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Second opinion on the PAC’s findings

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HMRC has been accused recently of ‘losing its nerve’ when chasing large multinational companies for unpaid tax. According to Margaret Hodge MP, who chairs the Public Accounts Committee (PAC), HMRC takes a firmer line with small and medium-sized businesses – and fails to use the full range of sanctions at its disposal when pursuing the tax it is owed.

However, the PAC takes little account of the fact that small and large businesses are very different. There are many ways that a small business can evade tax, which is illegal and criminal. If caught, they can be prosecuted and potentially jailed. Larger businesses are more closely regulated and audited, so it is very rare to find that they’re evading paying tax. If they enter into tax avoidance schemes, HMRC must and does challenge these robustly and collects the tax that is due. But this is not a criminal activity; it is just a difference of opinion with HMRC over what the tax law means, which is why larger businesses are not often prosecuted for criminal offences.

Larger international businesses have been accused of arranging their affairs favourably from a tax perspective. But they are only following the rules laid down by Parliament in this country and by the governments of other countries, determining which country gets to tax the profits of international businesses. If the rules are now failing, that is the fault of Parliament and not of HMRC or the businesses themselves. And the PAC conveniently forgets that the UK is a tax haven for many other countries, such as the US, so the UK profits from tax arbitrage too.

As regards claims by some critics that HMRC ‘massively overestimated’ how much it could collect from UK holders of Swiss bank accountants, the point is that these accounts were kept secret so it was impossible to know how much money was in them – and how much of that money was the proceeds of non-payment of tax in the UK. If HMRC couldn’t put a figure on the amounts held in these accounts, how could its estimate of tax yield be anything other than a complete guess?

Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, makes the perfectly valid point that you cannot keep expecting HMRC to do more while reducing its budget year on year. Staff morale is at rock bottom, the age profile is such that something like half its staff will reach retirement age within the next five years, and it cannot recruit or retain staff because the salaries and career prospects are so poor in comparison with the private sector. We have been fortunate for many decades to have had a Revenue service that had a hard core of staff that believed in what they were doing and instilled that belief in others. The constant cutting of the budget has eroded that ethos to nothing.