Profile – 21st century VAT man

If anyone is qualified to reflect on the last 25 years of VAT as weto policy director, Martin Brown. celebrate or bemoan its anniversary, Martin Brown is the man. For someone who didn’t really mean to join Customs & Excise, he’s enjoyed an illustrious 20 years in the department. But, although he could write an ample history of indirect taxation, his real concern is the immediate future.

In his office at Sea Containers House – the strange Thameside building which is flanked by pawnbroker-style golden balls – Brown appears the epitome of modern Customs. In everything he says, he considers the implications for ‘UK plc’, and he talks European issues with the assurance of someone who has no fears about mixing with our friends across the channel. One or two of his peers might take note.

Perhaps in this respect Brown is helped by the fact he studied modern languages at university. After graduating, he joined the civil service fast-track. When it came to selecting departments, Brown gave the overseas development agency as his first choice, Customs was his second. ‘I think I was the only person who put Customs down as any of their three choices,’ he jokes. ‘So I was snapped up.’

He started his career in 1973 dealing with VAT in the health department: ‘mainly I was writing defensive letters in response to parliamentary correspondence,’ he says. Between 1976 and 1980 he dealt with VAT in construction, becoming head of the building industry branch of Customs.

He left Customs for a while in 1980, becoming private secretary to the financial secretary, then returned to ‘the real hardship post’ of customs adviser in Barbados. When he came back to the UK he was put in charge of the VAT central unit in Southend, later becoming the director of central operations. He was appointed to his current post, director of VAT policy for the UK, in 1996.

Facilitating business

Given the length of time for which Brown has been serving Her Majesty’s Customs, and his involvement at many levels, it is refreshing to hear how positive he is about accountants and finance directors. ‘One of the biggest changes I have seen in the last 25 years is the move towards facilitation,’ he enthuses. ‘We want to help businesses meet the VAT requirements.’ Of course you do, responds the cynic – it means more money for you. But Brown is talking about easing the burden for business, above and beyond what is required of the VAT-man.

‘We have the highest VAT threshold in Europe,’ he says proudly.

‘Two times higher than anyone else. We want to facilitate business, which is why we have introduced a number of accounting schemes: accounting schemes for retail and cash accounting for example. We have also tried to fit VAT periods in with commercial periods.’

And there’s more: ‘We are highly committed to consultation,’ he continues.

The message is that Customs is prepared to discuss any VAT issues with practitioners, especially when the rules have changed. Open government is the order of the day, according to Brown. ‘The civil service used to be a “nanny knows best” organisation. But society now objects to simply being told what to do.

‘We have to look at the interests of UK plc, and that means consulting on these issues. Making things easier is also benefiting us: we have less hassle with compliant traders, so we can concentrate on the non-compliant traders. We go into fewer businesses, but our success rate has gone up,’ he says.

Avoidance clampdown

In fact the increasing efficiency of Customs as a tax collector has been a marked trend in the last 25 years. When Brown joined the department it employed 30,000 staff, now it’s down to just 23,000. In 1989, Customs officers made 419,000 visits – now they make just 212,000 visits, but collect more indirect tax. This is proof, as far as Brown is concerned, that sophisticated IT, consultation and a focus on easing the burden for business are successful strategies.

But Customs consultation on the new avoidance measures is unlikely. After last week’s Budget, the chairman of the Tory finance committee, John Townend, told Accountancy Age that if there were any general anti-avoidance rules they should be accompanied by a system whereby an accountancy firm could go to the Inland Revenue or Customs and get clearance for its scheme. But a Customs insider said this was impossible – ‘with respect, we’re not here to do their jobs,’ he quips. Open government only goes so far.

Customs’ caution when it comes to discussing avoidance is understandable.

The Big Six have turned avoidance into something of an art form. Brown describes the increasing sophistication of avoidance schemes as one of the biggest changes he’s seen in the last two decades. ‘It started in the mid-1980s,’ he says. ‘There was a major growth in the number of practitioners specialising in VAT. We have had to raise our game to counter those people who are interpreting the law in ways other than Parliament intended. We are only one-half of the VAT equation now. There’s another half outside.’

As the Big Six expanded their VAT practices and VAT avoidance teams in the 1980s, Customs faced another problem with many of its staff being poached by the private sector. Brown claims the exodus dried up in the early 1990s, and says few people have left since the recession. He hopes Customs has now turned the table on the Big Six: ‘One of the leading lights in our VAT avoidance division is an ex-Big Sixer, and we’ve recruited four other people from private-sector backgrounds in the last year. There is a degree of insecurity connected to a career in the Big Six; some people are happier with the idea of a career here.’

One ex-Customs man at a leading firm mocks the department’s efforts to recruit from the private sector. ‘Four people is not even a drop in the ocean,’ he says. But Brown may have the last laugh. ‘We’re not just recruiting a few people from the private sector,’ he says. ‘We have taken on 35 extra staff within the last year, mainly in the provinces, all of whom are specialists in anti-avoidance. We are working hard to identify and hit avoidance schemes.

Apart from four new measures in this year’s Budget, we have been trying to develop judicial doctrines. There are important direct taxation cases, such as Furniss versus Dawson and the McGuckian case, which we want to bring into the area of VAT taxation.’

There is also talk – and a great deal of behind-the-scenes debate – of a general anti-avoidance rule (GAAR). But contrary to popular opinion, Customs is not 100% behind a GAAR. ‘The GAAR is more for the Revenue.

Our approach will be different to theirs. We are more interested in targeting specific areas, such as retail schemes.’ Customs’ answer to avoidance looks more likely to be the mini-GAAR. The GAAR will apply to the whole of income and corporation tax law, whereas the mini-GAARs will focus on specific areas of indirect taxation. A GAAR would be unsuitable for indirect taxation because it might contravene European Community law, upon which our VAT laws depend.

Brown also has some personal concerns about GAARs. ‘A GAAR is something you have to consider very carefully,’ he says. ‘It is like a nuclear weapon.

It is dangerous to actually invoke the weapon; you hope that it will act more as a deterrent. There is not really that much international experience of these kind of rules.

‘What we don’t want is something the courts will have difficulty putting into practice, or something that will worry business unduly. How would businesses know when the red button was about to be pressed? There would have to be some warning mechanism, although we don’t want fishing expeditions where people come in and ask us if a scheme is alright, and then keep asking until they get it right.’

Harmonisation with Europe?

The situation with GAARs demonstrates the importance of European law in shaping VAT. Having an indirect tax was almost part of being in the European club, and the European Commission’s sixth directive has shaped the general tenor of VAT law changes. Brown says it is important to continue to align ourselves with the sixth directive ‘to eliminate exploitable gaps’ between UK law and European law, but he knows this can only go so far.

‘There’s a four-year programme for the harmonisation of VAT across Europe,’ says Brown. ‘But it’ll take much longer than that.’ From the dismissive tone in his voice, it sounds as if Brown is really saying it’ll take forever. ‘It is not fruitful to have ministers from 15 countries battling it out to agree a single VAT rate. And it will certainly be difficult to get any agreement, because VAT regimes are very different all over Europe.’

A spokesman for Customs takes up his point: ‘Certainly there are major cultural differences between these countries. In Italy, wine more or less escapes VAT, whereas over here it is our newspapers and books which remain VAT-free.’

Brown has a host of ambitious plans to improve the co-operation between indirect taxation departments all over Europe. He thinks Europe should agree a definition of the crucial ‘taxable amount’, he thinks there should be common technical rules for movement of goods across borders. He doesn’t seem to favour a common rate. He does, however, stress that it is really a decision for Parliament, but with this New Labour, new consultation paper government, nothing much is likely to get past the head of the VAT policy.

Nothing much has got past him in the last 20 years – he’s not about to lose his grip now. Expect to hear much more from Martin Brown in the coming 12 months.


1 April 1973 VAT first introduced at standard rate of 10%.

29 July 1974 Standard rate reduced to 8% from 10%.

18 November 1974 Higher rate of 25% introduced applying to petrol (not diesel).

1 May 1975 Higher rate of 25% applied to petrol, domestic electrical appliances, radios, TV and hi-fi equipment, pleasure boats and aircraft, towing caravans, photographic equipment, furs, jewellery and services and parts associated with these goods.

12 April 1976 Higher rate reduced to 12.5% from 25%.

18 June 1979 Standard rate increased at 15% from 8%. Higher rate abolished.

1 April 1991 Standard rate increased at 17.5% from 15%.

1 April 1994 Reduced rate introduced at 8%. Applied to supplies of domestic and charity fuel and power.

1 September 1997 Reduced rate lowered to 5% from 8%.

1 July 1998 Reduced rate also applied to installation of energy-saving materials when funded by a government grant.

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