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Hodge: HMRC unfair to small businesses

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24th Mar 2015
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While grilling former permanent secretary of HMRC Dave Hartnett and current tax assurance commissioner Edward Troup, PAC chairperson Margaret Hodge accused HMRC of unfairly targeting small businesses.

Hartnett appeared first and in one of his testimony's more candid moments, he expressed regret toward "the process" by which HMRC reached settlements with big business and offshore tax evaders.

When pressed on why HMRC didn’t prosecute more people after receiving a list of 1,000 HSBC offshore account holders from former disgruntled HSBC employee Hervé Falciani, Hartnett admitted his surprise. 

"I would like to understand why there weren’t more criminal prosecutions,” said Hartnett. “I'd always expected there to be more. I'd have liked to understand what would have happened if more resources were diverted to it.”

The Revenue did, however, manage to recoup £135m in repayments.

Hartnett maintained that he bore no responsibility for any potential prosecutorial leniency and never saw the Falciani leak despite his position as permanent secretary.

“I did not have accountability for enforcement,” he said. “I’m not here to get off the hook as I was never on the hook.”  

Hartnett’s denials did not satisfy Hodge, who was relentless in her criticism, at one point stating “I’m aghast” and telling Hartnett that he will always be associated with the “old way” that “many people now find unacceptable”.

Double standards

After Hartnett, Edward Troup appeared before the committee. In his opening statement, Troup heralded the HMRC’s success in lifting the veil on Swiss banking secrecy.

“In the early 2000’s banking secrecy seemed impregnable, the idea that this secrecy could be breached was unthinkable,” said Troup. “From 2018, we will get information from Swiss banks automatically, not just on command.”

“And what are you doing now?” asked Hodge, cutting Troup short. “It’s always the future; I’m interested in the now.”

“We have quintupled the number of prosecutions for tax evasion over the last five years,” said Troup.

“How many were small businesses?” asked Hodge. “What we’re interested in is equality of treatment, SMEs aren’t treated equally.”

In reply, Troup said that he wouldn’t go into operational detail and that it was “perception” that SMEs are treated differently from large enterprises.

This drew the ire of MP Richard Bacon. “It is not merely a perception – it’s a fact that the way small enterprises are treated is different,” he said. “For you to sit here and claim that it’s perception makes you look rather out of touch.”

Troup remained defiant, saying that HMRC has to "put some effort into enforcing compliance among SMEs, they represent £15.1 bn of our tax yield".

Replies (37)

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By johnjenkins
24th Mar 2015 11:40

What really

is the point of PAC with regard HMRC? Do they actually get results or is it a question of just going through the motions? Because nothing ever seems to change.

Have the EU got a PAC? 

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Replying to thevaliant:
Francois
By Francois Badenhorst
24th Mar 2015 13:37

I have to wonder the same

The questioning of Hartnett, in particular, had a ritualistic air about it. As if they just wanted to lampoon him a bit before he was finally put out to pasture. But I do think it was important, because if it wasn't for the PAC then there wouldn't be any accountability whatsoever. 

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Replying to thevaliant:
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By iain downs
25th Mar 2015 13:49

If it did it would be on the side of the HMRC.  The EU only understands large corporations and taxing little people blind.

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By mikefleming3028
25th Mar 2015 10:28

A most dissapointing Pantomime

I watched the whole show and on the part of Hartnett it looked like an exercise in buck passing. As for Mr Troup I think it fair to say that a more obvious case of obfuscation, fancy footwork , half truth and outright refusal to answer certain questions concerning HMRC`s prosecution record has yet to be seen on Parliament TV. He made great play of the numbers of prosecutions undertaken by HMRC  but his memory seemed to fail when he was asked to comment and or give a break down detailing the numbers of big businesses included in his stats. His sudden loss of recall strained his credulity like the wind strains the halyards. For a man in his position not to have this information at his finger tips (especially given the circumstances of the occasion) points to either sudden onset alzheimers or something all together more serious, I will leave it to the reader to decide for themselves what that might be!!   

 

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By malcb
25th Mar 2015 11:42

Well done Mrs Hodge . for your support of small businesses ! There is a real danger that I may have to change my opinion about you!

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Replying to Landergan Co:
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By iain downs
25th Mar 2015 13:52

I can only assume you must be her husband?

Well done Hodge?? Are you joking?  The woman can barely conceal her contempt for paying tax out of her own family business whilst suggesting that everyone else divvy up huge sums of cash to pay for her and her joke of a party. 

If you think Hodge cares about SMEs any more than she cares for enterprise then you need a good shrink.  She is only interested in stealing from everyone as much as possible to pay for her "fairness" model.  Which translates to we all have to pay and she gets to lord it over us.

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Replying to GEOFF ATHERTON:
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By malcb
30th Mar 2015 08:21

mrs hodge

So any one who disagrees with you deserves to see a shrink?

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By redboam
25th Mar 2015 12:02

HMRC, SMEs and the Others

Judging by the experience of many SMEs Margaret Hodge is correct. One can only assume that bearing down as hard as possible on such businesses arises from the fact that HMRC needs to make up for the £20 million that their "sweetheart" deal with Goldman Sachs cost the tax payer.

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By youngloch
25th Mar 2015 12:09

MPs can surprise you at times....

Several years ago I received a survey from our local MP Richard Ottaway in regards to small business taxation.

I wrote back to him with a particular focus on the penal VAT surcharge regime which, back in 2006 or 2007, was causing businesses in difficulty to get into a vicious circle of 15% surcharges often causing them to be late on the next occasion etc etc One particularly client (haulier) was suffering surcharges of circa £10k per quarter.

To my utter surprise I then had a letter back from Mr Ottaway thanking me for making him aware of it and advising that he had personally forwarded all my comments to Dawn Primarollo.

I then got a letter from Dawn Primarollo advising that a review of the VAT penalty system was planned and my comments would be included within their review.

Later on of course they changed the penalty system.

I think perhaps communicating real life situations of our small business clients to our MPs, particularly where the consequences are so dire, is a worthwhile exercise.

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By duncanphilpstate
25th Mar 2015 12:14

SMEs vs Big Business

"SMEs...represent £15.1 bn of our tax yield"

Apart from the obvious omission of what percentage that represents (I mean, £15bn would be a lot if it was mine but it might not be in the context of total tax take), my immediate reaction was a rather cynical "Well if you were tougher on the big boys, you might not need to hit SMEs so hard".

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By johnjenkins
25th Mar 2015 12:26

Yes it's

great that PAC have a go - what then? Nothing.

OTS great - what then? Nothing.

It's all huff and puff and nothing gets changed.

Perhaps the SNP having the balance of power might change some things.

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By clarance.netto
25th Mar 2015 12:50

 I just love the hard headed,

 I just love the hard headed, relentless approach of Margaret Hodge.. No shilly shalling,, she is truly a welcome breath of fresh air

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By RobSmith
25th Mar 2015 13:30

Tax yield

SME's may indeed represent 15.1 billion of the tax yield but surely there must be somebody at HMRC with a bit of brain. A simple prediction of the cost benefit ratio would mean that the most effective use of man hours would be to investigate the large enterprises AND their tax advisors.

Investigation of SME's should of course be done but mainly on a targeted basis.

Or is it that HMRC is now so de-skilled that they dursn't take on the big boys armed only with their call centre staff. 

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By johnjenkins
25th Mar 2015 13:39

Not Rocket

science Rob. SME's, instant cash. Big boys, years and years of outgoings and hassle.

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Replying to lionofludesch:
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By RobSmith
25th Mar 2015 14:06

Mythbusting

So in a country where we are meant to have a free press, independent judiciary and police force, and no-one above the law, we actually have MP's allegedly interfering in police investigations, the police colluding with the press and the Big Boys untouchable because "Its just too hard to bring them to book". 

British values my [***].

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By P&G
25th Mar 2015 13:57

It must be Election Time!

So Margaret Hodge is now championing SMEs at PAC, well forgive this old cynic but with the General Election now only six weeks away, what a surprise. This must be the first time she has been on the side of business at all. Usually she is bleating about tax avoidance, maybe she is not aware that even SMEs get involved in tax avoidance, albeit not to the scale of the big boys.

As for her concentrating on Swiss bank tax evaders, what about all the tax evaders within the UK, they seem to get away with murder while everyone fusses over the latest tax plan from Google or Staryucks. 

Her only consistency is her sniping at HMRC and good old "Free Lunch" Dave comes up with a classic line "I'm not here to get off the hook as I was never on the hook". One has to ask what the role of HMRC Permanent Secretary entails? It's little wonder no-one at HMRC will take responsibility for any errors made with a former fearless leader like that. The whole of HMRC is out of control and needs a complete overhaul with leadership that is ready willing and able to put themselves "on the hook". Maybe then, businesses great and small would feel more inclined to pay the right amount of tax because at present HMRC's "customers" are choosing to shop elsewhere.

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By Donald6000
25th Mar 2015 15:44

The Permanent Secretary

Of course the Permanent Secretary is responsible for prosecutions. The permanent secretary is head of HMRC, as such everything comes under his or her remit.

 

Pretty obvious Hartnett had not read the job description and/or person specification that came with the job? If this is so, then can I now ask that he returns his years of salary because it is now pretty obvious to me and others that he has been given his remuneration under false pretences.

 

 

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By rota2
25th Mar 2015 16:03

My client small businesses not targeted

I have acted for small businesses for over 25 years and in my experience the number of tax enquiries has reduced, particularly over the last 5 years.

That said, I believe HMRC do not have enough resources to tackle tax evasion by all types of taxpayer.

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By chEEK
25th Mar 2015 16:53

Post-HMRC roles?

 

At the time of the banking crisis there were many commentators says "They don't even apologise for what they've done".

Be careful what you wish for - the great and good realised that apology was actually a really good idea, so what we now see is many of them donning the hair shirt for a day as penance for a life of (what many of us see as) crime. and there are laws against much of what is being done.

So the modern world, if you're big enough, consists of:

1. Do what you like.

2. When it comes to light, apologise.

3. Be dragged in front of some enquiry committee, apologise again, evade questions.

4. Go home free.

5. Go to step 1.

These proceedings are a show, nothing more. This is what politicians now do when they intend to take no real action. HMRC will continue to target SMEs and make cosy deals with big business. However, HMRC's actions and the reasons we are given are not logical - even though they may have to wait years to get their money, penalties of HMRC's choosing plus interest should be enough to make most pay up sooner. £15bn is a relatively small figure, an Amazon / Starbucks or two would garner that, so it makes no sense, unless...

Has anyone ever looked into what HMRC people do after life as a taxman? We've seen MPs being appointed to directorships - even taking cash while in office. Perhaps we need to check for similar activities among their tax-collecting brethren? Where are Panorama when you need them?

Now let me be clear - I am accusing anyone of anything. I know of no evidence to suggest that any such thing is going on. But we have to wonder why they behave as they do and in doing so we need to look for possible motives. We all know the expression "if it walks like a duck...", so when something seems to walk with a wobbly gait, it may just be a normal person, not too steady on their pins or... it may be the other reason. It behoves us to check it out, as is currently done with MPs?

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Replying to whitevanman:
Francois
By Francois Badenhorst
25th Mar 2015 17:05

Dave Hartnett

Well, this isn't me proposing a pattern or a conspiracy, but Dave Hartnett did go to work for HSBC after leaving the Revenue. 

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By Donald6000
25th Mar 2015 17:20

After leaving the Revenue I went to work for one or two local accounting firms as a tax semi senior, then I went to University. I am happy to be small fry. I did not go and work for multi-national banks, nor did I sell my HMRC experiences anywhere.

 

If there is a conspiracy I certainly don't think I am part of it.

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By Michael C Feltham
29th Mar 2015 20:42

The Primary Reason.............

HMRC know full well the small business (a vast majority of SEEs are small) is they lack both the necessary financial resources and will to fight back.

Whereas the Big Boys will fight tooth and claw all the way up to the Supreme Court, if necessary! ALL major tax precedents relied on by HMRC and indeed, the taxpayer, have resulted from the House of Lords (earlier) and/or the Supreme Court.

Furthermore, as the Lower and Upper Tax Chambers are now adversarial in nature, costs for any defence have spiralled: once again, loading the dice against the little guy.

Government and HMRC are rapidly moving now towards a sort of "We're right now pay up!" mindset: even when and where they may well be wrong.

 

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By Ian McTernan CTA
25th Mar 2015 17:43

Hodge Soundbites

Must be Wednesday, time for some more attempts at grabbing headlines by the PAC chairwoman whilst achieving practically nothing and contributing nothing towards finding a solution to any issues raised.

Someone above called her a breath of fresh air (probably a typo).  I think she meant a breath of hot air.

Pot kettle black as her own interests and those of her family don't seem to be straining at the bit to pay as much tax as possible...

Having a go at these people in public might make for some headlines and keep Hodge in the spotlight briefly but what HMRC needs is an end to the constant shuffling of priorities, endless performance checks and constant changes adding to the complexities of the tax system- none of which has been helped one iota by the PAC. 

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By chEEK
25th Mar 2015 18:08

In response to...

Donald6000 - it would only be the top people (the ultimate decision-makers) who might be in a position to do something less than ethical.

 

Michael Feltham - as I said before, it is not logical that HMRC shy away from fighting cases in court over large sums of money due to time issues. We only need look at the extremes to which they went to set precedent in IR35 cases to see that they are more than willing to do this for small sums, so it makes no sense to duck out when large sums are at stake.

They have also admitted that their IR35 strategy is largely psychological - once they win one, they expect others to fall into line quickly. However, any such excuses should now be a thing of the past with the new tax measures announced in the Budget re profit-shifting.

All in all, the time taken is not a valid argument given the sums at stake - if it were so, you can bet that they'd have been demanding extra powers a long time ago.

And ummm... dare I mention, re the title of your post, that it would be the "principal" reason (not "principle").

 

I'd also add that the reports one hears of senior Treasury / HMRC people going to lunch with senior executives of companies to discuss their tax bill should have led to these questions being asked a long time ago. 

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Replying to PERMON:
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By Michael C Feltham
29th Mar 2015 20:44

@chEEK:

 

 

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By vstrad
25th Mar 2015 19:44

Self-explanatory

If SMEs deliver just £15B out of a total tax take of £506B (2013-14), I think that answers Mrs Hodge's question.

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By the_Poacher
26th Mar 2015 08:07

pay peanuts
get HMRC staff

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By AndrewV12
26th Mar 2015 10:27

HMRC unfair to small businesses

HMRC are not unfair to small businesses  they are unfair to all businesses, well maybe not but sometimes it seems that way.     

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By ver1tate
26th Mar 2015 10:41

PAC

A spokesman for Margaret Hodge stated 'It is possible that the Committee will return to the issue (tax avoidance) in some capacity before the election; the successor Committee in the next Parliament will also be likely to return to the issue, although the Committee is unable to bind a successor Committee to do so.

So no hope there of a level playing field.

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By accountsdragon
26th Mar 2015 11:31

But paying tax seems to be optional at all levels

I have more than one very small business that does not bother to pay the tax when I have done the returns, and others that only bother to get me to do returns when it suits them.  After a few warning letters, all seems to go quiet, and the (non) tax payer carries on as before.  It's cheaper and easier than trying to get bank funding, but I think we are losing the deterrent aspect of HMRC;s work.

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By [email protected]
26th Mar 2015 15:40

Dave Hartnett - The Wrong Target

I understand that  when the HMRC Chairman resigned suddenly, Dave Hartnett took over briefly on a caretaker basis. When a permanent replacement was appointed, Hartnett was appointed to the new post of Second Permanent Secretary for Tax, with responsibility for Tax Professionalism,  He was never CEO and Ms Hodge was lambasting the wrong man - but then she's a politician.  I believe this gives her the protection of Parliamentary Privilege allowing her to make as many inaccurate and unfair accusations as she pleases without exposure to legal repercussions from her victims. 

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Replying to SouthCoastAcc:
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By ver1tate
28th Mar 2015 20:25

PAC spokesman's quote

Does each Parliament in fact set up a new Committee?

'The successor Committee in the next Parliament will also be likely to return to the issue, although the Committee is unable to bind a successor Committee to do so'.

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By chEEK
29th Mar 2015 19:24

Mr Feltham, sigh

What a lot of words to say very little. I'll avoid massive quotes and take - or shouldI say refute - your points in order.

1. It may be "cheaper" for HMRC to negotiate than to litigate, that was quite clearly NOT the point. The point is that if they are getting nowhere near the sums owed then they need to litigate - and we are given to understand that they are in many cases settling for pitiful percetanges of the sums that should be due.

it was also very clearly pointed out that they are prepared to jump through hoops to set precedent with laws such as IR35 but fail to do the same when there are far larger sums per unit at stake.

 

2. Primarolo. Enough said. However, the driving force behind IR35 was, once again, NOT the issue - it was the psychological aspect of their legal strategy that HMRC admitted to that was the point of that discussion.

 

3. "Demand extra powers". Yeeees... I clearly meant legislation.

All the stuff you wrote about precedent... not really relevant. Precedent can only take priority over primary legislation where that legislation is not clear, or may not be on point - to have precedent, there must be a case to set one - and for that to happen, there has to be a law to argue about in that case to begin with.

When HMRC don't like what they are seeing in how things operate, they demand extra powers enshrined in statutory law - such as IR35 when they didn't like the high dividends route. Of course, if the law is as poorly drafted as IR35 is/was then there can be ensuing case law, but that's not the point - the point is that prior to IR35 they had no way to go after the tax/NI that they now can with IR35 in place.

 

4. Principle v Principal.

You pasted a lot of stuff from a dictionary showing the correct definitions of those words - and thereby proved that you don't understand them. Your first post's title began: "The Principle Reason..." which was clearly intended to mean "the main reason" and that should therefore have been "The principal reason".

 

5. Nothing new about senior HMRC officials going to lunch with execs of companies?

Who said there was? Once again you chose to completely miss the point, which was very clear. I don't care if it's new, I didn't say it was new, what I did say is that it does not appear ever to have been investigated - and it should be IMO.

 

What a terrible waste of my time responding to your posts - please don't waste any more? Squirming is so unseemly - when you're wrong, you're wrong - move on.

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Replying to johnjenkins:
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By chEEK
01st Apr 2015 18:19

Sigh

Michael C Feltham wrote:

Quote:
What a terrible waste of my time responding to your posts - please don't waste any more? Squirming is so unseemly - when you're wrong, you're wrong - move on.

So, don't bother then!

Unfortunately incorrect statements regarding important matters must be refuted, or some people will believe them. Sadly, that takes time.

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By tom_rose
09th Apr 2015 16:14

Tax Avoidance ?

Tax Avoidance?

Is there such a thing?

Is it not rather, a weasel phrase to suggest that in wading through complex legislation to figure out how much tax I owe, then paying it, rather than voluntarily paying more than I need to, I am somehow doing something wrong?

In reality I am avoiding nothing.  I am paying my correct due, as required by law. No more, and no less. It is not my fault if the powers-that-be have made the system so complex that superficial and careless application of the rules would suggest that I should pay more.

If that is seen to be a problem then HMRC has a simple solution.  Make the system simple enough that the amount owed is clear and cannot be questioned or wriggled out of by anyone, whether that be a one-person operation, a rich individual or a giant multi-national.

HMRC could, if it wanted, get rid of the mish-mash of exceptions and allowances, but then it would not be able to bully us and use the weapons of Fear, Uncertainty and Doubt that it seems to love.

 

EDIT: Just fixing spelling mistakes

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Replying to Hazel Accounts:
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By malcb
09th Apr 2015 15:36

TAX AVOIDANCE

TOTALLY AGREE WITH YOU !

 

IN MY OPINION IT GETS IN THE REALMS OF EVASION WHEN YOU FIDDLE YOUR EXPENSES OR FLIP YOUR HOME............ I WONDER WHO IS DOING THAT!! 

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By Donald6000
09th Apr 2015 16:39

Tax avoidance does not exist?

The person who wrote this above is right in lots of ways. Not only that but I have a funny feeling that non-doms don't exist either, or at least if they do, they are being confused with non res and not ordinarily res.

These politicians will go to any lengths to jump on to these non existent bandwagons.

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