20 Dec 2011

HMRC and big business – a cosy relationship?

As a row erupts over HMRC’s relationship with big business following a government report, a prominent tax campaigner tells Channel 4 News the UK’s tax system is not to blame for payment errors.

In its report, which was commissioned after concerns HM Revenue & Customs was not applying consistent governance rules for large tax settlements, the influential public accounts committee said: “It is absurd that we have been forced to rely on information in the media to find out about cases that raise concerns, and of course we only know about cases on which information has been published in the media.”

The PAC said up to £25bn in disputed tax could still be outstanding. Experts say it is unlikely that more than around two-thirds of this will eventually be recouped.

Accountant and founder of the Tax Justice Network Richard Murphy told Channel 4 News he thinks there exists a culture among some companies of investing a lot of money into ensuring they pay only the minimum of tax: “Some of that £25bn is because people have been making their tax affairs deliberately complex.

“There are a great many accountants and companies that deliberately complicate their affairs to make it more difficult to establish how much tax is due.

He disagrees with the view that the UK tax system is too complicated and is therefore to blame for the problems arising in tax disputes: “The complication is not in UK tax law but in the fact that some companies choose to create complex structures to try to avoid paying the tax that might have been due in the UK.”

Read more: HMRC 'bent rules' for big firms

Sweetheart deals

But Mike Warburton, director of tax at accountants Grant Thornton told Channel 4 News the era of globalisation has seen a proliferation in tax law, making it especially difficult to resolve tax disputes: “I do believe there is a degree of misunderstanding by some commentators on the public accounts committee report.

“We have a highly complicated tax system, and the £25bn is only a rough estimate of how much tax is in dispute.

The problem is not that tax inspectors are ‘too cosy’ with large business, it is that there are not enough tax professionals in the department to tackle the scale of the tax being lost. Graham Black

“It is sometimes very difficult to decide how much tax is actually due. You can either go through the courts which is an expensive way of doing it or you can take a collaborative approach to decide what the tax liability is.

He said he doubts that so-called “sweetheart deals” between HMRC and large companies have been done: “I would be very surprised if there had been a sweetheart deal done, I’ve not known of them in 37 years of being an accountant.”

Richard Murphy, who has set up and run small businesses himself, said there is a difference in the way that HMRC deals with the tax affairs of small and large companies which works to the advantage of big firms: “When you’re a small company you would pay a fixed penalty (on average, 20-30 per cent of tax due) plus the tax and plus interest. But large companies very rarely do this – they come to deals with HMRC.

“Vodafone went to court four times over their tax bill, yet a deal was struck. They were nine years in litigation and HMRC won the last case, and Vodafone lost the right to appeal, and yet they settled. Why did HMRC do that? No-one knows.”

Error, not policy

In a statement, HMRC told Channel 4 News it does not recognise the picture painted by tax campaigners that it gives large firms preferential treatment: “HMRC does not accept this. There was a single error in relation to interest which we drew to the attention of the National Audit Office.

“The NAO estimated the error at between £5-£8m. This was a mistake, not a policy decision. When interest is liable we charge it, irrespective of the identity of the taxpayer.”

It refused to comment on its decision to reach an out of court deal with Vodafone despite winning a lengthy legal battle, saying it “cannot comment on the detail of individual cases due to out rules on taxpayer confidentiality”.

Channel 4 News has reported former judge Sir Andrew Park has been asked to look into decisions by HMRC to do deals with large corporations to “forgive” unpaid taxes.

Culture change

Following the outcry over the PAC’s report, Mr Murphy thinks there needs to be a shift in attitude at HMRC: “The only way to change this culture is to change the board of directors and include more people who know about tax and are not connected to big business.”

Mr Murphy’s suggestion as to how to tackle tax avoidance and evasion was echoed by Graham Black, president of the Association of Revenue and Customs, the union representing senior HMRC professionals. He said: “The problem is not that tax inspectors are ‘too cosy’ with large business – it is that there are not enough tax professionals in the department to tackle the scale of the tax being lost.

Mr Black added: “Senior staff strive constantly to treat all taxpayers fairly, but resources are too stretched to battle the major companies advised by an army of expensive advisers.

“The attacks on HMRC officials have at times been overly aggressive, these are public servants carrying out important and difficult jobs. The real problem has been with successive governments cutting the country’s only money-generating department.”