Photo: Jonathan Banks
Over the last few months HMRC boss Dave Hartnett has got it in the neck for giving some big businesses (such as Vodafone and Goldman Sachs) some amazingly generous tax deals, losing The Revenue an estimated 25 billion in, errum, revenue. Why give these big companies such generous tax breaks?
There is video of him being questioned in the Treasury Select Committee late last year about this and he looks extremely uncomfortable. Some sources have suggested he bent over backwards for a few free meals and a case of Châteaux de Châteaux. Well – if that was the case – that was corporate hospitality well spent, it’s tax deductible you know!
But to bring us up to date, he’s just given The Telegraph an intervew pointing the finger at ‘the man in the street’ who pays for services such as building and plumbing (a HMRC bête noire) with cash. He said, “Tax provides the funding to run the country: hospitals, schools and everything else. Every time someone pays cash in order not to pay VAT, the nation gets diddled.”
My old flatmate used to say, when you point your finger at somebody else you are pointing three at yourself.
HMRC say, “Tax doesn’t have to be taxing” a statement that’s frustrating on a number of different levels. In 15 things they don’t want you to know number one is, “it’s not easy” and it’s not. So basically HMRC makes a very complex system that’s almost impossible to get 100 percent right then they investigate you and clobber you because you have failed to do the impossible. It’s like something out of 1984.
If you are outside the industry you may find this hard to believe, but HMRC could pick up the books of ANY business and start to pull them apart. Oh and another thing that is very much out of 1984 is ‘The Ministry of Simplification‘. Honestly, you couldn’t make it up!
Here Dave Hartnett is quizzed about what he’s doing to make things more simple, he says, “I think the Office of Tax Simplification will come up with some pretty good proposals…”
Here is the uncorrected transcript, to see the whole meeting transcript click here.
Mark Garnier: I come back to a point that Mr Tyrie made a little bit earlier. Is it not the case that the tax code is just so ferociously complex that it makes it very difficult for people to be able to comply with it? Indeed, we have had two sets of witnesses here, one of whom is somebody I disagree with, so I will not necessarily mention his name, but he quite categorically said that if anybody wants to operate in this country, they should learn this, but he was rather a pompous man. The rest of them, including the unions, all agree that this was a big problem. It is just very, very difficult indeed to be able to comply with this country’s tax code. You talk about how we are trying to aim for more simplification, but even after the Budget last year, one of the comments made was that the rate of increase in complexity of the tax code had merely slowed down; it had not been reversed. We talk about this Office of Tax Simplification, but the fact of the matter is: what is genuinely being done about proper, significant, tax simplification? At the end of the day, should we not perhaps rip up the tax code altogether and start again from scratch to make sure that people can understand what they are supposed to be doing?
Dave Hartnett: Let me say two things again. The first is that we have succeeded in taking almost £600 million of burdens created by the tax code off business in the last five years and aim to do more. I think the Office of Tax Simplification-I sit on its board with one of my Treasury colleagues-is determined to simplify. The sort of thing that we want to simplify is the approach for small business. One of the most interesting pieces of research we have done recently shows that a small business starting up that is not, if I can put it this way, on the straight and narrow on taxation within about nine months might not get on the straight and narrow until we intervene-which usually comes with a big bill. That has to be improved significantly, and we are looking at how to do that. I think the Office of Tax Simplification will come up with some pretty good proposals in relation to the taxation of small business.
I think that some of the changes to the plan for Pay As You Earn- particularly the simplification of end-of-year procedures in the next couple of years, probably ending the life of forms P45 and P46, which the nation at least knows the names of, if not what they do in the tax system-will help a great deal with individuals’ understanding of the tax system. We are determined to do more, and there will be an announcement shortly about a new, additional programme for the Office of Tax Simplification.
Well a few years ago I’d have said don’t bother complaining, because it will be a waste of time and nothing will be done. Hey they are all part of the same gang. But things are changing and to understand why you have to know a bit of history and politics.
You see our government is broke and needs more tax, HMRC – is suffering savage cutbacks combined with mounting pressure to increase revenue. Now, HMRC has a problem: low calibre investigators are clogging HMRC’s moneymaking machine with bullshit cases. These cases go on for years and years draining HMRC’s resources and producing low yields.
My case was one of these, a four year investigation that should have gone on for a few months, enough paperwork to fill three leaver-arch files when the calculations could have been done on the back of a fag packet. At the end of it all I said to the regional boss, “This is bonkers, you can’t tell me how much the case has cost you to run (because you don’t log work hours on the file) but let’s say it’s £50,000 (a low estimate) the yield has been under £4,000, so you are down at least £46,000 – that’s just a waste of taxpayers’ money.”
The regional boss said: “We have no sense of materiality, it doesn’t matter if it’s £100 or £10,000 the important thing to us is that it is right.”
And that’s just the sort of attitude HMRC now wants to change: they can’t afford to have petty cases draining recourses.
In April 2009 they set up a new ‘independent’ internal review and these reviews seem to have some teeth. The motive from HMRC’s point of view is that don’t want small cases to drag on and on – sucking up resources – and they also don’t want taxpayers to appeal to a Tribunal either, which is expensive. The internal review is a way of kerbing overzealous inspectors without too much expense.
So that’s why, in this short video above Dave Hartnett is urging innocent taxpayers being wrongly bullied by pedantic dinosaurs to complain, he wants these small cases weeded out of the system so he can start bringing some more cash in.
Here is the uncorrected transcript, to see the whole meeting transcript click here.
David Hartnett: The first is we would prefer somebody who believed they had done absolutely nothing wrong and was certain of it, and were being incorrectly investigated by us, to complain-quite simply, to move up the chain and register a complaint. We will then have a look at it.
Parts of this blog entry are taken from Tax Investigation for Dummies…
As covered in 11 Dirty Tricks (it’s number 5 they blackmail) and (of course) the book, HMRC commonly open an investigation and then just won’t let it go without getting some sort of a result – like a dog with a bone.
The thing is this, there is a presumption of guilt and pressure on the investigators to get results.
Of course some people are not on the fiddle – shocker – but they often end up settling and paying a penalty because they would rather part with the cash and get HMRC off their backs than go through more investigation stress and pay a whole load of cash to an accountant / investigator.
In this clip Conservative MP Mark Garnier quizzes HMRC about this bullying and HMRC act all surprised.
Here is an uncorrected transcript:
Q661 Mark Garnier: I want to follow up on this investigation thing. Is it not the case that some people might find themselves the subject of an investigation and suddenly decide that the cost of defending it or complying with it-in terms of getting their accounts sorted out-is going to be x, and that they could just pay you a cheque for x minus y, which is what you are after, and is it not therefore easier just to say, “Here is some money, go away,” the underlying point being that it was not necessarily a valid investigation in the first place?
Mike Eland: We do not believe that is the case, because what we are interested in with an investigation is establishing the correct tax liability. That, if we get co-operation, can be dealt with fairly swiftly. Obviously, if it is an area where we identify evasion and suppression, it will take longer.
Q662 Mark Garnier: I am sorry to interrupt you, but you talk about co-operation. Co-operation, to me, where you say you can come to a swift conclusion, is when somebody turns around and says, “Yes, that is right, I think I owe you x,” and you broadly agree with it, but I have people who come and see me in my surgeries who say that they find it incredibly frustrating dealing with HMRC. It gets in touch and says, “You owe some money,” and they write back and say, “Here is all the paperwork.” They discover that when they do that, they find themselves having to talk to a different person, department or adjudicator. There is the cost of going through this process, in terms of time; a great many of the people who come and see me do not necessarily have accountants, so the cost is their personal time. They are finding it breathtakingly frustrating. I try to lubricate the wheels in order to try and get this through, but the frustration is that it is incredibly time-consuming. There is no sense of any real process at HMRC that makes it easy for people to deal with one individual, as a result of which people eventually pull their hair out, come and see their MP or, indeed, in the end just pay up to get you off their backs.
Mike Eland: It is not in our interest to have a long-drawn-out investigation any more than it is for the business concerned. We have worked with the agents to develop a process, which we call open and early dialogue, which is designed precisely to sit down at the beginning of an inquiry, work out what the issues are, and pursue those and resolve them as quickly as possible. We are looking all the time to make sure that what we are doing is proportionate, and that we are focused on the real risks. The whole strategy that underlies our approach to the spending review is to deal with error through either designing it out of the system or dealing with it in a very low-intensity way, and to concentrate our skilled and face-to-face resource on evasion, not error. That is very much the direction we are looking to move in.
