The Public Accounts Committee's analysis of HMRC's accounts for the last year was not a comfortable experience for its top brass
JUDGING BY PREVIOUS HEARINGS, HM Revenue & Customs’ top boss might not have been surprised at the terse tone of the questions put to her by MPs in the Public Accounts Committee.
After all, the cross-party committee – chaired by labour MP Margaret Hodge (pictured) – had previously borne its collective teeth on the matter of tax avoidance when the BBC’s CFO Zarin Patel and head of employment tax David Smith had appeared before it over the corporation’s use of freelancers.
It was hardly a bombshell, then, that as soon as HMRC chief executive Lin Homer and her team had taken their seats, Hodge and her colleagues were yet again bullish – especially after the recent public anger over multinationals’ tax bills.
Homer appeared flustered by the line of questioning, though, meekly insisting the department’s work on the tax gap – which stands at £32bn, or 6.7% of tax owed – compares favourably with other countries.
But it was on the issue of corporate tax avoidance that the committee was most unimpressed, with an exasperated Hodge accusing Homer of “not [being] on top of” multinationals’ use of transfer pricing to mitigate their tax liabilities.
“You [HMRC] are not getting anything [from multinationals],” she added.
Committee member Richard Bacon was equally scornful, suggesting that the biggest shortfall is “in your [HMRC’s] credibility”.
“It doesn’t smell of coffee – it smells bad,” he said, in a thinly veiled reference to recent controversy surrounding Starbucks’ tax affairs.
Homer, though, maintained HMRC does not afford big business more favourable treatment than smaller enterprises.
Indeed, tax assurance commissioner Edward Troup pointed to successful litigation against GlaxoSmithKline, Carlsberg and Pendragon since 2004 as evidence of just that.
He added, too, that the incoming general anti-abuse rule legislation (GAAR) will strengthen the department’s arsenal against avoidance.
With that, attentions were turned to the impending real-time PAYE reporting system, which is due to commence in April 2013 and will see employers report changes as and when they occur, instead of at the end of every financial year.
Homer retained her stance that the pilot scheme has been “heartening”, and while the initial rollout might be “painful” for some businesses, she “repudiated” the “more dramatic” reports that the scheme might cause problems.
Currently, the pilot is processing the PAYE details of “around two million” individuals, with more than 500 employers on board. By April, those figures are set to grow to 250,000 employers and six million employees.
The pressure on the system to prove successful is huge, especially in wiping out fraud and error, for which the current figures are “depressing”, according to Bacon.
That pressure is only intensified by Homer’s admission that there is no specific contingency for any problems in the rollout real-time reporting, other than to get ahead of the schedule.
The committee – which, based on this showing, will prove hard to please – will expect to see tangible progress, particularly across both avoidance and RTI, in the coming months. Google and Starbucks can expect a particularly frosty affair when their turn comes.