Accountants seconded to government are ‘abusing position’

In a report, the Commons public accounts committee said the “big four” accountancy firms – Deloitte, Ernst and Young, KPMG and PwC – were able to exploit loopholes in the tax laws.

It warned that HM Revenue & Customs (HMRC) was engaged in a “battle it cannot win” in seeking to stem the losses to the taxpayer from tax avoidance.

Committee chairman Margaret Hodge said accountants seconded to government represented a “ridiculous conflict of interest” that should be ended.

“The large accountancy firms are in a powerful position in the tax world and have an unhealthily cosy relationship with government,” she said.

HMRC had far fewer resources than these firms, which employed almost 9,000 staff and earned £2bn a year from their tax work in the UK.

The committee highlighted the way firms seconded staff to the Treasury to work on technical issues in the drafting of legislation returned to their firms to advise clients on how to use those laws to avoid tax.

‘Identify loopholes’

“Through their work in advising government on changes to legislation they have a detailed knowledge of UK tax law, and the insight to identify loopholes in new legislation quickly,” it said.

The committee said it was “inappropriate” for individuals from firms to advise on tax law and then devise ways to avoid tax.

“We have seen what look like cases of poacher, turned gamekeeper, turned poacher again, whereby individuals who advise government go back to their firms and advise their clients on how they can use those laws to reduce the amount of tax they pay,” it said.

“We are … very concerned by the way that the four firms appear to use their insider knowledge of legislation to sell clients advice on how to use those rules to pay less tax.”

‘Aggressively fighting’

An HMRC spokesman said it was “not only aggressively fighting battles against tax avoidance, but we are winning them”.

He added: “In the last three years alone, we have litigated more than 50 major avoidance cases, protecting billions of pounds of tax in the process.”

Jim Hara, from HMRC, told the BBC Today programme that total tax avoidance in the UK was estimated at around £5bn a year, representing about 1 per cent of all tax liabilities.

He added that he did not “recognise” the problem identified by the committee of accountants working on secondments within HMRC on the development of tax rules, only to go back to their companies and advise clients on how to beat the rules.