MPs slam HMRC “business acumen” over offshore company deal

The MP-led
Accounts Committee
has blasted the taxman over its handling of a
sale-and-leaseback arrangement signed with a property company located in an
offshore tax haven in a new report.

The report, “HM Revenue & Customs’ estate private finance deal eight
years on”, sought to examine the 20-year contract HMRC signed with Mapeley STEPS
Contractor Limited in 2001 – transferring the ownership and management of 60% of
its properties – and how HMRC, formerly the Inland Revenue and Customs &
Excise, have managed it since then.

The answer, in short, was unimpressive. “While [HMRC] got a good price for
the contract, it has not managed the contract well and we are concerned that it
has not demonstrated adequate commercial skills or business acumen,” the report

“It has failed to establish an effective partnership with Mapeley… For
example, [HMRC] has not obtained key information on Mapeley’s financial position
or profitability, and has not monitored overall costs or Mapeley’s viability,
even though it could incur substantial costs in the event of contractor

At the time the contract was signed, HMRC had expected to pay £3.3bn over the
life of the contract. Instead, it now expects to pay £3.87bn – and has had to
announce the closure of 130 buildings this tax year, leading to the loss of some
1,700 jobs.

In a further twist, the properties were transferred under the deal to a
Mapeley subsidiary company based offshore, meaning any gains from the property
would not be subject to tax in the UK – a fact that the Inland Revenue board
realised only four days before signing the contract. The board of Customs &
Excise did not find out until after the contract was signed. Mapeley argued that
transferring the properties offshore enabled them to offer a lower contract

With the current HMRC stance on offshore tax havens, it was no surprise the
committee chairman Edward Leigh MP called it “a massive own-goal”, saying it was
“a disgraceful situation that [they] got locked into a contract and did not have
the right commercial skills.”

However, CEO Lesley Strathie countered that she was “not embarrassed” and
that she felt “much has been made of this.”

The report concluded that:

1) HMRC failed to achieve value for money, had no plan for obtaining the
savings available from allowances in the contract, and still has no plan beyond

2) HMRC did not monitor overall costs during the first eight years of the

3) HMRC did not – and still has not – have a clear idea of Mapeley’s
financial position and profitability, and are limited in managing risks from the
contract effectively.

4) Seven months after the contract was signed, Mapeley approached HMRC for
help in “dealing with serious cash flow problems”.

5) HMRC should “appoint and deploy people with [appropriate skills and
business acumen] over the remaining life of the contract”.

6) The Treasury should identify skills shortfalls and “establish centres of
expertise” to mitigate the “lack of sound commercial skills… across government”.

7) HMRC failed to monitor Mapeley’s viability as their contracted property
management company and “did not understand its own risks and liabilities in the
case of Mapeley default”.

8) HMRC still had not “established an effective partnership with Mapeley”.

9) HMRC “should take whatever action it can to persuade Mapeley to bring the
properties onshore”, as signing a contract involving tax avoidance through an
offshore company had not only been “damaging” but “it is also unlikely that the
arrangement delivers any overall benefit to the Exchequer as any reduction in
contract price is accompanied by lower tax revenue”.

10) It is still unclear over the tax Mapeley would save by being offshore,
and whether these savings would be passed on to HMRC.

A spokesman for HMRC told Accountancy Age: “We welcome the
committee’s conclusions and recommendations and the government will respond
formally by means of a Treasury Minute.”

Further reading:

property partner to open books

hits trouble over offshore Mapeley deal

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