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HMRC Accused Of Letting Big Firms Off The Hook

by Jason Gorringe, Tax-news.com, London

21 December 2011


The UK tax authority, HM Revenue and Customs, (HMRC) has been accused in a report published by the parliamentary Public Accounts Committee of being too lenient on large companies with outstanding tax liabilities.

The report alleges that there are "systemic failures in the management of tax disputes" at HMRC after information surfaced on deals alleged to have taken place with significant tax debtors.

It is alleged that HMRC negotiated with large firms to reduce back tax bills, and the report suggests the issue could be more widespread.

"This report is a damning indictment of HMRC and the way its senior officials handle tax disputes with large corporations. We uncovered both specific and systemic failures which must be addressed," remarked Margaret Hodge, Chair of the Committee of Public Accounts. "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. Parliament and the public have legitimate concerns that large companies are being treated more favourably than ordinary taxpayers, whether they be small businesses or hard-working families."

A mistake admitted by HMRC in a case involving Goldman Sachs, was said to have cost UK coffers GBP20m (USD31m), although HMRC dismissed this figure in its response, suggesting a figure of GBP5-8m, based on the estimates of the Comptroller and Auditor General.

"The Department's working practices must be seen by the taxpaying public to be absolutely impartial. The impression being given at the moment is quite the opposite, of far too cosy a relationship between HMRC and large companies," Hodge continued. "In several cases, HMRC chose to depart from its normal governance procedures. It is extraordinary that the same officials who negotiated deals also approved them. In one instance, a mistake led to a potential GBP20m (USD31m) of interest on a tax liability not being collected. Parliament and the public must be assured that settlements do not short-change the Exchequer."

Responding to the report, a spokesperson for HMRC stated: “HMRC’s internal processes are robust and this was confirmed by a recent review by the National Audit Office of large business settlements. We agree that public confidence in our processes is important, and as we have already informed the Public Accounts Committee we propose to make further improvements to our governance and to increase transparency about our work with large business. We also welcome the further review that the National Audit Office is to carry out as an opportunity to confirm this and clear up the concerns about foregone millions.”

On allegations that HMRC has been more lenient with tax debtors that are large businesses, HMRC responded by stating: “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. 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 GBP13.9bn additional compliance revenues that we brought in last year.”

The spokesman added: “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. We acknowledge that a mistake was made in one settlement and explained how this arose. We reject the suggestion that this is evidence of systemic failure. This assertion, based on untested, leaked information, is without foundation.”

Additionally, HMRC challenged the report's statement that outstanding tax bills yet to be resolved stand at GBP25bn, stating: “We explained to the Committee and again in a letter to the Committee Chair in November that this figure is a ballpark estimate of maximum potential tax liabilities, before a full investigation of the specific facts has taken place, and before applying any reliefs or allowances. It is not actual tax either owed or unpaid. In many cases, when HMRC has looked at the full facts it becomes clear that there is no further liability at all. Tax under consideration is an administrative tool to help us to focus our resources on cases where potential tax liabilities appear to be greatest. It is not tax owed.”

TAGS: compliance | tax | business | tax compliance | law | United Kingdom | enforcement | tax authority | agreements | penalties

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