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MPs publish "damning indictment" of alleged HMRC deals with big businesses

There are "specific and systemic" failures in the way in which HM Revenue and Customs (HMRC) handles tax disputes with big companies which must be addressed, an influential committee of MPs has said.20 Dec 2011

In a report investigating alleged 'sweetheart' deals entered into between HMRC and organisations including Goldman Sachs and Vodafone, the House of Commons Public Accounts Committee (PAC) accused the department of treating large companies "more favourably" than ordinary taxpayers.

PAC chair Margaret Hodge described the report as a "damning indictment" of HMRC and its senior officials.

"Having looked at the two cases in the public domain, we are concerned that many millions of pounds may be lost to the public purse," she said.

HMRC rejected the PAC's conclusions, claiming the Committee's report was based on "partial information, inaccurate opinion and some misunderstanding of facts".

As of 31 March 2011 HMRC was involved with tax issues valued at over £25 billion with large companies, some of which including disputes over outstanding tax, the PAC said.

In October, Permanent Secretary for Tax Dave Hartnett appeared before the PAC to answer allegations he had misled MPs about his involvement in an alleged settlement with investment bank Goldman Sachs.

The department was accused of forgiving Goldman Sachs between £8 million and £10m in interest on a disputed tax payment following a technical mistake by HMRC, but the PAC said it had "received evidence from a whistleblower" that the outstanding amount could have been as high as £20m.

MPs claimed another arrangement between HMRC and the mobile phone company Vodafone, uncovered by the Guardian newspaper and Private Eye last year, may have lost the Exchequer "around £8bn".

Hodge said it was "extraordinary" that in some cases the same officials who negotiated deals also approved them.

"In order to maintain public confidence, the Department must ensure it avoids any perception of undue leniency in its dealings with large companies and must be seen to treat every taxpayer equally before the law. Investigation of these specific cases has led to serious concern about systemic issues which must be addressed with the utmost urgency. There needs to be proper separation between the negotiation of tax settlements and the authorisation of such settlements," the Committee said in its report.

HMRC must also address "issues of accountability" to Parliament and to the public, it concluded.

Throughout the PAC's inquiries, HMRC insisted on keeping the details of specific settlements with large companies confidential even where there had been "legitimate concerns" about the handling of those cases, the report said. Committee chair Margaret Hodge said that it was "extremely disappointing" that senior HMRC officials had refused to answer the Committee's questions, claiming that taxpayers' details were protected by its duty of confidentiality.

"We accept that there is a need for confidentiality to protect individual taxpayers, but this must not be used as a cloak to protect the Department from scrutiny. It is absurd that we had to rely on the media and the actions of a whistleblower to find out about the details of individual settlements," she said.

"The Department's working practices must be seen by the taxpaying public to be absolutely impartial," she said. "The impression being given at the moment is quite the opposite, of far too cosy a relationship between HMRC and large companies."

The National Audit Office (NAO) would carry out further work to establish how reasonable the specific settlements were in "cases where normal governance processes were not followed", the PAC said.

HMRC said in a statement that it welcomed the NAO's further review, and it had informed the PAC of further improvements it planned to make to "increase transparency" about its work with large businesses.

"It is wrong to suggest that HMRC officials are too lenient on large businesses. Large businesses pay around 60% of total UK tax receipts, and account for more than half of the £13.9bn additional compliance revenues that we brought in last year," the statement said.

It added that the £25bn figure quoted by the NAC was a "ballpark estimate of maximum potential tax liabilities" rather than a reference to actual tax either owed or unpaid by large businesses.

"HMRC treats all taxpayers even-handedly, supporting the majority who comply with their duty to pay their taxes and cracking down hard on evaders, avoiders and fraudsters. Large business tax settlements are a vital part of how HMRC secures tax revenues for the country and without them Britain's public finances would be seriously damaged. HMRC's large business strategy is now being adopted by other tax administrations around the world," the department said.

Expertise in Tax Disputes

Effective handling of relations with HM Revenue & Customs (HMRC) presents challenges. Managing tax disputes requires a clear understanding of both the dispute process and the tax technical issues. It is for this reason that we believe that specialist skills in both are required to provide best advice in this area.

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