How did you end up in tax?
Let yourself be seduced by the ghastly complexity of tax. It never fails to fascinate. And never lose an interest in simplifying it.
What is the funniest thing that happened to you as a tax inspector?
One incident still makes me smile. I was investigating the suppression of sales by a business in the Midlands and the fraud led me to a food producer in another part of the country where I sat reading a hand written nominal ledger which was packed with adjustments to reduce taxable profits – for example, a substantially overdrawn director’s loan account written off to purchases. It was immediately clear there would have to be a major investigation and I asked to see around the plant. Some very unhappy directors took me on a tour. At one point I stepped back … into a huge bin of liquid wood pulp, disappearing up to my waist. The directors were a little slower in rescuing me than I would have liked!
Who in tax do you most admire?
There are two people I admire hugely. First, David Brodie for the drive and commitment he showed in setting up Tax Aid to help vulnerable and unrepresented people and for freely sharing with the UK tax administration all that he learnt about the failings of the tax system. The second is Will Morris, European head of tax at GE. He has a remarkable understanding of corporate tax systems around the world which he shares generously but, more important, he is passionate about uniting the efforts of people who can improve tax administration and policy making in developing countries.
Looking back on your time at HMRC, which changes made by the department had the greatest impact?
In modern parlance, the 2004 disclosure rules were a game changer. They introduced a non-judgmental transparency which effectively put an end to marketed tax avoidance schemes aimed at big business, though other forms of avoidance do of course remain. The introduction of campaigns to address non-compliance can be described in the same way. This initiative has enabled HMRC to address efficiently non-compliance by taxpayers wanting to put right their tax affairs but who don’t need one-on-one investigation while applying skilled investigators to those whose offences are serious or who are not prepared to disclose.
Tax avoidance is never out of the headlines of the national press. What could be done to improve the debate?
I would like the debate to be much better informed than it has been at times recently. This would involve business and their advisers explaining their actions and positions much more openly and it would be good to see a better informed media with all sectors drawing their advice from a wider group of knowledgeable people than has been the norm in the past. Hopefully this could lead to acceptance of a standard definition of avoidance so that issues of concern that do not involve avoidance could be described in a different way.
There have been calls for greater reporting of tax payments made by companies and for country-by-country reporting. What’s your view?
There is a strong case for more transparency in relation to the tax paid by companies and at a time of financial austerity, citizens want to be able to see for themselves what tax corporations are paying and judge whether it is fair. But I have misgivings about country by country reporting if the aim of those seeking it is to compare tax paid in one country by a multi-national with what it pays in another. Such crude comparison is of very little value unless the reader has a good understanding of the different tax incentives available in each country and other features of each tax system.
HMRC has provided technical support and guidance on governance and operational issues to the tax authorities of developing countries. Do developing countries need further support?
In my experience, the tax administrations of developing countries are rapidly increasing in skills with help from a number of international bodies and donor countries. They continue to need support from HMRC and other developed country tax authorities through the sharing of best practice and training programs. This is particularly true in Africa where economies are growing faster than other places in the world and emerging tax challenges are not that different from those in the UK and other OECD countries.
What’s your view on the GAAR, as set out in the draft Finance Bill provisions?
This is an important compliance initiative for the UK. It has been designed in a unique way and in my view it has appropriate checks and balances. The acid test will be how it works in practice. It will be some time before we know the answer to that question.
Is there a recent development in tax that especially concerns you?
Yes, but it’s not a specific piece of legislation or an administrative development. It is instead the constant pressure from lobby groups and others for governments in the UK and elsewhere to tighten the rules on the taxation of business. My concern is that one or more countries will act unilaterally in response to electoral or similar pressure. Big business thinks globally and it is important that any changes to the taxation of multi-nationals are thought through internationally. Unilateral action by any country could put that country at a serious competitive disadvantage and have the effect of reducing its tax take.
If you could make one change to UK tax law, what would it be?
Finding a way through the minefield of human rights that thus far has prevented the introduction of a penalty for failed tax avoidance, particularly where a scheme is involved.
You might not know this but …
I still have a passion for Latin literature and in my retirement have been reading Cicero, Livy and Ovid (in Latin of course).
Dave Hartnett is a former permanent secretary for tax at HMRC
How did you end up in tax?
Let yourself be seduced by the ghastly complexity of tax. It never fails to fascinate. And never lose an interest in simplifying it.
What is the funniest thing that happened to you as a tax inspector?
One incident still makes me smile. I was investigating the suppression of sales by a business in the Midlands and the fraud led me to a food producer in another part of the country where I sat reading a hand written nominal ledger which was packed with adjustments to reduce taxable profits – for example, a substantially overdrawn director’s loan account written off to purchases. It was immediately clear there would have to be a major investigation and I asked to see around the plant. Some very unhappy directors took me on a tour. At one point I stepped back … into a huge bin of liquid wood pulp, disappearing up to my waist. The directors were a little slower in rescuing me than I would have liked!
Who in tax do you most admire?
There are two people I admire hugely. First, David Brodie for the drive and commitment he showed in setting up Tax Aid to help vulnerable and unrepresented people and for freely sharing with the UK tax administration all that he learnt about the failings of the tax system. The second is Will Morris, European head of tax at GE. He has a remarkable understanding of corporate tax systems around the world which he shares generously but, more important, he is passionate about uniting the efforts of people who can improve tax administration and policy making in developing countries.
Looking back on your time at HMRC, which changes made by the department had the greatest impact?
In modern parlance, the 2004 disclosure rules were a game changer. They introduced a non-judgmental transparency which effectively put an end to marketed tax avoidance schemes aimed at big business, though other forms of avoidance do of course remain. The introduction of campaigns to address non-compliance can be described in the same way. This initiative has enabled HMRC to address efficiently non-compliance by taxpayers wanting to put right their tax affairs but who don’t need one-on-one investigation while applying skilled investigators to those whose offences are serious or who are not prepared to disclose.
Tax avoidance is never out of the headlines of the national press. What could be done to improve the debate?
I would like the debate to be much better informed than it has been at times recently. This would involve business and their advisers explaining their actions and positions much more openly and it would be good to see a better informed media with all sectors drawing their advice from a wider group of knowledgeable people than has been the norm in the past. Hopefully this could lead to acceptance of a standard definition of avoidance so that issues of concern that do not involve avoidance could be described in a different way.
There have been calls for greater reporting of tax payments made by companies and for country-by-country reporting. What’s your view?
There is a strong case for more transparency in relation to the tax paid by companies and at a time of financial austerity, citizens want to be able to see for themselves what tax corporations are paying and judge whether it is fair. But I have misgivings about country by country reporting if the aim of those seeking it is to compare tax paid in one country by a multi-national with what it pays in another. Such crude comparison is of very little value unless the reader has a good understanding of the different tax incentives available in each country and other features of each tax system.
HMRC has provided technical support and guidance on governance and operational issues to the tax authorities of developing countries. Do developing countries need further support?
In my experience, the tax administrations of developing countries are rapidly increasing in skills with help from a number of international bodies and donor countries. They continue to need support from HMRC and other developed country tax authorities through the sharing of best practice and training programs. This is particularly true in Africa where economies are growing faster than other places in the world and emerging tax challenges are not that different from those in the UK and other OECD countries.
What’s your view on the GAAR, as set out in the draft Finance Bill provisions?
This is an important compliance initiative for the UK. It has been designed in a unique way and in my view it has appropriate checks and balances. The acid test will be how it works in practice. It will be some time before we know the answer to that question.
Is there a recent development in tax that especially concerns you?
Yes, but it’s not a specific piece of legislation or an administrative development. It is instead the constant pressure from lobby groups and others for governments in the UK and elsewhere to tighten the rules on the taxation of business. My concern is that one or more countries will act unilaterally in response to electoral or similar pressure. Big business thinks globally and it is important that any changes to the taxation of multi-nationals are thought through internationally. Unilateral action by any country could put that country at a serious competitive disadvantage and have the effect of reducing its tax take.
If you could make one change to UK tax law, what would it be?
Finding a way through the minefield of human rights that thus far has prevented the introduction of a penalty for failed tax avoidance, particularly where a scheme is involved.
You might not know this but …
I still have a passion for Latin literature and in my retirement have been reading Cicero, Livy and Ovid (in Latin of course).
Dave Hartnett is a former permanent secretary for tax at HMRC
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