Public Accounts Committee Report – HMRC criticised for 'cosy' deals

The report of the Public Accounts Committee ('the Committee') into alleged 'sweetheart' deals reached by HMRC with some of the largest companies in the UK was published yesterday.

The report

The report is highly critical of HMRC and in particular, singled out Dave Hartnett, Permanent Secretary for Tax, for failing to handle tax negotiations properly.

Key highlights from the Committee's report

• The evidence given to the Committee by Mr Hartnett was 'imprecise, inconsistent and potentially misleading';
• HMRC chose to depart from its own governance procedures and checks in several cases which allowed the Commissioners to sign off on settlements they themselves had negotiated;
• HMRC's failure to comply with its own processes resulted in a substantial amount of money being lost to the Exchequer;
• HMRC had left itself open to suspicion that its relationships with large companies was too cosy and the Department was not being even handed in its treatment of all taxpayers;
• The Committee was concerned that whistleblowers using the provisions of the Public Interest Disclosure Act 1998 faced threats of dismissal by HMRC for providing important and relevant information (I commented on HMRC's reaction to the suspected whistleblower in my blog dated 19 December 2011.

Legal advice

Of particular concern is that in one very large case the HMRC team negotiating with the company concerned failed to consult HMRC's Solicitor's Office before concluding the settlement.  It is, however, normal and best practice for HMRC's negotiating team to obtain legal advice and they should have done so in this case.  Nor did the negotiating team refer the case to HMRC's High Risk Corporates Programme Board which again should have been involved in the process.  When the Programme Board did eventually consider the matter, it rejected the settlement that had been reached because it discovered that HMRC had failed to charge interest on the tax outstanding.  Despite this, HMRC decided not to reopen and renegotiate the settlement!

The implications

The Committee's report has important implications for how HMRC deals with the large companies.  The findings of the Committee are also a matter of great concern to the general taxpaying public.   HMRC have entered into a number of 'sweetheart' deals in recent years and in at least one case without consulting their legal advisors.

The Committee's conclusion that in future legal advice must be taken before settling cases is to be welcomed.  However, in order for such a policy to work, HMRC's Solicitor's Office must be properly resourced. At the moment, it is far from clear whether this is the case.

The way forward

In the light of the Committee's findings, it is not unreasonable that HMRC should be subject to more specific scrutiny. There should be an increase in transparency so that the public can be confident that settlements reached between taxpayers and HMRC are both lawful and in the national interest. HMRC must also apply its governance processes and its Litigation and Settlement Strategy consistently and without exception, irrespective of who the taxpayer is. In order to achieve this, independent scrutiny of large tax settlements is needed and HMRC must seek proper legal advice before a large settlement is concluded. For the public's confidence in HMRC to be restored, its working practices must be seen to be completely impartial and lawful. Confidence will not be restored if HMRC continues to appear to give preferential treatment to certain taxpayers.

A fair and transparent system, in which all taxpayers know where they stand and are treated equally, will promote certainty and confidence in our tax system.