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PAC grills HMRC over annual accounts

31st Oct 2013
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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. 

Replies (18)

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By johnjenkins
31st Oct 2013 12:32

Troup should

be given a job at London Underground tube stations telling customers to "mind the gap".

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Replying to andy.partridge:
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By dstickl
04th Nov 2013 12:07

Surely: Mind the Creative Reporting And Prophesying ?

RE: Troup should

johnjenkins wrote:

be given a job at London Underground tube stations telling customers to "mind the gap".

 

Shouldn't he be telling customers "mind the Creative Reporting And Prophesying", which has the handy acronym of "CRAP" ?

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By mikefleming3028
31st Oct 2013 12:52

PAC and HMRC

http://www.parliament.uk/documents/commons-committees/public-accounts/PAC%2028.10.13.pdf

For anyone who did not have the time to view the latest session click on the link and you can download the full unedited transcript. Jim Harra fielded all of the "hard " questions with relative ease but Edward Troup looked exasperated and uneasy in equal measure. Jennie Granger made almost no contribution to the proceedings but this was expected as she is the new girl on the block, more will be expected in future.  

Mrs Hodge  was her usual self taking no prisoners and forcing admissions of guilt from Messrs Troup and Harra where appropriate for past comments on the GAAR and the design of current CFC rules.

All in all a must watch for  tax professionals, a regular Punch and Judy show.

Keep up the good work Mrs Hodge.  

 

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Replying to Matrix:
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By mackthefork
31st Oct 2013 23:49

Are you kidding

mikefleming3028 wrote:

http://www.parliament.uk/documents/commons-committees/public-accounts/PAC%2028.10.13.pdf

For anyone who did not have the time to view the latest session click on the link and you can download the full unedited transcript. Jim Harra fielded all of the "hard " questions with relative ease but Edward Troup looked exasperated and uneasy in equal measure. Jennie Granger made almost no contribution to the proceedings but this was expected as she is the new girl on the block, more will be expected in future.  

Mrs Hodge  was her usual self taking no prisoners and forcing admissions of guilt from Messrs Troup and Harra where appropriate for past comments on the GAAR and the design of current CFC rules.

All in all a must watch for  tax professionals, a regular Punch and Judy show.

Keep up the good work Mrs Hodge.  

 

The idiot should be publicly flogged, an absolute disgrace, so embarrassing as a country we put someone like that up, who knows absolutely nothing about the subject, and shows it every time she opens her gormless oversized mouth. MtF
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By johnjenkins
31st Oct 2013 13:42

@ Mike

Do you honestly think that Mrs Hodge having a pop now and then will make things any better?

Of course not. HMRC will go on making up figures, trying to punish those with little and moaning about big boys who legally avoid tax.

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Mark Lee 2017
By Mark Lee
01st Nov 2013 11:00

Well I sympathise with HMRC here

Hodge is grandstanding again and repeatedly refuses genuine offers to provide her with some real knowledge and understanding of the tax system. For example I believe that CIOT have offered as have HMRC and others. She and PAC don't want to know. They seem to simply want to gain headlines by making unwarranted ignorant accusations and assertions. The media laps it up. 

The reference to something Troup wrote many years ago is as relevant to his role now as was Ralph Milliband's comments as a 17yr old to indicating his view of England once he had grown up.

I have written many times about my distaste for contrived tax avoidance schemes and how this led to me giving up giving tax advice myself in 2006. I have written many articles over the last 25 years. Somewhere they may well be a record of something I once wrote that is more naive and that runs contrary to the views I have developed and maintained for the last 7 years.  It's really not relevant. Neither is what Troup may have written many years ago.

Mark

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Replying to bernard michael:
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By Chaztax
01st Nov 2013 20:50

How about a financial incentive then?

"Hodge….repeatedly refuses genuine offers to provide her with some real knowledge and understanding of the tax system".

In that case, here's a (not entirely serious) suggestion. Each of the Big 4 offers to donate £10k to the Tax Justice Network if MH (or perhaps another member of the PAC) agrees to study for and sit a tax exam from a recognised professional body (and for the results to be published).

I don't mean the CTA or anything like that; the introductory tax module of the AAT (for example) would be sufficient. There probably wouldn't be too much in the syllabus on complex international corporate structures, but it might help to give MH an insight into the complexity of the subject on which she likes to express such strong views.

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Replying to Evolution:
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By mackthefork
01st Nov 2013 22:43

Question 1

Micky Taker earns £55,000 a year from his PAYE job, and has no other sources of income, he has £10,000 which he would like to discuss with you the options available and the tax consequences, prepare a note for Micky on the possible options with your recommendations.                                                                                                                                                                                                                                      Answer by MH - Do not put the money into a pension scheme as hardworking unemployed people should not have to work for your 20% relief on your salary, and another 20% put into the scheme, its double its doubled you had it twice biatch[***], relief relief relief blah blah, accountants are murdering your childrens dogs etc.  Do not put it into an ISA as there are many ordinary accounts which you will be able to make a tax payment on available, and why would you, if innocent peoples hardworking, do not have the option me me me please.  Maybe you could give it to charity, the childrens home for murdered dogs or something, no wait you might see some tax benefit from that too, stop giving money away just to get a tax break, I can act stupid just to rouse the mob if I like can I not.  Ordinary people are sick of you accountants and they are not even sure why, they just do what I tell them. MH

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By johnjenkins
01st Nov 2013 10:00

Come on Mark

dig something out of your past that we can all have a giggle about.

Although I agree with you about contrived tax avoidance systems, PAC don't really need to know the ins and outs of workings to take a sensible view. If you ask sensible questions of people that do know and the answers are somewhat vague then it's not rocket science to work out something isn't right. 

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By silverghost
01st Nov 2013 16:33

A bit hasty

It doesn't seem fair to castigate the whole PAC, look at Richard Bacon's questioning of Lin Homer re CIS two weeks ago. There needs to be robust questioning as to underperformance - and the fact that a lot of HMRC's answers are imprecise and flannelly goes to show how much they fear being found out.

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By awoodj
04th Nov 2013 12:17

Margaret Hodge biggest Hypocrite ever award

http://www.telegraph.co.uk/finance/businesslatestnews/9668396/Margaret-Hodges-family-company-pays-just-0.01pc-tax-on-2.1bn-of-business-generated-in-the-UK.html How can she sit there with a straight face given her families tax affairs. The woman has no shame ! And I'm not saying her family are doing anything wrong but they are probably doing what all the other companies she was grilling are and yet she seems not to have grilled them to the same level about their tax affairs even though she is a shareholder.

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Replying to In a Daze:
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By TMR
04th Nov 2013 13:03

Margaret Hodge biggest Hypocrite ever award

Spot on.No one minds hearing other peoples views, however left, right or centre of any debate. It's the hypocrites of society that ultimately make the blood boil over! First put your own house in order then you have right to question, until then nothing that Mrs Hodge says is worth listening to! 

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Replying to 0098087:
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By Suntree
04th Nov 2013 14:02

Do not mind what I do, listen to what I say!

TMR wrote:

Spot on.No one minds hearing other peoples views, however left, right or centre of any debate. It's the hypocrites of society that ultimately make the blood boil over! First put your own house in order then you have right to question, until then nothing that Mrs Hodge says is worth listening to! 

Shouldn't Stemcor be first in a line for grilling? 0.01 % is hard to beat. Certainly witch hunted US companies have lots to learn from the former! Is there Hypocrisy committee?

 

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By Mehmet
04th Nov 2013 14:00

Margaret Oppenheimer

Did you lot know Mrs Hodge is an Oppenheimer. Just saying....

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Replying to Tim Vane:
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By geoffwolf
04th Nov 2013 16:40

What do you mean, Mehmet?

Is your question an anti-semitic remark?

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7om
By Tom 7000
04th Nov 2013 14:37

I wish...

The Muppets were still on TV...some good material here

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By lbelet
04th Nov 2013 18:23

Mrs. Hodges and the UK Swiss Tax Deal

 

This was a deal doomed to failure from the start, as was the savings tax directive that proceeded it.  There were too many loopholes in that and there are in this. I've had some very minor involvement in the discussions surrounding both, at Government and Main Board Bank level, and in both instances said this will not work and explained why.

If you've been squirrelling away money out of the eyes of HMRC for the past 20 years or more and you're given the chance of moving it and pay nothing, or paying 40% of the account value (and I'm simplifying it here), what would you do?  Remember you don't have a conscience about not paying tax so I think it's fairly obvious the client will move his money to somewhere friendlier and most likely to a jurisdiction where the bank has a branch.

It's also unfair to blame only the Swiss banks. All of the big UK 4 have Swiss offices, not to mention the German, French and Italian banks who are all more than happy through their foreign subsidiaries to help hide their clients money from the tax man.

However, the real people to blame in all of this are Government. UK, EU et al. This has been going on for so long, for example, wealthy Dutchman, hides his (tax free) money in an offshore centre, then using an offshore vehicle invests in his home (or other) country. Politicians welcome him as he's creating jobs, governments throw money at him in the form of grants and inward investment departments are there to help him every step of the way.  No-one asks him where the money has come from and if it's all declared!

The EU is equally to blame thanks to the Parent Subsidiary Directive and all the tax incentives given to Ebay, Amazon, Google and a host of others to set up their structures in the EU. If offered of course corporations will take whatever is given and despite all the posturing by Mrs. Hodges for public show, nothing will really change unless the politicians want to change it!  The pot really has to stop calling the kettle black here!

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By Ian McTernan CTA
05th Nov 2013 10:58

Hodge Vs Milliband

I can't decide which one is trying harder to grab the headlines with more meaningless sound bites that show a complete lack of understanding of the real world.

One attacks anything is search of a headline and the other makes promises that will ruin the UK economy once again but dresses them up so people are fooled into voting for him.

Maybe if Hodge got out the ivory tower and had to run a business she would fill her days campaigning for less taxation and less regulation instead.

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