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HMRC criticised over £10.2bn backlog of 41,000 avoidance cases

by Daniel Grote on Nov 21, 2012 at 07:54

HMRC criticised over £10.2bn backlog of 41,000 avoidance cases

The National Audit Office (NAO) has criticised HM Revenue & Customs (HMRC) over a backlog of 41,000 avoidance cases it is investigating relating to £10.2 billion of tax.

The NAO said in a report on HMRC's efforts to tackle tax avoidance had not demonstrated how it would tackle this backlog, and that its tax avoidance disclosure regime was failing to curb the ‘persistent’ use of highly contrived schemes.

‘HMRC must push harder to find an effective way to tackle the promoters and users of the most aggressive tax avoidance schemes,’ said NAO head Amyas Morse.

‘Though its disclosure regime has helped to change the market, it has had little impact on the persistent use of highly contrived schemes which deprives the public purse of billions of pounds,’ he added.

‘It is inherently difficult to stop tax avoidance as it is not illegal. But HMRC needs to demonstrate how it is going to reduce the 41,000 avoidance cases it currently has open.’

9 comments so far. Why not have your say?

Keith Cobby

Nov 21, 2012 at 09:44

Mr Laffer had the answer to tax avoidance.

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Charles Rickards

Nov 21, 2012 at 10:06

Keith, you are right, but nobody in a position to make a change is or will be listening!

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Alasdair Sampson (FinServ Solicitor)

Nov 21, 2012 at 11:17

Well, whatever stick the HMRC gets for a backlog of 41,000 avoidance cases, it will I think pale into insignificance compared to the brickbats it will get over the fiasco of the Glasgow Rangers Employee Benefits Trust case decided yesterday in the Tax Tribunal.

HMRC lost.

Big time.

For years HMRC had been hounding Rangers for supposedly millions of unpaid tax which HMRC claimed was unlawfully avoided by the use of EBTs.

It petitioned for Rangers liquidation and it achieved its goal – Rangers as was, a national Scottish and football institution, went for an early bath.

Only now it seems that its tax planning was not unlawful, as its designers argued all along, and that it was HMRC that got it wrong.

So what redress do the real creditors, shareholders and fans of Glasgow Rangers have now? To whom do they complain about the wanton destruction of such an institution?

There is a great deal of beating of breasts and gnashing of teeth about the immorality of not paying tax. Why should anyone pay tax they do not lawfully need to pay? How can adhering to the law of the land be morally repugnant?

What can be more morally repugnant than a governmental agency with almost unlimited power abusing those powers, and being encouraged to do so by the elected politicians (whose financial morals are of course without blemish – Aye Right ! ), to pursue relentlessly a company or an individual who is organising their affairs within the letter of the law?

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Nick White

Nov 21, 2012 at 11:55

Alasdair - I thought HMRC forced RFC into liquidation over £9m in unpaid VAT and PAYE ? The "big" tax case was certainly a large shadow looming over them, but it wasn't the basis for liquidation, as the FTT decision wasn't published until after administrators, and then liquidators, were appointed.

Anyone tempted into moral indignation over the treatment of RFC should read the full judgment, including the - in my view more legally sound and cogently reasoned - dissenting opinion. I waded through it last night, and it didn't leave me with a higher opinion of Baxendale-Walker, "Mr Red", "Mrs Crimson" or any of the other key players.

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Nov 21, 2012 at 12:44

@ alasdair

Well it appears that your plea for Rangers under the ' Why should anyone pay tax they do not lawfully need to pay? How can adhering to the law of the land be morally repugnant?' ticket is falling upon deaf ears.

Making certain arrangements in order to avoid payment of tax that would have been used (however badly) for the benefit of society is morally repugnant if the arrangement has no other reasonable benefit.

I guess, in this case, the tribunal narrowly decided there is a tenuous reason for the avoidence scheme, although with dissent.

However if the club had been run properly, and not witheld money to the VAT and PAYE, it would not have gotten into the mess it did.

It is unusual for a lawyer to claim a moral superiority with an argument about a lack of morals being acceptable practice. It just shows that a lot of lawyers have little concept of what morals are.

If you feel that most of your professional actions should in some way benefit society before the individual, then you probably have a decent set of morals.

If your actions are to deliberately hurt society in order to feather your own nest, then you do not have a decent set of morals.

Therefore thieves, fraudsters, benefit cheats, tax avoiders, certain Scottish football clubs and their corporate lawyers have shown a lack of morals.

Generally HMRC hold the moral high ground, and probably countless sums of taxpayers money will have to be spent, once again, to close this particular loophole. But who judges the HMRC? Lawyers.

HMRC should be able to demand the avoided tax in advance when a legal challenge to its decisions is instigated. if found to be in the wrong, HMRC could then make a refund. This is the way to benefit society.

But that would take a lot of work away from lawyers, and that may not be morrally correct, or would it?

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Richard Hardy

Nov 21, 2012 at 16:34

Recent events (Starbucks, Celebrities, Rangers, et al) show the whole UK tax system needs an overhaul with a major injection of simplification.

(simplification in the true meaning of the word not as in 'Pension Simplification')

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Alasdair Sampson (FinServ Solicitor)

Nov 21, 2012 at 17:06

@ Nick White

As I understand it, HMRC petitioned for liquidation on the basis of the outstanding VAT and PAYE only because it couldn’t base a claim on the other.

As is now clear why.

And until and unless HMRC successfully appeals and secures the quashing of that decision by judicial review or otherwise then that decision will stand to the effect that the EBT strategy is legal. It will no doubt be relied upon as precedent.

The law is written and judicially interpreted in an objective manner. It applies to all. Whether the individual wishes to arrange their affairs to comply with the law in a manner that minimises their tax liability is an entirely personal choice. If they abide by the letter of the objective law in doing so then what they do is lawful and appropriate.

The issue of morality is subjective.

If the law as it stands and as it has been interpreted produces a result that society does not like then that is an entirely different matter. Society can and ought to change it. It is that simple.

But God help us all, and the rule of law, if the applicability of that law is determined by notions of the variable and subjective morality of Joe Public.

@ Hickky

As ever, an interesting contribution.

“Making certain arrangements in order to avoid payment of tax that would have been used (however badly) for the benefit of society is morally repugnant if the arrangement has no other reasonable benefit”

Any arrangements to avoid paying tax can and do have only one benefit – to leave more of the individual’s earned income in their own pocket. Why? So that they are less of a burden on the state at a later date.

You ever heard of an ISA? Very popular with some people.

You will have heard of pensions? Not so popular nowadays since Gordon Brown raided their tax benefits, since George Osborne reduced and seems likely further to reduce the maximum tax allowable annual contributions.

A person can lawfully re-arrange their affairs and write their Will to minimise the IHT their estate pays to the Exchequer so as to maximise the estate passed on to their family.

So do tell me -when is lawful tax avoidance morally repugnant?

I cannot but wholly agree with you that the club would not have landed in court if it had paid the VAT and PAYE that was lawfully due.

You do seem to have a very strange notion of what a lawyer’s function is:

“If you feel that most of your professional actions should in some way benefit society before the individual, then you probably have a decent set of morals.”

I could tell you that it is to argue the client’s case without fear of or favour to anyone – particularly the State – to the best of his ability irrespective of how repellent that person may be and how repugnant the subject may be.

Do try to bear that in mind if ever the FSA come to call or if ever you are charged with an offence.

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Nick White

Nov 22, 2012 at 12:45

@ Alasdair - of course, when acting for a particular client, one acts in that client's interests. But…. we're not acting for particular clients in this discussion. As an educated observer, and based on my experience in my own area - pensions taxation - and of some of the more aggressive schemes deployed to avoid such taxation, I have no problem saying some of those schemes are morally repugnant. Far from celebrating them as championing the rule of law, I say that they ultimately threaten the rule of law by undermining the willingness of society as a whole to respect it.

Re your original assertion that the FTT result was a "fiasco" for HMRC, and bearing in mind (i) Rangers/Murray companies did not exactly have a perfect record for meeting tax liabilities and cooperating with tax authorities (ii) liquidation was as a direct result of unpaid VAT and PAYE, not the disputed EBT assessments (iii) the Scottish media already reports that over 30 of the EBT cases were anyway conceded by the appellants as being liable to income tax (iv) the decision was by majority, with a strongly dissenting judgment (v) the majority judgment only finds in favour of those contested arrangements that were executed sufficiently carefully, but some were not and were therefore found to be caught as emoluments/earnings (vi) even the majority judgment is heavily critical of the obstructive behaviour and unconvincing explanations given by key actors, with key evidence only emerging as a result of seizure of documents by police……. what exactly did HMRC do wrong ?

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Nov 28, 2012 at 08:52

HMRC has a backlog of 41,000 cases and no obvious means (to the NAO) to deal with those cases.

I suggest that HMRC is very happy to have such a backlog and to increase that backlog daily, such that any taxpayer who undertakes any type of legitimate tax planning will be subject to an enquiry.

Why would HMRC wish to follow such a policy? To my mind simply because being subject to a tax enquiry strikes fear into any law abiding taxpayer who may, for the first time, feel the force of the executive in their life. For many if not most, it will stop them from undertaking any further such tax planning until such time as the enquiry process is completed.

This is a strong and powerful lever that HMRC can pull at relatively little cost to achieve their aim of minimising structured tax avoidance without need for legislation or establishing case law precedent. They can and do prevaricate and delay the enquiry process, change personnel on the enquiry, raise new queries and request further voluminous information many months after the initial comprehensive information has been supplied and reviewed with all questions answered. Some enquiries are not managed on a sample basis but every taxpayer is required to supply similar voluminous information to HMRC. Enquiries from 2009 are still open at the end of 2012. The approach is unco-ordinated and looks very much hit and miss still, despite the information that the DoTAS regime must be providing where such planning is undertaken by taxpayers.

Whilst the taxpayer can always submit a closure notice where they believe the enquiry process has come to an end with no conclusion from HMRC, the costs of taking the matter to the FTT are still a huge barrier in both time and cost for all but the most wealthy taxpayers.

So is justice being done by delaying these enquiries? Is HMRC being fair to taxpayers as they expect taxpayers to be fair to them? Or are they just playing a game with taxpayers to please their political masters? Whatever one's view on structured tax avoidance justice and fairness are appropriate to everyone in a democracy.

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