HMRC is unfair to small businesses say PAC

David Hartnett

While grilling former permanent secretary of HMRC Dave Hartnett and current tax assurance commissioner Edward Troup, Public Accounts Committee chairperson Margaret Hodge openly accused HMRC of unfairly targeting small businesses.

Hartnett appeared first and in one of his testimony’s more candid moments, he expressed regret toward “the process” by which HMRC reached settlements with big business and offshore tax evaders.

This is the same David Hartnett who:

• In September 2010 was widely criticised for refusing to apologise for the HMRC “scandal” that saw millions of people being asked for back dated tax after it was alleged that his department had failed to collect PAYE under payments correctly. He arrogantly told BBC Radio Four “I’m not sure a need to apologise …We didn’t get it wrong.” He did eventually issue an unreserved apology.
• In October 2010 had thousands of taxpayers blockading and protesting outside Vodafone stores across the UK, following the revelation that he’d let them off £6 billion in tax from blatant tax evasion, allegedly because of a close personal connection between Hartnett and John Connors, Vodafone’s head of tax and a former colleague at HMRC.
• In May 2011 was exposed as personally shaking hands on a deal over a long-running tax avoidance dispute with Goldman Sachs dating back to 2002, without consulting HMRC lawyers, letting the US bank off around £10m in interest.
• In September 2011 was exposed again by HMRC whistle-blowers as having personally intervened in settlement cases and agreeing to “sweetheart deals” with no explanation or consultation with lawyers.
• In August 2012 shortly before retirement, negotiated a tax deal that granted HSBC’s bankers virtually guaranteed immunity from prosecution for any crimes they might have committed relating to tax fraud in Switzerland. Three months later, who you believe, he was given a six figure salary for a part-time job at HSBC.

Hartnett, when pressed on why HMRC didn’t prosecute more people after receiving a list of over 1,000 HSBC offshore account holders from former disgruntled HSBC employee Hervé Falciani, he admitted his surprise.

“I would like to understand why there weren’t more criminal prosecutions,” said Hartnett. “I’d always expected there to be more. I’d have liked to understand what would have happened if more resources were diverted to it.”

Hartnett maintained that he bore no responsibility for any potential prosecutorial leniency and never saw the Falciani leak despite his position as permanent secretary.

“I did not have accountability for enforcement,” he said. “I’m not here to get off the hook as I was never on the hook.”

Hartnett’s denials did not satisfy Hodge, who was relentless in her criticism, at one point stating “I’m aghast” and telling Hartnett that he will always be associated with the “old way” that “many people now find unacceptable”.

Public Accounts Committee Margaret Hodge

After Hartnett, Edward Troup appeared before the committee. In his opening statement, Troup heralded the HMRC’s success in lifting the veil on Swiss banking secrecy.

Here is an excert of the exchange:

Troup:

“In the early 2000’s banking secrecy seemed impregnable, the idea that this secrecy could be breached was unthinkable. From 2018, we will get information from Swiss banks automatically, not just on command.”

Hodge:

“And what are you doing now? It’s always the future; I’m interested in the now.”

Troup:

“We have quintupled the number of prosecutions for tax evasion over the last five years.”

Hodge:

“How many were small businesses? What we’re interested in is equality of treatment, SMEs aren’t treated equally.”

In reply, Troup said that he wouldn’t go into operational detail and that it was “perception” that SMEs are treated differently from large enterprises.

This drew the ire of MP Richard Bacon. “It is not merely a perception – it’s a fact that the way small enterprises are treated is different,” he said. “For you to sit here and claim that it’s perception makes you look rather out of touch.”

Troup remained defiant, saying that HMRC has to “put some effort into enforcing compliance among SMEs, they represent £15.1 billion of our tax yield”

Then Hodge delivered the coup de grâce, when she said, “I agree than £15 bn is a lot of money, but it only represents 3% of the total tax yield and 5.5% of the Income Tax, CT and NIC collected in 2013/14 by HMRC. In fact the £15 bn is a fraction of the taxes you and your colleague failed to collect from big business, during your tenure at HMRC!”.