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Moving on

February 21, 2013

Seventy days and counting since the Treasury updated the tax consultations page, but the HMRC consultations page has had a couple of new ones added – look down at the bottom of the page – with extremely short deadlines.

So if you’re interested in the taxation of non-doms you need to check out the third iteration of consultation on legislating the extra statutory concession 1/09, a consultation on some revised legislation that was issued on 11 February where the consultation closes on February 25th.  I don’t intend to respond, as it’s a small and very techy change to do with non-domiciled people employed in work that takes place both inside and outside the UK and what to do about bank accounts where employment earnings from both UK and non-UK work is received.  Frankly, I don’t care: but I DO care that it’s stupidly complex legislation that would have been better tackled by a proper review of (and, preferably, abolition of) the entire concept of non-doms.  But there you are.  A two week consultation.  How’s that working out for you?

The second one is the procurement guidance: the much vaunted plan to prevent tax avoiders from benefiting from government contracts.  Given that this was announced in September it’s hard to see why it needs to be open for public consultation for a mere fourteen days (it was issued on 14th February and closes on 28th) but I rather suspect the answer is that there’s not going to be any alterations to it, whatever the feedback.  The government seems to have found a reasonably workable plan to use relatively objective criteria to decide what sort of avoidance is objectionable enough to allow them to disbar a firm from government contracts without falling foul of EU procurement rules.  So if a firm has used a DOTAS scheme that doesn’t work, or if it uses a scheme that falls foul of the GAAR or a TAAR, or it has a civil or criminal penalty, well, it won’t get a government contract.

Here’s the real test.  Would it have stopped the Mapeley contract, where the old Inland Revenue accidentally sold its property portfolio to a firm based in a tax haven?

No.

In which case, frankly, who cares?

Posted in Bit of politics, Consultation, HMRC | Leave a Comment »

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Guest Post: The Honest (White) Collar

January 7, 2013

This is a guest post by FTD the barrister and author behind the forthedefence.org blog.

With much fanfare this week Her Majesty’s Revenue & Customs announced their top thirty two tax cheats of 2012. Reminiscent of ‘America’s Most Wanted’ the mug shots of these ‘tax cheats’ was shown on television, in the newspapers and has been widely publicised on the internet.

If you missed it: http://www.flickr.com/photos/hmrcgovuk/sets/72157632409515581

I don’t like it. I don’t like it because it’s crass and tabloid.

And, I don’t like it because I’m proved right.

In 2005, I was a law student and in the early part of the year the Inland Revenue was merged with HM Revenue & Customs to become HMRC. I remember writing a scathing essay about how the ‘co-op culture’ of the Inland Revenue was incompatible with the ‘cop culture’ of Customs.

Combine that with the prospect of staff being moved over to the Serious Organised Crime Agency on the horizon and it was all getting a little culturally confusing.

Traditionally…

England and Wales have had three ‘law enforcement’ agencies to deal with as individuals. The police, the revenue and customs.

Of those, the most ‘enforcement’ driven was customs. Customs for centuries have raised billions of £s for the treasury by enforcing the law with regard to import and export. They have very little protective function and a very high enforcement function.

If you ask the older wigs around Temple what Customs were like, they will tell you some stories. If you were against a dodgy customs officer then they put a bent copper in the shade.

Remember, the police are still tethered (although pulling) to a leash: policing by consent. British sensibilities would never allow a police force which was full enforcement orientated. Comparatively, Customs were set up with no such leash, they had a job, catch the rum smugglers etc, extract the duties owing.

Of course, not everyone tries to smuggle dodgy gin, or commits criminal offences – but, everyone does pay taxes. So, at the other end of the scale was the Inland Revenue. An enforcement agency to an extent, but an agency which tried to co-operate with the tax payer to obtain dues owing.

My fear was always that customs culture would overwhelm the co-operative culture of the Inland Revenue.

By example, prior to 2006, today’s advertised top taxcrims would have been dealt with by:

Operation Inertia – MTIC fraud (VAT) – would have been a Customs job.

Operation Hippolamp – Tobacco duty evasion –  would have been a Customs job.

Operation Recuprical – Tax fraud –  Inland Revenue (possibly police)

Operation Reinforce – Import duty evasion would have been a Customs job.

Operation Rust – Alcohol duty evasion – would have been a Customs job.

Operation Tulipbox – VAT fraud – would have been a Customs job.

Operation Snowbank – Duty evasion – would have been a Customs job.

Operation Tousle 95 – Tobacco duty evasion – would have been a Customs job.

Operation Hazel Lamp – Tobacco duty evasion – would have been a Customs job.

Operation Vara – Import duty evasion – would have been a Customs job.

… should have been a customs job.

Clearly this latest piece of HMRC PR is a customs job. And, combined with the eyes. yes, you’ve all seen the ‘undeclared income eyes’ on bill boards, the tube, the train on the sides of buses.

It would seem to me that customs culture has won out. Combat don’t co-operate. The days of Moira Stuart, the cartoon of the Revenue man in the bowler hat: tax doesn’t have to be taxing are gone.

Culturally

Why do I say it’s wrong? I don’t know the figures, whether enforcement or co-operation are better. But, what I do know is that a culture of enforcement rather than co-operation widens the caste of people who are to be potentially criminalised, not only is that crass, it’s wrong.

It’s all too us and them, the Government suspects everyone, suspects we’re all at the tax dodge. Forget the fact that most of you pay your taxes PAYE.

People are less likely to be open with HMRC if they think they are a suspect rather than a customer. Afterall, to coin a phrase which all coppers love to hate, ‘my taxes pay your wages mate.’

FTD

Visit forthedefence.org for more blog posts about criminal justice today in the UK.

 

Posted in Avoidance, HMRC, Regulation | 5 Comments »

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In which I unleash my inner Sir Bufton Tufton

December 19, 2012

I find myself turning into Sir Bufton Tufton as I read TC02006, the tax case of a chap called Philip Procter who was appealing against a surcharge.  (I would include a link, but I can only find it on databases you have to pay to access, sorry.)  I mean, I know it’s a clear sign of middle age that you start thinking things have gone to hell in a handcart “since my day” but in this case I think I’m justified in a bit of red-faced splutter.

I should explain that, “in my day” I have been to the old-style Commissioners hearings and represented the old Inland Revenue, so I have some small experience of trying to put together the Departmental case from different people’s paperwork and making sure the facts were correct, the paperwork was in order, and the case hung together.

And I realize that it’s a very different department today – today’s HMRC isn’t location based like the old IR but based on vertical “silos” that have outposts all over the country, so a case file (if they still HAVE case files) is made up of bits and pieces from people all over the country who work in different areas of the business that might not ever have spoken to each other…

…but still.  That’s no excuse.

If I were still working in HMRC and read what Judge Guy Brannan had to say about the HMRC case I’d be wincing.  If I were still working in HMRC today and were involved in management of the appeals service I’d be horrified.  And if I were Mr Procter or his advisors I’d be sending a copy of the judgement to the Adjudicator’s office and asking for compensation.

There were factual errors in the HMRC case.  Judge Brennan says:

These errors, although involving relatively minor matters of dating, do not fill me with confidence in the reliability of the description of events contained in the Case History.

This seems to me to be judicial politeness for, um, “teller of tales, your trousers have combusted”

The very least you should be able to rely on from HMRC is that they give an accurate account of their actions, and in this case it seems they weren’t able to say who said what to whom and when.

Mr Proctor had a time to pay arrangement in place.  HMRC cancelled it, but apparently didn’t tell him.  And it seems when he rang them about the surcharge notices he was getting, he was assured on a couple of occasions that this was a mistake, the time to pay arrangement was still in place, and he should carry on paying under the arrangement.  The HMRC evidence was that he’d been told on “numerous occasions” that the arrangement had been cancelled, but the judge wasn’t prepared to accept HMRC’s “evidence” and, from the facts as recounted, I can entirely see his point.  And it’s an extremely scary one, because – although anyone can make a mistake – you ought to be able to rely on HMRC to try its best not to make them, and to put them right when it finds it has.  Above all, when it does a case review prior to going to the Tribunal, it ought at least, at very least, to get someone competent and outside of the initial clusterfuck to read over the file and see if the case stands up.  That’s the part that I can’t get over – not that the Department might have made a mistake or three, but that its “review” was, seemingly, such a dog’s breakfast.

There’s more, though: that’s not an isolated incident, it seems.  Taxation magazine have started an occasional series devoted to “obvious and avoidable mistakes by HMRC”.  There are really enough for a series?  They start with the case of someone issued a notice to make a self assessment return in January, who then made the return within a fortnight, but was charged a late return penalty for making the return on paper after the paper filing date!

This is mixing up two different things.  The normal date for making a self assessment return is October for paper, January for online – so, yes, if you need to make a return for 2011-12 you need to do it before the end of January online, and if you send in a paper return you’ll be charged £100 penalty, even if it’s not the end of January yet (and even if you’ve no tax to pay!)

But that’s only if you’ve been notified that you need to make a return.  If HMRC tells you now, or indeed in January, that you need to make a return, then the time limit is three months from when they tell you, whether you make the return on paper OR online.

Or in other words, either HMRC didn’t check the facts, or they didn’t understand their own legislation.

Still, stuff happens, right?  One is an accident, two is a trend… but three?  Three is problem.  Three would be a symptom of a department that’s been cut too far too fast, whose management has lost the plot and whose staff are demoralized and unsupported.  Shall we stick at two?  Let’s cross our fingers…

Posted in HMRC | 5 Comments »

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Tax simplification and better regulation

December 11, 2012

Does the use of “better regulation” tools like consultation and impact assessment promote a simpler tax system? (And, yes, I know it all depends what you mean by “simpler”, thanks)

Well, the coalition has four objectives for the tax system – they’re written into the Coalition Programme for Government, no less.  They  say (at item 29, page 30)

The Government believes that the tax system needs to be reformed to make it more competitive, simpler, greener and fairer

So I did a “quick and dirty” analysis of OLD (the “overview of legislation in draft”) published today on the Treasury site – yes, I know it’s on HMRC’s too, but a helpful twitter correspondent pointed out that HMT had it earlier. (Oh, and while I’m here: hint to the Treasury.  When you compile the TIINs into one document, you could add numbers instead of bullet points, so that we didn’t have to manually count them to realise there are tax information and impact notes for eighty-four measures in it.  And a decent editor could have cut out quite a few extraneous blank pages.  And added page numbers that were actual consecutive numbers instead of “A267”.  Ahem.  Yes, well.)

I had a quick look at the “policy objective” field for each of the 84 TIINs and tabulated which ones say they are aimed towards making the tax system

  • more competitive
  • simpler
  • greener
  • fairer

and the results are:

 More Competitive   2
 Simpler  10
 Greener    1
 Fairer  20
 Other  53
and, yes, I’m well aware that this adds up to 86 rather than 84, but there were two measures which plainly said that their policy objectives were to be fairer AND more competitive, and simpler AND fairer.
Like I say, it’s only a “quick and dirty” analysis and if you go through and do it for yourself you might come up with a slightly different answer, depending on how much inference you’re willing to put in.  I resisted inferring policy objectives this time around and stuck to straightforward statements.
Why does this matter?
Well there are some obvious questions – the “greenest government ever” ™ can only manage to come up with ONE tax change aimed at being green?  (It’s page A115 by the way: capital allowances for business cars, and it’s fair to say that it’s one where I actually did have to infer that the “environmental objective of reducing overall CO2 emissions” was a green objective.  It makes a difference of a fair few millions in tax and thousands in administrative burden, but produces an unquantified “indirect impact” of reduced carbon emissions.)
A remarkable number of measures are in the “other” category because the policy makers don’t seem to have answered the basic question of “why are we doing this?” which, yes, I recall from being involved in designing the TIIN process, is actually one of the considerations they’re supposedly taking into account.
Look at page A267, for example. Why are we cancelling the fuel duty increases?  Because “This measure will ease the burden on motorists and businesses”.  OK then.  That isn’t one of the objectives the coalition set itself, but you could, I suppose, say it’s a legitimate policy objective (even if it is startlingly anti-green in context!)
But what about this, from page A171:
This measure will encourage UK bingo promoters to grow their business and expand their customer base by amending bingo duty legislation to modify the restrictions and allow UK bingo promoters to link with overseas operators to offer ‘combined’ games of bingo
Are you seriously telling me that encouraging UK bingo promoters to “grow their business” is a legitimate objective of tax policy?  Or, if it is, is it not part of the overall narrative of making the UK a more “competitive” tax system?
But look at page A75 and tell me where there is an actual policy objective and what it might be:

Policy objective

The measure ensures that the switching of assets in a trust settled by a non-UK domiciled individual to investments in OEICs and AUTs is exempt from IHT charges. It also ensures that no tax will have arisen on those trusts which held OEICs or AUTs when the changes introduced in 2003 came into force.

I’ll have a closer look over the next few days at the ten measures aimed at making the system “simpler” – again, watch this space.

 

Posted in Bit of politics, HMRC, HMT, Reference | Tagged | Leave a Comment »

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Watch this space

December 10, 2012

Further documents will be published on 11 December including draft clauses for Finance Bill 2013, Tax Information and Impact Notes and Responses to Consultation on Budget announcements.

From the autumn statement page on HMRC’s site   Which is good timing, because I have to give a ten minute presentation on my research proposal today so I don’t have time to look.

But, as Scarlett O’Hara always said, tomorrow is another day…

Posted in About me, HMRC | Leave a Comment »

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A no brainer.

December 6, 2012

“Anyone with a home worth over £1million now facing a visit from elite tax inspectors” Well, up to a point, Lord Copper!

Let’s have a look, shall we?

The announcement was of a further 100 staff for the “affluence unit”, the bit of HMRC that looks at the tax affairs of people with more than a million quid. As the Telegraph article says

The unit, comprising 200 investigators and technical specialists in six locations across the UK, focuses on people who are evading or avoiding tax.

And, looking for the official announcement that was the initial impetus for this non-story, I see that Danny Alexander announced the unit was expanding from 200 to 300 staff, and with a remit to look at people with £1 million rather than, as before, £2.5 million.

OK then.  So how many millionaires are there?  The Treasury press release estimates half a million but – going back to The Telegraph, where we started – that seems to be a pre-crash figure and their current estimate is 280,000.  I’m not saying I prefer the Telegraph’s figures to the Treasury’s, you understand!  But let’s be generous and take the lower figure.

So we have 300 HMRC staff looking into the tax affairs of 280,000 people.

280,000 divided by 300 is 933.333 according to my calculator.  So let’s round it down and say each of these HMRC staff deals with the tax affairs of 900 millionaires.  Yes, according to the Telegraph’s own figures each worker in the Affluent Unit will need to spread their investigative powers over 900 millionaires.  According to the Treasury’s, over perhaps twice that.  Where on earth will they find the time to go nosing around blameless individuals whose houses have just drifted up in value?  It’s scaremongering, forget about it.

What is more interesting is the announcement that HMRC will have more resources in the autumn statement.  It’s here, in line 32 of the policy decisions:


 £ million
 Head 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
+
32 HMRC investment Spend -10 -80 -25 0 0 0

Ten million in the current year, eighty million next year, £25m in the final year of the coalition and then zilch.  Hmmm… David Gauke’s written ministerial statement on December 3rd clarified this a bit: the 100 staff for the affluent unit are in there, plus some warm words about transfer pricing and centres of excellence.  But the figures are a bit off:

 A further £77 million will be provided to HMRC in this spending review period to further expand its anti-avoidance and evasion activity focused on offshore evasion and avoidance by wealthy individuals and by multinationals.

Well, 10+80+25 = 115 in my book, so if HMRC are getting 115 million and using 77 million on anti-avoidance and evasion, what are they going to use the other  38 million on, do we think?  I’m sure it’s hidden in the small print somewhere but I haven’t come across it yet – anyone?  (maybe they’re upping the £42 they can spend on each business for RTI by another, erm, sixteen quid apiece?)

But look here, at the ARC union website.  Now, ARC stands for Association of Revenue and Customs senior staff and it’s the branch of the FDA which covers senior staff in HMRC, tax inspectors, lawyers, senior managers and a bunch of other professions, economists and the like.  And they have a paper, Reducing the UK Tax Gap – Proposals from ARC. (which isn’t exactly prominent on the site, but if you look at the entry for December 3rd you’ll find it in the “notes for editors” from a press release they apparently put out on 30th November, presumably by leaving it in the statutory locked filing cabinet in the basement office marked “beware of the leopard”!)

What interests me is the suggestion that you could put resources into HMRC’s legal services:

Additional legal resources, 150 trained lawyers and 50 legal assistants, to accelerate litigation of the Tribunal backlog and accelerate yield. Cost £35m. Projected yield £2000m

One of the things that worries me about the extra hundred staff for the affluent unit is, where are they going to come from?  Because trained tax professionals don’t actually grow on trees, and HMRC has always been rubbish at planning for the future and making sure it has enough trained tax professionals coming online to replace natural wastage from retirements and resignations.  You can’t just go out and hire a hundred trained tax professionals – largely because the accountancy profession, where you might find people with at least analogous skills – pays a damned sight more than HMRC.

But you could go out and recruit a hundred and fifty lawyers tomorrow.  Because lawyers train themselves, or at least pay for their own training, and there are supply and demand issues in the legal profession which there aren’t in tax at the moment.  So you couldn’t find 150 trained tax lawyers – they get shedloads more than HMRC tax lawyers, I’m told.  But you could get 150 criminal lawyers, trained litigators, and start taking some of the backlog of tribunal cases to tribunal as fast as the tribunal could accommodate them.

ARC think an investment of £35m could bring in two thousand million.  And HMRC seem to have £38m left over, so it’s a no brainer, surely?  Why on earth not?

Posted in Avoidance, Bit of politics, HMRC, HMT | Tagged , | 1 Comment »

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Consultation on vulnerable beneficiary trusts

November 9, 2012

Trying to catch up with the flurry of October/November consultations, I see I missed one that closed yesterday.  I’m hoping that, closing on Thursday, they’ll still be able to consider responses that they receive on, erm, Friday!  Anyway, this is what I sent.  I’m not sure whether there’s anything in the changes to tax treatment of trusts for people who are unable to manage their own financial affairs that is, by and of itself, offensive – I’m aware that it’s the changes to the benefits themselves (replacing DLA with PIP) which are considered offensive by people with disabilities.  But there are two things that jump out at me about this consultation.  One is the governmental, or rather departmental, muddle.  If you have different definitions of disability or vulnerability in different departments and for different purposes, should you – in the twenty first century, for goodness’ sake – expect a government to be able to get its act together and define what it means for ALL its purposes, not just for some?  Or, if that gives too much of a cliff edge between categories, shouldn’t you at least let the tax treatment follow the definitions used for other purposes rather than making people faff about considering a whole new set of tax requirements for something that isn’t really anything to do with tax at all?  And, second… the consideration of equality seems to be rubbish.  I say “seems to be” because, to be charitable, it’s possible they’ve done a ton of great work behind the scenes but just written it up really badly.  But to me it  reads as if they’ve gone “Oh, the DWP did all that.  Just stick in an “it’s all right, isn’t it?” question and leave it at that.”  Tell me I’m wrong.

Anyway, this is the response I sent.

I appreciate that the closing date for this consultation was in fact yesterday but I hope you will nevertheless be able to include it in your considerations. This is an individual’s response and will also be published, with commentary, on my blog at http://tiintax.com. Please note there are some questions where either I consider I do not have sufficient expertise to contribute to the discussion or else I have covered the question separately in narrative and I have therefore excluded those questions (so the numbering below doesn’t follow, but IS the numbering taken from your consultation document)

Q2: Do respondents have suggestions for defining a ‘vulnerable person’ for tax purposes other than by reference to orphaned minors and those with a severe physical or mental disability? (Responses may include approaches and concepts found elsewhere that could be included into the tax code either in combination or in isolation.)

It seems quite plain to me that tax is the least of the matters which a vulnerable person ought to be concerned with, and that therefore the best way of implementing the objective of this consultation is for the tax treatment to “follow” – in other words, that the legislation defining people to whom these tax exemptions should apply should follow the other defining legislation.

In other words, government should get its act together and define vulnerability for all purposes, or at least work under the presumption that meeting a definition for one purpose would also meet it for all other government (or at the very least for tax!) purposes.

In drafting terms, you might say something like “A vulnerable person for these purposes is someone in the Vulnerable Persons list,” and then have a separate command paper or other statutory instrument kept up to date with the definitions found elsewhere in the law. So the first “vulnerable persons list” might read
– persons in receipt of enhanced rate PIP
– persons [defined as in the enhanced criminal record certificates legislation]
– persons listed in the [relevant provisions of the] Safeguarding Vulnerable Groups Act 2006

Q3: In relation to those suggestions, what practical issues do respondents envisage applying them in the context of a self-assessed tax; and how could they be overcome?

In practical terms, there are three things government should do

1. not require self assessment from a vulnerable person but from their trustees
2. not require self assessment from the trustees of a vulnerable person except at (say) five yearly intervals or when there is a material change in circumstances, and
3. set up and resource fully an assistance unit within HMRC devoted to providing vulnerable persons and their trustees with direct assistance in self assessment, including but not limited to a dedicated mailing address and the provision of the telephone number, email address and other contact details of a named person in HMRC who will provide them with assistance

Q4: Do respondents agree that including recipients of the enhanced rate daily living component of PIP within the vulnerable person definition would achieve certainty in the same way the existing reference to DLA does?

Yes, but would restrict the number of people included in the vulnerable persons group as that is one of the design objectives of moving to PIP. This should NOT be one of the design objectives of this legislation, so the definition needs to be broader, and therefore to “follow” other definitions of vulnerability.

Q6: What are respondents’ views on whether the proposal for PIP might lead to a suitable test, or part of a test, for assessing whether someone should be able to benefit from access to the tax treatment for vulnerable persons’ trusts? (Responses should have regard to the characteristics that distinguish a vulnerable person.)

PIP is intended to apply to fewer people than the current benefits regime and therefore the definition of a vulnerable person would be unreasonably restricted if this were the ONLY qualification for treatment as a vulnerable person. See response to 2, above – in my view the definition should follow any other definition in current legislation, so that a person defined as “vulnerable” for ANY government purpose should also be defined as vulnerable for tax purposes.

Q7: Is the existing ‘mental incapacity’ test suitably targeted? If not, why not?

No opinion, but didn’t you consult on this very recently, in the consultation on removing the offensive language (“lunatic”) from the Taxes Acts? Is it necessary to revisit at this point, and if so I strongly suggest you re-examine the responses to the previous consultation.

Q8: What alternative approach would respondents propose and why? (Responses need not be limited to suggestions that make use of MCA05.)

See above. Follow the definitions in other legislation so that there is no separate “hurdle” for tax.

Q10: Do respondents see any reason why the ‘application of capital’ conditions should not require the vulnerable beneficiary to benefit from every application of the capital during the lifetime (or other relevant period) of the vulnerable beneficiary (with consequent changes to the provisions disregarding trustees’ general statutory powers of advancement)?

As a lay person, I’m surprised this question needs to be asked. But, for the avoidance of doubt, no!

Q11: Do respondents see any reason why the ‘application of income’ conditions should not be harmonised so that trustees are prevented from paying income to non-vulnerable beneficiaries during the lifetime (or relevant period) of the vulnerable beneficiary?

As for Q10!

Further comments

I am surprised that the consultation has reached this stage – where you are publishing draft legislation – without the equality impact assessment being at a more developed stage. The statutory requirement is for departments to give “due regard” to equality while making changes and the phrasing of the EQIA suggests work to examine the potential equality impacts has not yet been conducted. Presumably this is merely unfortunate phrasing of the consultation and you have already given regard to equality in putting forward these proposals for consultation? In particular I am aware from the press that there is considerable controversy over the changes to benefits which have led to these proposals – surely in order to give due regard to equality YOU would need to consider the equality impact of THESE changes and not merely rely on the EQIA published by DWP and referenced at 8.8?

Tax Impact Assessment. Again, the equality impact assessment seems nugatory, no consideration is given to any HMRC changes (such as the possibility of providing more or better assistance to affected persons and trusts in dealing with self assessment) and the consideration for monitoring and evaluation does not seem to allow for the possibility of effective *review* of any changes to see whether they are effective.

Regards

Posted in Consultation, Equality, HMRC | Tagged , | Leave a Comment »

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Company time

October 16, 2012

HMRC have issued a spectacularly ill-timed briefing on Taxing the profits of multinational businesses which purports to explain – to MPs and other stakeholders, in a glossy leaflet paid for our of your and my taxes – how the tax system applies to companies based in more than one country.

Like, oh, Starbucks, for example? In a fine piece of investigative reporting, Reuters reports that Starbucks reduced its UK corporation tax to nil for the past three years by, amongst other things,

  • roasting its beans in an Amsterdam subsidiary instead of in the UK
  • paying interest on loans to other group companies outside the UK
  • paying a royalty for “intellectual property” for the use of its brand name and business processes

Let’s see what guidance the HMRC leaflet gives to our MPs and other policy makers on how this might have come to be and what we can expect them to do about it, shall we?

HMRC is alive to the risk that multinationals may try to structure their affairs so that profits from economic activity carried on in the UK are not taxed here.

Oh, well that’s good, isn’t it?  HMRC is “alive to the risk”?

What are the government doing to counteract that risk, then?

Because HMRC are nice to business, honest.

HMRC seeks to develop open and co-operative relationships with multinational businesses. In the vast majority of cases, we can reach agreement about what the right amount of tax is. Where we cannot reach agreement, we take a robust approach and take large businesses to court, where necessary, to secure the right amount of tax.

Taking large businesses to court?  Well the number of prosecutions is about the number of hens’ teeth – around 50-100 a year it seems, most of which will be clear-cut small-fry tax credit fraud cases and the like – obvious cases, where the offence is easy to understand, the guilt is easy to prove, and the numbers are peanuts but useful to discourage others.  The HMRC prosecutions policy is here, but the bit to notice is that it’s NOT the policy to prosecute in most cases.  The Civil Investigation of Fraud is the more likely process if you’re a multi-national:

It is HMRC’s policy to deal with fraud by use of the cost effective Civil Investigation of Fraud (CIF) procedures, wherever appropriate

Wait a minute, though!  No-one is suggesting Starbucks have done anything criminal, nor anything fraudulent-but-not-quite-criminal!  In fact from the newspaper reports Starbucks seem to have reduced their UK tax take to nil by using entirely legal means, means which are sitting right there in the face of the UK tax code.  They’re not legally or morally bound to pay anything else!  So what does the government mean when it says it will take large businesses to court where necessary?

Well, here’s HMRC’s Litigation and Settlement Strategy.  Most tax disputes are settled by the accountant and the tax inspector arguing the point across correspondence and meetings until either they reach a meeting of minds, a compromise, or, yes, have to go to actions set out in the Litigation and Settlement Strategy.  Assuming there’s some sort of appeal in place that can be litigated, the two sides go to the Courts and Tribunal Service and argue their point in front of the Tax Tribunal

HMRC obviously can’t comment on an individual business’ affairs so can’t really tell us whether they think Starbucks’ tax bill is correct or not, or whether it’s under investigation or not, or even whether there’s any litigation in prospect or not.  Does Starbucks avoid UK tax or not? Let’s give the HMRC leaflet the last word.  My emphasis, though!

Globalisation means that multinationals have the opportunity to structure their business to take advantage of beneficial tax rules in different countries. Provided that this results in profits being taxed in line with where genuine economic activity is carried on, this does not amount to tax avoidance.

Posted in Bit of politics, HMRC | Leave a Comment »

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Catching up

September 27, 2012

I’m not sure whether to be cheered or depressed at the fact that my reader stats have remained about the same, in a week when I haven’t been posting (on account of it being the first week of my PhD studies, of which more later).  Anyway…

I see that there was a consultation which closed last week on the HMRC ambition to “clarify” their extra-statutory concession A19.  Now this gives me problems on several levels.  First of all, the completist in me goes “hang on, I thought the aim of this blog was to reply to ALL of HMRC’s consultations this year?”  I know there have been a couple lately where my response has been along the lines of ‘I’m not going to respond to this one because it’s too stupid…’, but the A19 one I didn’t see.  At all.  I mean, I can see it now, on the page for lapsed consultations but where was it on the tax tracker???  Did I miss it, or was it never there?  I mean, if (as it says on the “lapsed consultations” page) it opened on 3 July, why isn’t it on the tracker page under July?  Oh, and while we’re on the subject, the DirectGov page for “all” government consultation websites lists an HMRC site and an HMT site, but NOT the tax tracker site!  No wonder people – well all right, no wonder I, at least – get confused!

Don’t worry, though – next month the DirectGov page will be overtaken by the Gov.uk site… which is in beta testing now.  Here’s what I sent them by way of feedback today…

I seem to remember that at one point there was an aspiration to have all government consultations available from one webpage. At least direct.gov has a link to all government *consultation* pages on one page – well, except the tax tracker! – but the beta version of gov.uk doesn’t return any hits for consultation that seem relevant. Is the aspiration still in existence, and will it be met by gov.uk?

The automated response says they’ll, er, contact me if something changes!

So let’s have a look at A19.  Well, to start with, why on earth are we having a consultation about “clarifying” the wording of an extra-statutory concession?  An extra-statutory concession is where HMRC uses its powers to administer tax to achieve a sensible answer where the strict application of the law throws up something hard-edged and unpalatable – so for example there are rules that say if companies are controlled by the same people they only get one small companies rate.  You can’t split up your billion pound business into a thousand little companies and say they’re all entitled to small companies rate.  And for a married couple you add together all of their companies.  But there’s an extra statutory concession that lets you off the strict application of this, so that if a plumber marries a hairdresser their companies don’t necessarily get aggregated (but if a plumber marries the owner of her biggest supplier, a plumbing supplies company owner, well, tough)

Now I admit I thought that all of the extra statutory concessions were being reviewed with a view to either legislating or abolishing them, but I see that the latest technical note I can find on this (2010) says:

The House of Lords’ decision in the Wilkinson {note} case clarified the scope of HM Revenue & Customs’ (HMRC) administrative discretion to make concessions that depart from the strict statutory position. HMRC is therefore reviewing its concessions. Although it is likely that the majority can remain as they are, some are thought to be beyond the scope of HMRC’s discretion. Of these, some can be legislated to preserve their effect; others will need to be withdrawn. {Note :R v HM Commissioners of Inland Revenue ex p Wilkinson [2005] UKHL 30}

Nevertheless, the point remains – if we’re talking about an extra-statutory concession, shouldn’t our first thought be whether we need to have the concession at all?  But no:

The consultation is designed to explore the option for a revised version of Extra-statutory Concession (ESC) A19. It is not intended to cover whether ESC A19 should exist or the scope of concessions, but rather how HMRC may be able to improve the clarity of this particular concession ensuring it continues to be applied appropriately.

Ok… define “clarity” and “appropriately” in that last sentence, please!

Essentially the concession says that, where HMRC has messed up by not making use of information that taxpayers or their employers have sent to them, then HMRC won’t pursue them for tax they didn’t know they owed.  Which is pretty clear, no?

Well, no.  Apparently HMRC need to define “information”… because they aren’t going to guarantee that they can be bothered to look at correspondence from employers, perhaps?  Anyway, if the concession is changed, they will only accept “information” from employers and from the DWP on specified forms or the RTI equivalent.

But from the taxpayer… the proposed definition is

1. Direct communication from a taxpayer (or someone authorised to act on their behalf) informing HMRC about a change in income, allowances, benefits or personal circumstances.

You know, I think a tweet directed at @HMRCgovuk would count as information for those purposes.  Test case, anyone?  “@HMRCgovuk I just gift-aided £1k to @somecharity, love @FBlogs”

The plain fact is the ESC exists to protect unsophisticated taxpayers from HMRC errors, and for HMRC to seek to change it by introducing the weaselly concept of “taxpayer responsibilities” is monstrous.  Look, particularly, at the last paragraph of this:

Taxpayer responsibilities

As set out in the HMRC Charter HMRC expects individuals to take responsibility for getting things right even if they have authorised someone to act on their behalf.

HMRC expects individuals to:

 Tell it about any changes in their circumstances that will affect their payments or claims.

 Check their tax code to ensure the information included is correct and up to date.

Sometimes where there has been a change in personal circumstances, it might not be clear whether it has an effect on the amount of income tax an individual has to pay. If an individual is unsure as to whether a change of circumstance affects their tax code they should contact HMRC.

Now I’m an ex-tax Inspector and I spent much of this afternoon on the phone with HMRC trying to sort out my mum’s P800 which turned her overpayment into an underpayment by means of a mystery “adjustment” which we eventually deduced was on account of her making too many gift-aided charitable donations – yes, when pensioners helpfully tick the box to help the charity get gift aid, HMRC are happy to pursue them for the last penny.  But there are always, as Donald Rumsfeld famously remarked, the “unknown unknowns”.  How would someone like my mum know that she didn’t know that she had to pay more tax before she could tick the box?

Maybe the consultation will produce a sensible outcome and the concession will remain as it is.

But if it doesn’t, maybe we should all check with HMRC before we do *anything*.  Because it seems to be our responsibility, if we’re unsure whether a change of circumstance affects their tax code, to contact HMRC…

“Hello?  HMRC?  I’ve just started a PhD.  Does that affect my tax code?”

Posted in Consultation, HMRC | Leave a Comment »

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Forty two

September 11, 2012

How many employers are there in the UK?

Well, the Federation of Small Businesses says there are about four and a half million small businesses in the UK and about a quarter of them are employers. So let’s suppose there’s one and a half million, plus another few thousand of the very largest businesses not covered by the FSB.

HMRC makes it rather more: 2,351,620 to be precise, if you add up the figures for employers on the timetable for rolling out RTI (figure 6 on page R25 of their latest annual report.)   This seems more plausible: there are nearly thirty million people in work, after all.  And HMRC ought to know: they’re the ones who are implementing radical changes to the way that all employers have to operate the PAYE system, moving them over to RTI.  So they have planned for the numbers in their table:

  1. Control group and first stage pilot.  Around 320 employers.
  2. Pilot: around 1300 employers
  3. Extended pilot: around 250,000 employers
  4. Main migration: around 2.1 million employers.

Please check my adding up, but I make that around 2,351,620 employers altogether, right?

I’m a bit worried about that.  Principally, that it’s all a bit quiet, and those two million three hundred and fifty one thousand, six hundred and twenty employers aren’t going to know about, let alone be ready for, RTI coming at them like a steam train.  After all, the government has abolished its own advertising agency and radically cut down the amount it spends on getting information to us.  And, serendipitously, it seems I’m not the only one, because Steven Timms asked David Gauke how much money HMRC had set aside to publicise the changes. 

The answer seems to be, well er… none, actually.

Or rather, communication is part of the overall cost of RTI, which the Minister helpfully tells us may amount to £108 million.

Do the math with me here. Counting just the small businesses covered by the FSB (and not the large ones where, so far, most of the education and support has been targeted) and not including the people who have employees but who aren’t businesses, like people with nannies and people given budgets and told to go off and employ their own careers…

The smallest number of businesses likely to be affected by RTI is, well, for the sake of the mental arithmetic let’s say that a quarter of the FSB’s four and something million amounts to ONE million employers.

On whom HMRC can spend 108 million quid?  Ok then – lets say changing HMRC’s computer, building the free software for micro business employers and doing all the other techie stuff only came to 8 million. It won’t, is my guess, but you see where I’m going with the numbers.

That gives HMRC 100 million to spend on education and communications for 1 million businesses.

A hundred quid each?

That won’t get you one person from each business going on a course, or even having a couple of phone calls with HMRC’s helpline. Its… It’s peanuts.

Divide that theoretical hundred million by the HMRC number of 2,351,620 and you get … £42.

(Well, OK, £42.52, but still.  You really couldn’t make it up.)

Posted in Bit of politics, Employment, HMRC, RTI | 5 Comments »

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