Revenue gives FDs no place to hide

When Gordon Brown announced the introduction of an avoidance disclosure regime in last year’s Budget, tax departments around the country must have taken a collective intake of breath.

But last week’s news that HM Revenue & Customs will push to get finance directors in the witness box before special commissioners to explain the use of aggressive tax-planning schemes may hit home even harder.

In Mike Tailby, the department has found itself a man ready to take the fight against tax avoidance to whole new levels. More worrying for directors involved in artificial avoidance is that Tailby has the full, unequivocal support of Gordon Brown.

Tailby – a poacher-turned-gamekeeper with a lengthy spell at PricewaterhousCoopers under his belt – is now working on the frontline of the tax avoidance industry. And he seems to be relishing the task of pitting his wits against those that he used to serve.

As director of the newly established Anti-Avoidance Group, he is in the perfect position to do so. In short, he is the government’s top avoidance man. ‘On avoidance, there is no cosy relationship (between the Revenue and companies) and businesses shouldn’t think that there is,’ he says.

So the stakes have been raised. On top of targeting FDs, Tailby says that the department will be working with the standard setters to make tax more central to corporate governance. The department will also report serious offenders to their relevant institutions.

To top it off, HMRC will publicise unacceptable tax avoidance far more than it has in the past. ‘While taxpayer confidentiality is crucial because the secrecy of the confessional is paramount, if we win a case then we will write about it more,’ he says.

This, more than any other tactic, could convince boardrooms up and down the country that the game is finally up on tax avoidance. Increasingly, tax is a subject of ethics for the general public, who are asking why big business should get away without paying its fair share of tax.

The response from big business is always that avoidance is perfectly legal. ‘Companies can, within the law, minimise their tax bills as much as possible,’ says a spokesman for the Confederation of British Industry.

It is, the CBI argues, the government’s job to make tax policy as watertight as an otter’s pelt. Equally, it is the job of publicly-owned companies to maximise return, and if that means minimising the tax bill then so be it.

But it’s not only the Treasury that wants boardrooms to change. A survey published by investor group Henderson of 160 FTSE350 companies, found that 13% believe they face a medium or high risk in relation to ‘activities undertaken primarily or exclusively to reduce tax’.

‘The way a company manages tax matters is increasingly relevant to shareholders,’ says Rob Lake, head of corporate engagement at Henderson. ‘Business risks associated with matters of responsibility and ethics, and not simply with the letter of the law, are a legitimate interest for investors.’

It seems the tide has well and truly turned on tax avoidance, when even investors are not happy using it as a route to increasing shareholder value.