PAC grills HMRC over annual accounts
HMRC was once again up in front of the Public Accounts Committee (PAC) to answer questions about its annual accounts.
Tax assurance commissioner Edward Troup, director general business tax Jim Harra and director general of enforcement and compliance Jennie Granger appeared before Margaret Hodge and her committee earlier this week.
At the start of what was a lengthy and somewhat lively session, Hodge questioned HMRC’s £35bn tax gap estimate.
“It’s now gone up. Does this mean that HMRC is institutionally incapable of collecting tax?” she asked Troup.
Troup batted back the tax gap query, including the assertion that the figure would be much higher if the Revenue factored in potential unpaid CT from large international companies such as Google, Amazon and Starbucks.
“Our responsibility is to make sure we collect all of the tax due under the law,” Troup defended staunchly, adding that if it’s otherwise thought that the Revenue needs to collect other taxes such as the CT alleged to be unpaid by large corporations, the law ought to be changed.
But so far, he added, HMRC had in the year to July brought in £1bn for eight legal cases against companies avoiding tax.
After a drawn out debate on the tax gap and issues surrounding it, Hodge moved on to tax avoidance schemes and asked the Revenue what action has been taken against firms - “especially Big Four firms” - who are promoting such schemes.
Harra referred to the Vantis case, which he said shows that if advisers “overstep the boundaries”, there will be action taken.
Somewhat surprisingly, congratulations were given to HMRC for “getting after” partners of LLPs by closing a loophole that allows them to classify part of their earnings as eligible for CT. This is believed to be widely used by the Big Four firms, where many set up separate companies to pay workers.
The structure of HMRC’s governance and board were also questioned by the PAC, who alluded to the resignation of GAAR advisory panel member David Heaton, who was recorded giving tax avoidance tips at a conference filmed by the BBC’s Panorama.
The PAC then brought out a past FT article written by Troup, in which he stated: “Taxation is legalised extortion.”
“It’s late on a Monday afternoon,” a tired Troup responded, “I admit, I did write those words, I believe Mr [Richard] Murphy has put most of it up on his blog today.”
Hodge didn’t stop there: “Did you also say that the GAAR would be laid at the mercy of the bureaucrat? Given those views, are you really the person to lead the people’s fight on tax evasion?”
Troup deflected this by shining the light on Harra, who is the HMRC’s “most senior tax inspector, so he ultimately leading the fight with Jenni.”
The PAC also focussed on tackling the controversial issue of the non-payment of CT by some large companies in the UK.
Under this, the Controlled Foreign Companies (CFC) rules came under fire from Hodge, who asserted that they had been weakened by changes made to them this year.
She said there had been “flagrant mis-use of the rules to avoid paying CT” in the UK and that they’re incentivising companies to own British business offshore. On 1 January 2013, new rules came in which focused on the artificial diversion of profits from the UK to, for example, somewhere offshore.
“The old CFC rules were hard to challenge,” Troup said, “I'm not going to make a comment as to whether they're weakened or strengthened. They're workable.”
“It’s the case that capital can flow very freely across borders and we aren't in a position to restrict this. The aim of the CFC rules is to provide protection to the Exchequer of the transfer of profits to offshore jurisdictions, but we also want to ensure competition,” HMRC said
Hodge then attacked HMRC for devising a “mechanism well-known by Big Four accountants to get profits offshore without being liable for tax”.
Also revealed during the session was that the Swiss-UK tax agreement will not yield the £3.12bn windfall expected this financial year.
HMRC admitted it had raised £440m so far this year and £782m in total, and said the forecasts had been “inaccurate”.
This was in part due to the Swiss banks’ culture of secrecy, they added and while on a visit to Switzerland, conveyed their concern about the amounts they were receiving to the Swiss representatives.