What you didn’t know about HMRC, Google, Secret Deals, George Osborne and the Tax Gap

25th January 2016 / United Kingdom

George Osborne faces the Commons today as continued fury mounts over his very obvious ‘sweetheart’ tax deal with Google involving HMRC.

Shadow Chancellor John McDonnell will table an urgent question over the very controversial deal to allow Google to pay just £130million in back taxes for the past 10 years, which calculates as an estimated 3 per cent rate on past and future profits.

If Commons Speaker John Bercow allows this and he should, Mr Osborne will face an hour-long grilling from angry MPs this afternoon (Monday 25th).

“If George Osborne doesn’t come to Parliament on Monday to explain why he thinks it’s so good that Google pays only as little as 3 per cent tax, then we will drag him there kicking and screaming,” Mr McDonnell told the Mirror.

Back in 2013, the scale of HMRC’s collaboration with corporations and secret tax deals was revealed by leaked documents sent by Dave Hartnett, the former head of tax at HM Revenue and Customs (HMRC), to David Gauke, the exchequer secretary at the Treasury, that disclosed a figure of £4.5 billion with just four unnamed corporations. The question was, if that was how much they paid, how much did they not pay, and who were these these corporations?

HMRC had never disclosed such deals before on the grounds of “taxpayer confidentiality” and continue not to do so.

It was also revealed that HMRC used investigative powers designed to catch very serious criminals such as terrorists to unearth the whistleblower in this case. HMRC were found to be using more resources and effort on uncovering the leaks than they were ensuring some corporations were paying their fair share of tax.

It didn’t help HMRC were getting headlines such as this to make the department even more unpopular focused on the very same whiter-than-white, Dave Hartnett; “The tax man with his snout in the trough: As HMRC boss, Dave Hartnett persecuted small taxpayers while striking sweetheart deals with tax-avoiding giants. He did almost nothing about the HSBC scandal, then went to work for them”.

In that scandal, The International Consortium of Investigative Journalists revealed thousands of secret HSBC files, showing how the bank’s Swiss operation helped the rich and powerful hide billions in assets, and circumvent tax authorities in the process. All this in the knowledge of HMRC that according to the whistleblower went back years. This is now just another story in the news about HMRC that most people simply despair at.

In the meantime, The tax gap for 2013 to 2014 reported by HMRC “was 6.4% of tax due, continuing a long-term downward trend, reflecting that HMRC’s approach is delivering steady and sustained progress” – according to the government website. It is the same David Gauke, Financial Secretary to the Treasury who also said “The UK has one of the lowest tax gaps in the world, and this Government is determined to continue fighting evasion and avoidance wherever it occurs“.

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Gauke claims to have collected an extra £7bn a year from corporations in the year 2013/14, thus reducing the tax gap. At the same time a report by Richard Murphy FCA of Tax Research UK for the Public and Commercial Services Union (PCS) stated something quite to the contrary.

In 2010 PCS published the most comprehensive calculation of the UK tax gap undertaken at the time. The report by Tax Research UK estimated the tax gap to be £120 billion. This was made up of £70 billion in evaded tax, £25 billion in avoided tax and £25 billion in tax paid late.

For HMRC it was bad enough that experts had refuted their claims of reducing the tax gap with so much evidence. It got worse because far from reducing the tax gap, the report produced for 2013/14 stated the following “It makes a new estimate of the tax gap, which continues to be significantly higher than the HMRC estimate. This estimate, which is £119.4bn for financial year 2013/14, includes reductions in the estimates of tax avoidance and tax debt, but a significant increase in the estimated tax loss from evasion”.

Gauke, Financial Secretary to the Treasury put out the statement “There is understandable anger when individuals or companies are perceived not to be contributing their fair share, but we can reassure the public that the proportion going unpaid is low and this government is dedicated to bringing it down further”.

Of course, it should be noted that HMRC used to have the resources to collect tax but the employee headcount has fallen some 30% in recent years as George Osborne wielded the axe …. to save money! Thousands more are set to lose their jobs in the coming months and years with another recent announcement made just two months ago.

Rather embarrassingly, Inland Revenue admitted a few years back that it sold its entire property portfolio of 600 buildings to a company based in a tax haven, despite a Treasury crackdown on tax dodges in offshore islands. It said in an announcement that the properties had been sold and leased back from a UK company with a firm that was based and paid tax in Bermuda. HMRC said they had made an “error”. Either the Guardian got its story wrong here or HMRC sold 600 buildings for £220 million, an average of £366,000 per building whilst paying the buyer £136 million for maintaining those buildings for just nine months, whist the same company paid no tax either on the rent or maintenance paid. Another story to be investigated!

It is heart-warming to note though that HMRC are cracking down ….. on minor offences and making big statements about it. Officers from HM Revenue and Customs, working with Devon and Somerset Trading Standards and Avon and Somerset Police, visited seven retail premises and five storage units in Bridgwater, Shepton Mallet, Taunton and Yeovil in November. Here they seized 45,940 cigarettes, almost eight kgs of hand-rolling tobacco and over 80 litres of spirits, with a tax evaded sum totalling £14,200. Well done them!

Colin Spinks, Assistant Director, Fraud Investigation Service, HMRC, said: “The sale of illegal tobacco and alcohol will not be tolerated by us or our partner agencies. Disrupting criminal trade is at the heart of our strategy”. Various other statements were made by a police chief inspector and head of Trading Standards. One dreads to think what that operation cost!

The FT reported just last month that “A quarter of tax prosecutions last year involved less than £10,000 of revenues, showing that HM Revenue & Customs has been focusing on low-value cases to meet (prosecutions) targets, according to the government’s spending watchdog.” Clearly, HMRC have spent over one billion re-organising, downsizing, making efficiency gains and then admitted its efforts have yielded nothing measurable.

In the meantime, so fed up with HMRC The Fair Tax Town Scheme has been launched and designed to put small business in a strong negotiating position with HMRC. It says tax abusing corporations have lost their ability to judge what is right or wrong and clearly they think the same of the taxman.

It is of no surprise when you read this call for help from an accounting firm trying to deal with HMRC for their small business client. In the meantime, the Public Accounts Committee said two years ago that “HMRC has not attempted to gather intelligence about how much tax revenue is lost through aggressive tax avoidance schemes by multinationals and too keen to chase small businesses”. Nothing appears to have changed.

In 2012 George Osborne said he was left ‘shocked’ after an analysis of the tax returns of multi-millionaires which he personally ordered found that they are exploiting loopholes to pay little or nothing at all. His public response “I’m going after the wealthy tax dodgers”.

In 2013, David Cameron warned tax-avoiding firms (such as Starbucks) to ‘wake up and smell the coffee‘ in a speech at the Davos conference, a festival of network-king for the rich and powerful and some of the biggest tax evaders on earth.

The 2015 roll call of chief executives at Davos includes Google’s Eric Schmidt, Facebook’s Sheryl Sandberg, General Motors’ Mary Barra, Unilever’s Paul Polman and Santander’s Ana Botín. This is a line-up of the people who manage businesses that are known tax evaders and fraudsters involved in everything from illegal tax evasion, money laundering, cover-ups of car fatalities and cancer causing manufacturing plant.

It is hardly surprising that so many reports (the links below are a small sample) have emerged recently stating that HMRC is simply not fit for purpose.

Graham Vanbergen – truepublica.org.uk