are much less reported on and when they are they are based on very tightly drafted press releases that deliberately mislead or misrepresent their real purpose. But their real significance is actually far greater than reported.
Ultimately of course, power relations have not changed, and thus the underlying direction of policy – and its main benificiaries – is maintained. Indeed, corporate capture has increased since 2010, as we now have a government of politicians who largely see this as the natural order of politics and democracy, as it was in Victorian times, or Lib Dems who are so desperate to hang on to power that they are willing to turn a blind eye to such abuse. Consequently the likelihood that anything will change at HMRC – or indeed the Treasury or anywhere else in government – anytime soon is, I suspect, about as likely as me going to the moon.
I agree for now
I also think a paradigm shift is possible
Today’s downturn in unemployment is a blip – the Euro is going to fail
What then? I shudder to think
But a new approach to tax will be part of it, I think
Either that or we get the corporate state