|A protest outside a London shop over alleged unpaid taxes by Vodafone.|
Photograph: Jeff Blackler/Rex Features
- HMRC admits corporate tax deal errors
- UK Uncut targets Goldman Sachs's £10m tax
- Vodafone's tax case leaves a sour taste
- MPs to investigate corporate tax avoidance
Revenue and customs managers are facing demands for reform after MPs accused them of using "a veil of secrecy" to keep from scrutiny their "sweetheart" corporate tax deals worth billions.
A report by the Commons public accounts committee says it has uncovered "specific and systemic" failures in Britain's tax-gathering agency while investigating deals with Vodafone and Goldman Sachs, which have attracted mass protests.
The committee chair, Margaret Hodge, accused HM Revenue & Customs (HMRC) of making a "policy decision" not to disclose information and using a "veil of secrecy" by citing "taxpayer confidentiality", which denied accountability to the public or parliament about whether deals provided good value for money.
She said it was "crazy" that the panel of MPs had been forced to rely on leaked information from a whistleblower and the satirical magazine Private Eye.
Hodge told BBC Radio 4's Today programme: "At a time when it's hugely important that we maximise the revenue that comes in, when it's absolutely imperative that everybody is treated equally in front of the law, whoever they are, however big or small they are, I think it's very, very important that the public are satisfied that there's equity here, and that HMRC are working on our behalf to maximise revenue that ought to come in to the Treasury."
The MPs found that owing to a "mistake", admitted by HMRC, Goldman paid up to £20m less tax than had been due on its bonus payments. Vodafone settled a long dispute by paying £1.25bn, but the committee heard allegations that the tax bill should have been £6bn or more.
The committee hearings found that two undisclosed firms had struck similar deals, and suspect that there may be other questionable deals among £25bn of outstanding unresolved tax bills.
Hodge said: "You are left feeling that the sort of deals that are made with big business are different – sweetheart deals in some instances – from the sort of way in which corner shops are treated, small business are treated or hard-working families are treated."
She also drew on a report by the National Audit Office, which found HMRC had not stuck to its own procedures in four "top value" cases by failing to provide proper separation between those who made the deals on the public's behalf and those who authorised them, who were "often the same guys".
Hodge also pointed out the imbalance between big corporations' tax experts and the small number of tax experts in HMRC, likening it to a "David and Goliath" situation whereby big companies use very expensive advisers and lawyers while HRMC "by their own admittance, have very few people who have deep knowledge of tax affairs".
"First of all it astounded us that only one of the four people who are so-called tax commissioners – those are the top executives in HMRC – has knowledge of tax affairs. So again it's your David and Goliath, you've got the companies well-advised, HMRC not well-advised.
"And the second thing to say is this is big money at stake – £25.5bn out there which could be collected – everybody has an interest in that. And if you hide behind secrecy, if you're not transparent, of course there are suspicions, which we held, that there aren't fair deals made."
The permanent secretary for tax, David Harnett, was found to have a "cosy relationship" with many of the businesses with which he had to negotiate.
Hodge said that HMRC must provide trust in the tax system.
"We suddenly started uncovering what I feel is a very uncomfortable state of affairs. And we must have confidence in our tax authorities, that they're treating everybody equally in front of the law, and that they're doing their utmost to bring the proper amount of money into the revenue for us to spend on public services."
The criticism brought a robust response from HMRC, saying it rejects some of the report's conclusions, although it agreed transparency was needed.
The report's publication will trigger a judge-led inquiry into corporate tax. Sir Andrew Park will look at deals done with some five companies, seeing whether HMRC complied with its legal advice and its internal guidelines.
The 170-page report says HMRC's refusal to provide information on corporate deals had allowed tax officials to escape scrutiny while they wrote off up to £20m in the Goldman Sachs case.
It reserves some of its strongest criticisms for Hartnett and Anthony Inglese, the department's chief lawyer, for having given evidence that MPs found "imprecise, inconsistent and potentially misleading".
Hartnett unexpectedly announced his impending retirement earlier this month. He did not initially disclose to parliament his role in the Goldman Sachs deal, but later admitted he "shook hands" on it.
The report says that this, in conjunction with informal meetings with City corporations, has given the perception that the department had "too cosy" a relationship with big business.
The report calls for reform so that negotiating teams are no longer permitted to sign off deals they do with firms. The department has, since criticism by MPs, made some changes, but these do not go far enough, the committee says.
The plight of Osita Mba, the revenue solicitor-turned-whistleblower who first alerted the National Audit Commission and two parliamentary committees to the Goldman Sachs deal, has also been addressed by the committee; it urges the department not to try to pursue him with the sack or prosecution.
Although Hartnett has admitted mistakes have been made, he has denied "misleading" any committees in evidence. Officials close to Inglese said that he has also acted properly.
A spokesman for HMRC said: "The report is based on partial information, inaccurate opinion and some misunderstanding of facts.
"Senior HMRC officials sought to be co-operative by providing as much information as possible within the legal constraints of taxpayer confidentiality under which they work.
"Taxpayer confidentiality was a legal requirement, fundamental to tax administration in the UK and across the world, while parliamentary scrutiny was delivered via the National Audit Office, to whom HMRC provided unfettered access to all their papers.
"HMRC's internal processes are robust and this was confirmed by a recent review by the National Audit Office of large business settlements," he added.
However, the spokesman continued: "We agree public confidence in our processes is important, and, as we have already informed the committee, we propose to make further improvements to our governance and to increase transparency about our work with large business."
The minister in charge of the department moved to shore up confidence in Britain's tax authority, but, significantly, did not comment specifically on the recommendations made by the committee.
David Gauke, exchequer secretary to the Treasury, said: "The government has full confidence in HMRC and its current leadership. I welcome the fact that the department is already taking steps to strengthen its governance further, including the appointment of two new commissioners with tax and financial expertise."
In a separate move, the tax pressure group UK Uncut will issue legal proceedings in the high court on Thursday against HMRC over the Goldman Sachs deal. It will seek the disclosure of all internal documents related to the deal.
Revenue chief Dave Hartnett's role in the Goldman Sachs deal is
currently being investigated by HMRC. Photograph: Sarah Lee
for the Guardian