tiintax

The National Audit office finally publishes its report on five of HMRC’s settlements with large businesses.  In other words, it looks at some of the cases where HMRC has had bad press for allegedly letting large corporates get away with paying less tax than they should, or without paying interest on the tax they’ve paid late.  Cases which have been brought to NAO’s and Parliament’s attention by whistleblowers.  (And given the way HMRC treats its whistleblowers I’m afraid I’m inclined to give the benefit of the doubt to the whistleblower simply by virtue of them being a whistleblower.)  Cases where there has been serious and legitimate public concern that the relationship between HMRC and its “customers” – or at least its large corporate customers – has perhaps become too cosy.

The NAO found the settlements were “reasonable”.

Let’s think about this for a moment.  Settling a tax dispute can take years – literally years.  Very clever people paid humungous salaries with almost unlimited resources at their disposal, are up against civil servants whose salaries are frozen, whose morale is the lowest in the Civil Service and whose numbers have been cut and are to be cut further.  HMRC is an arm of the State with the law at its disposal, but then proving a case to a court’s satisfaction can be incredibly difficult when you’re not talking about “did person A hit person B” but whether the movement of money happened at all and if it did what the generally accepted accounting provision treatment of it should be and how that relates to the tax legislation.

The NAO found the settlements were “reasonable”.

Not “perfect”.  Not “correct”.  Not “accurate”.  Just “reasonable”.

The executive summary of the NAO report says:

For each of the five settlements, we asked Sir Andrew Park to consider whether:

• the settlement value was reasonable in view of the circumstances of the case;
• the settlement was consistent with the Department’s Litigation and Settlement Strategy;
• the Department obtained appropriate legal advice and acted upon the advice at all relevant stages; and
• the Department followed its own procedures.

7 In evaluating reasonableness, we have considered whether the settlements represent fair value for the Exchequer and were in the public interest. This included considering whether the settlement was as good as or better than the outcome that might be expected from litigation, considering the risks, uncertainties, costs and timescale of litigation.

Incidentally, I looked for the Litigation and Settlement Strategy – the NAO report helpfully provides a link, but it appears to be broken.  A search of the HMRC site provides lots of commentary about the strategy but not, so far as I can find, a copy of the actual strategy itself.  Hmmm… now where have I heard that before? <coughs making a noise sounding like “customer-centric strategy”>

It’s a depressing thought: HMRC has been cut too far for the mantra that its job was to “collect the right amount of tax; not too much and not too little” to be applicable any more.  Now it’s satisfied with a “reasonable” amount.

Meanwhile, UK uncut took a different view.

Yes, I know “people are being annoying on the internet” is hardly news, but I was annoyed by a thread on twitter this morning.  People were recounting occasions when they had telephoned the Department and had good customer service, which, yay!   But what annoyed me was that the Department they thought they had telephoned was the Inland Revenue – which, as any fule kno, was merged with Customs and Excise to form Her Majesty’s Revenue and Customs in 2005, or seven years ago!

A little bird tells me that this may not, entirely, be the fault of public ignorance.

“Work to update the office signs outside HMRC buildings is almost complete. HMRC’s Estates and Support Services has been working with contractors to remove external signs that referred to HM Customs and Excise or Inland Revenue…”

Yes folks, after a mere seven years, the work to update the signs outside the Department’s buildings with their new name is almost – and don’t you just love that word “almost”? – complete!

Except…

“HMRC’s enquiry centres were initially not included in the project, but are now next on the list to have their signs replaced.”

“Enquiry Centres”, of course, being the buildings that the public actually visit!

Of course, I have no way of telling whether little bird is actually telling me the truth, so let’s crowd-source it.  If you happen to be passing an HMRC office today, please have a quick look at the name plate outside and post your photo onto twitter.  Use the hashtag “7yearpix” and we’ll regroup and compare notes later.

I am fascinated this week by a tax case.  CIR v J Bentley, a first tier Tribunal case (TC 01927, which can be downloaded from this page)

The Tax Tribunal is how disputes between HMRC and taxpayers are settled if no agreement can be reached, and the First Tier is the equivalent of the Magistrates’ Court, dealing with what you might call low level disputes.

Mr Bentley was a pensioner who decided to fill in his own tax return to save money.  He’d had an accountant do it previously but thought he could do it himself with help from HMRC staff.  He turned up at his local HMRC office on 31 January, the day of the deadline, but HMRC wouldn’t deal with him then and there and offered him an appointment on 3rd February.  He went on 3rd February and filled in his return then, and was charged a penalty for the return being three days late.  He appealed on the grounds he had a reasonable excuse.

The HMRC argument is interesting:

… a prudent taxpayer would have appreciated that such appointments, especially on the filing deadline of 31 January, would be pre-booked and therefore unobtainable at short notice on one of HMRC’s busiest days. The Appellant should have acted sooner and made the necessary arrangements at an earlier date.

But there was nothing in the HMRC publicity to say “you need to allow [x amount of time] before the deadline if you want us to help you”.  An insider might know that HMRC customer service is, shall we say, a bit patchy, but would Joe Public?

…it does not appear to be in dispute that he did, prior to the deadline, seek to make an appointment, and that he did take the first available appointment which was on 3 February 2011, and that he did file the return on that date. The Tribunal is satisfied on the evidence that he would have accepted an appointment and have filed the return by 31 January 2011 if an appointment had been available on or before that date. The return was thus 3 days late, due not to his own conduct but due to HMRC’s unavailability.

The tribunal said that Mr Bentley DID have a reasonable excuse – he’d turned up before the deadline, and the fact that HMRC couldn’t cope with the demand was their problem, not his.

It sounds like a reasonable conclusion to draw.  But what does it mean for the Department?

There have been enormous staff reductions at HMRC in recent years, and the much vaunted £900m “increase” in compliance spend is actually only a £900m reduction in the amount by which HMRC’s budget was to have been cut and a redeployment of staff to compliance work from other tasks.

Other tasks like, say, the routine policy work of preparing 22 consultation documents in May?

Other tasks like dealing with people trying to make their returns on time.

I imagine, following the Bentley case, that HMRC centres will soon have large notices in them saying something like “please allow 10 days before we can give you an appointment, and more at busy times”. (Whenever I see something like that it always feels like the organisation is giving up and saying “we’re crap and we know we are.”)

There must come a point when salami slicing at the resources put into collecting tax leaves you without enough people to do the job.

Are we nearly there yet?

While I’m on the subject,  let’s look at what the Government actually told us about the Controlled Foreign Companies “reform” that Panorama mentioned.

You’ll have noticed this blog is called TIINtax – so let’s look at the TIIN, the “Tax Information and Impact Note” published with the Controlled Foreign Companies proposals.

First of all there were some “interim improvements”. When they were announced they were supposed to reduce the tax received in the UK by about £50 million and then year on year “the impact on receipts is expected to be in the low £10 millions.” Then the TIIN was revised to clarify that we’re giving away tax of around £25 million a year – enough to pay for, what, an extra couple of thousand nurses?

And now we have CFC “full reform”. The TIIN for that says quite openly that

A controlled foreign company is an overseas company controlled by United Kingdom residents which pays less than three quarters of the tax which it would have paid on its income had it been resident in the UK

Yes, folks, we’re looking at a special tax regime that applies to companies that are owned in the UK but paying less tax than they would have done if they’d been operating in the UK. And…

No tax will be due in respect of a CFC if the company satisfies any one of the statutory exemptions or exclusions.

Yes, what we mean by “reform” of the special rules that apply to these companies is… that we’ll invent some nice simple rules that keep them out of UK tax altogether. There ought to be a “ka-ching!” noise that you can insert into a website for moments like that.

Look at the top line of the table of impacts in the TIIN. This is how much tax we are giving away (all right, how much less tax will be due under these rules than if we didn’t “reform” them).

• 2013-14       -175 million
• 2014-15       -450 million
• 2015-16       -690 million
• 2016-17       -805 million

I don’t have the software to draw that as a graph in a blog post but imagine it – and, in your mind’s eye, while you’re following the numbers upwards, what do you think we’ll be giving away (sorry, “reforming”) in 2018? 2019?

As Graham Black, President of the ARC Union, said on Panorama: it’s like legalising murder and then saying your crime figures have fallen!

Accountancy Age takes issue with last night’s Panorama, arguing that

there is a global marketplace for large businesses and, in parallel, a global marketplace has arisen for tax jurisdictions around the world.

The UK governments may not like this, but they can’t control it, only put out their best stall and package. Otherwise businesses leave the UK take tax revenue with them.

A “global marketplace for tax jurisidictions” doesn’t just “arise”, though, does it?  Tax jurisdictions aren’t natural phenomena.  If we just leave it to the “global marketplace” then what happens is that big business – the people with money, who can afford a quarter million for a “kitchen supper”, or who can afford to loan some of their staff on secondment to Ministers’ offices or to Government Departments – will argue for a race to the bottom.  We have to be nice to the multinationals because all the other countries are.

“We have to do it, because everyone else is doing it?” What are we, six?  “I have to stay up late, everyone else does.” “Well if everyone else jumped off a cliff, would you do that too?” Come on!  My grandma had that argument sussed in 1967!

Aggressive tax avoidance is legal but not acceptable: that’s the message we’re getting from some bits of the government.  The argument, of course, is whether we can recognise it.  What makes it “aggressive” and unacceptable?

I have my savings in an ISA – so I avoid paying tax on the interest.  That’s perfectly legal.  It’s also avoiding tax.  Is it aggressive?  Is it acceptable?  Obviously that’s fine – my grandma would have had no problem with that.

But say that I register a company, and then another one in Luxembourg.  I take my savings and put them into the Luxembourg bank account and then the Luxembourg company lends them to the UK company.  The UK company pays interest to the Luxembourg company and I claim a tax deduction for it.

Say what?

I still have the same amount of money, only now it’s spread about a bit and hey presto it’s wiping out all of the profits I get from, er, writing this blog.  Or whatever.

What would grandma say to that?

I think the image used by the Panorama programme, of a three card trick being played out with mobile phones, was brilliant.  Money moves magically around, and, like grandma faced with mobile phone technology, it feels as if we’re powerless to stop it.

But actually it was just the old three card trick.  Follow the lady, round and round she goes…

Panorama could have done a lot more to explain what Controlled Foreign Companies are and how they work.  But they couldn’t have found a better metaphor for it.  The three card shuffle, with a bit of shiny tech.