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MPs welcome new arrangements for tax disputes but query HMRC’s legal status

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‘Much evidence’ suggests that HMRC's approach to large business is working well, according to today’s report by the House of Commons Treasury Committee. But ‘close board-to-board working’ might give the impression that ‘preferential treatment’ is given to large taxpayers.

MPs said in Closing the Tax Gap: HMRC's record at ensuring tax compliance that HMRC should work closely with large businesses to ensure that they fulfil their tax obligations, given the sums involved.

‘However, the processes by which large tax cases are settled must be in a relationship based on openness and transparency and it is vital that appropriate checks be in place so that other taxpayers can be sure that all taxpayers are receiving the same treatment from HMRC.’

The committee supported a suggestion that a new Assurance Commissioner be accountable for a process of reviewing settled cases, but noted that it was ‘currently unclear by what mechanism the Commissioner will be accountable’.

Taxpayer confidentiality

‘Media criticism’ of two settlements with large corporations in particular had driven ‘an apparent public perception that HMRC treats big business more favourably than other taxpayers’. Those cases [relating to Goldman Sachs and Vodafone] were extensively explored by the [Public Accounts Committee], the report said.

‘In line with longstanding practice of observing taxpayer confidentiality, HMRC has not disclosed the terms of these settlements to us or the PAC, and we therefore focus our recommendations upon HMRC's processes for agreeing tax settlements with large corporate customers rather than the merits of any particular case.’

Assurance Commissioner

In a summary of current HMRC processes for reviewing settlements, the Treasury Committee said large and sensitive cases were referred to the High Risk Corporate Programme Board. The largest cases – those with tax at stake exceeding £250m – and those with potential to be ‘particularly controversial’ must be signed off by Commissioners.

‘In the past, this meant in practice that two Commissioners were required to sign off settlements, usually the Permanent Secretary for Tax, as the Department's senior tax specialist, and the Director General for Business Tax.’

As Tax Journal reported last week, HMRC announced on 27 February the introduction of a new assurance role at HMRC Commissioner level, ‘with an explicit challenge role in decision-making on cases’. Lin Homer, HMRC Chief Executive, told the committee that once the role had been established, ‘decisions on our largest cases will be taken by three Commissioners – the Assurance Commissioner, the Director General for the relevant line of business and a third Commissioner from a different work area’.

‘I intend this [third] Commissioner to be an experienced tax professional,’ Homer wrote. ‘They will have no role in our engagement with taxpayers on their particular tax affairs, nor any line management responsibility for case-workers.’

The Treasury Committee also noted that HMRC will reduce to £100m the threshold of tax at stake that triggers a decision on a case being made by Commissioners, and publish a code of governance for tax dispute resolution. It was encouraging, the committee said, that HMRC had recognised that a clear separation was necessary between the analysis and negotiation phase and approval of a proposed settlement.

Legal status

HMRC's current relationships with HM Treasury and Parliament meant that ‘allegations can be made about the propriety of HMRC's actions which its officials are powerless to refute’, the committee said. ‘This has a detrimental effect on public confidence in HMRC which could impede HMRC in its work.’

‘There is clearly tension between full accountability of HMRC for its work and the requirement for HMRC to be independent of politicians,’ it added.

‘These questions require separate and detailed examination and should be revisited. In particular, the following issues require attention: the legal status of HMRC; the power of ministers to implement change in HMRC where it is needed; the need to balance these issues with the need to maintain taxpayer confidentiality, and  the need to examine HMRC's corporate governance.’