MPs issue 'damning' report on HMRC settlements

by Jaimie Kaffash

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20 Dec 2011

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Margaret Hodge ourcreativetalent flickr photostream

MPs HAVE expressed "serious concerns" that large companies are treated more favourably than other taxpayers in a damning report released today.

The Public Accounts Committee said HM Revenue & Customs had "left itself open to suspicion that its relationship with large companies are too cosy" following inquiries into deals with Goldman Sachs and Vodafone. It also said there were "systematic" problems with HMRC's approach to disputes.

The report listed a range of criticisms against HMRC including: an overcautious approach to confidentiality; concern that it departed from its governance procedures; little confidence in how it reaches settlements: and a lack of transparency around decisions made.

Permanent secretary for tax Dave Hartnett was also the subject of criticism from the MPs. "We expect far greater candour from public officials involved in administering such an important area of government, especially when there is a question about whether HMRC acted within the law and within its protocols," the report said.

Margaret Hodge, chair of the PAC (pictured), said it was a "damning indictment" of how HMRC handles disputes and there had been specific and systematic failures.

"Having looked at the two cases in the public domain, we are concerned that many millions of pounds may be lost to the public purse," she added.

Richard Bacon, member of the PAC, said the perception of HMRC was "toxic". He said: "HMRC has succeeded in creating the impression that it takes a softer approach to large and powerful firms while being tougher on small businesses. Whether accurate or not, this notion is toxic for HMRC's relationship with the vast majority of taxpayers."

HMRC issued a lengthy response to the report. A spokesman said that it acknowledged an error was made in the Goldman Sachs case, but said this did not amount to systematic failure.

"It is wrong to suggest that HMRC officials are too lenient on large businesses," a statement said. "Large businesses pay around 60% of total UK tax receipts, and account for more than half of the £13.9 billion additional compliance revenues that we brought in last year.

"Large business tax settlements are a vital part of how HMRC secures tax revenues for the country and without them Britain's public finances would be seriously damaged. HMRC's large business strategy is now being adopted by other tax administrations around the world."

It also disputed the contention that HMRC had lost the Exchequer money through settlements. "HMRC's job is to bring in the tax that's owed and that's what we're doing," it said. "We collected a record £468bn in taxes last year, including more than £13bn extra from our compliance work. We drew the NAO's attention to an error in a single case which they then estimated to be between £5m and £8m."

Exchequer secretary to the Treasury David Gauke backed HMRC. "Revenues collected from large businesses continue to grow, while HMRC's approach provides greater certainty for business," he said. "The strategy makes a valuable contribution to the Exchequer, and thereby deficit reduction, and is now being adopted by other tax administrations around the world. It is clear that HMRC's strategy for large business is working."

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