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HMRC faces UK Uncut in High Court action over Goldman Sachs settlement

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UK Uncut Legal Action will ask the High Court this week to declare that a tax settlement HMRC reached with Goldman Sachs was unlawful.

An HMRC spokesman said today: “We will strongly contest UK Uncut’s application for a judicial review when the case is heard. We welcome the opportunity to demonstrate that we acted legally.”

Dave Hartnett, then permanent secretary for tax at HMRC, told MPs in October 2011 that he was very sorry that HMRC had made a “mistake” resulting in no interest being charged on NICs payable by Goldman Sachs following the failure of an avoidance scheme.

He told the Commons public accounts committee (PAC) that the interest foregone was less than the sum of £10m cited in press reports. Amyas Morse, head of the National Audit Office, told the committee that the erroneous belief that interest was not applicable may have cost the exchequer between £5m and £8m. However it has been alleged that the error cost the exchequer up to £20m.

The NAO’s report Settling large tax disputes, published in June 2012, did not identify the five companies concerned. But it is understood that Goldman Sachs was “company E”.

That report said: “The department’s decision not to charge interest was reasonable in the context of reaching a settlement on several issues, but the department should have checked the position on interest so that it could have made an informed decision on this issue.”

While Sir Andrew Park had noted that several things “went wrong” in the process by which the settlement was agreed, he concluded that the overall settlement was “reasonable considering all the circumstances”.

The NAO added: “Had the only issue been settling the employer’s NICs liability and charging related interest, [Park] would not have viewed the settlement as a reasonable one. However, when the settlement is viewed as one settlement covering six issues, including the interest issue, it was reasonable.”

HMRC took advice from its solicitor’s office on whether the agreement reached at the meeting was binding or should be reopened: “The advice was that it was legally permissible for the department to either ask company E to pay interest, or for the department not to.”

Park’s view was that if HMRC had reopened the settlement “there may well have been legal proceedings”. He concluded that HMRC was “right not to reopen the settlement”, the NAO reported.

The hearing will begin on Thursday, 2 May at the Royal Courts of Justice in London. It is expected to last one day.

UK Uncut Legal Action is being advised by Leigh Day, a London firm of solicitors. The firm said the group claimed that the agreement, which “let the company off an estimated £20m of tax owed”, was unlawful.

Leigh Day said in a press release last Friday: “By 2005, HMRC had demonstrated that the scheme was an illegitimate tax avoidance device. In July 2011 HMRC’s own QC, Malcolm Gammie, gave broadly positive advice that HMRC should therefore be able to recover all monies owed to it by the company.”

The firm continued: “Despite this strong advice from HMRC’s own lawyers, Dave Hartnett, the boss at HMRC, met Goldman’s tax director Mike Housden, and shook hands on a deal which allegedly let the bank off £20m tax owed.”

Leigh Day said the agreement reached was “in direct contradiction of HMRC’s own statutory duty to collect tax properly due, and its litigation settlement strategy prohibiting package deal settlements or settlements where HMRC splits the difference with the taxpayer”.

The government has chosen to oppose the claim, said Rosa Curling, who is representing UK Uncut Legal Action. The group had no option but to ask the court to intervene, she said, to send the message that “tax rules apply to all corporations in the same way, however rich and powerful they may be”.

Dave Hartnett is now an independent adviser, but he remains a member of Tax Journal’s editorial board.