Dave Hartnett Bends The Rules for the Likes of Goldman Sachs?

Dave Hartnett has yet again come under fire for significant failings at HMRC.

However things are not necessarily as they might first seem, they are worse.

Public Accounts Committee Chair Rt Hon Margaret Hodge (Labour) and Rachel Reeves

Sadly, politicians behave in an unhelpful party tribal manner. This morning. I saw Rachel Reeves being interviewed on Sky about the Public Accounts Committee report into HMRC’s failing.

I confess I had never heard of Rachel Reeves before her being interviewed on Sky News.  Rachel repeatedly blamed the Government and her emphasis was more on the government failing in respect of the uncollected taxes than HMRC.

Dave Hartnett was appointed under Labour and despite heavy criticism has kept his job on a number of occasions. I cannot help but wonder whether someone in the private sector would have retained such a leading role in those same circumstances? I doubt it.

Since watching the news on Sky this morning I thought I would find out a bit more about Rachel Reeves, as I had not heard of her before.

Surprise surprise she is the Labour MP for Leeds West. Many of the pictures on Rachel’s website are in schools and other public operation, and her “campaigns” are also mainly public service jobs and development, not private sector . I did not see any photo calls or campaigns with private businesses which might explain one of her comments in the interview. Her bais certainly seems to be towards supporting public service rather than private enterprise.

I am what is termed a “floating voter” in the last 20 years I have voted Conservative, Labour and Liberal Democrat.

In fact I as far as I can see I  am one of many floating voters from my generation (I’m 48). I vote  for the individual leader, and party who I believe is best capable leading their party and indeed Parliament to make sensible balanced and good decisions for this country.

It is clearly my opinion at the time of voting, and often sadly based on the often garbage and rhetoric the voters are fed by almost all politicians in the UK. After all if you asked most people if politicians tell the truth probably 90% would say no.

One of the things that Rachel Reeves said during her Sky interview (as far as I can tell she is not even in the Public Accounts Committee – source Parliament website) made me feel it is there is a “them and us” “public workers v private sector” situation starting to develop unlike anything before. Not least due to the public sectors demands for pension rights that 90% of private sector workers could only dream of.

One of the main uses that  Rachel Reeves said  the extra £25 billion lost tax should be used for would be reducing the cuts to public services.

Rachel Reeves made no mention of increasing jobs in the private sector with the addition tax !

This is very telling.

It certainly seems to promote a “them and us” situation. Maybe what’s now needed is a “Union” for all workers that are not in the public service and work only for private sector employers, to give it more of a balance.

It’s it sad that the public sector seem to see themselves a special with preferential rights? I thought the whole idea of public sector work was public service. If that is not true and it is more about smash and grab then I think a lot more services should be privatised.  I would not have not been in favour of that until now and am not sure it is what I really want.  BUT if public service is no longer about service and more about “what I can get out of it” then privatise the whole lot is how I feel.

With public sector workers demanding continued unsustainable pensions and going on stike to try and force that one the rest of us. Approximately 21% of the population are public sector workers of who 90% have a good pension arrangement. The 80% in the private sector or unemployed, retired, or below working age only 10% have a good pension arrangement.

That means of the 62 Million people in the UK around round 12 Million public sector workers will retire with a good pension largley paid for by the other 50 Million people.

So are the 13 Million public sector works holding everyone to ransom? If they get what want now, and if it turns out not to be sustainable won’t they only have to pay large chunks it back in tax when we all retire? Remember at that point the 80% of the voting population poor pensions will vote to even things out again!

Political wins are rarely lasting. Personally  think it is inevitable that if the public sector workers succeed in securing a level of pension funding that is unsustainable the only optionin the short term is then to reduce another of public sector workers to reduce the cost to the country to an affordable amount.

Ironically I therefore believe that as the unions havea lot of power and as the government will largely have to back down in the short term I believe that ironically the unions themselves will be the direct cause over time of the number of public servants reducing.

This is likely to mean that more public services will be privatised in the next 5 to 10 years.

So Why Is All Not What It Might Seem With HMRC?

Newspapers love catchy headlines. Referring two dinners with leading businessmen by Dave Hartnett and deals to reduce their tax make great headlines.

As far has HMRC is concerned however the root of the problem is far more basic and serious.

There is a high level of sheer incompetence amongst tax inspectors within HMRC.

One Example of Many I have Come Across

I will give you what one example of many I have come across over the last 5 years.

One of the cases I have been responsible for negotiating for the taxpayer against HMRC was a local bus company that did school runs for the most part.

The bus company did not have sufficient parking for all the school buses, plus the school bus run starts very early in the morning and the drivers often lived nearer the collection points  than the bus depot and other factors for organising the business like this.

HMRC argued for two years that this constituted a car or van benefit on the driver and that he appropriate forms (P11D) were incorrect and that the company had committed a findable offence and had to pay the tax.

HMRC proceeded to try and enforce their opinion very agressively despite numerous arguments and technical points raised to the contrary including that no private use was allowed by the contracts with the drivers.  Indeed early on it became a formal complaint case about  HMRC behaviour and handling of the tax enquiry.

HMRC then said that they were going to raise assessments to collect approximately  £500,000  which would have bankrupted the company with the lose of around 80 to 100 jobs, large numbers of children, some handicapped, potentially losing their school bus facility. In turn this would affect all the families, schools and other local businesses, plus the increased number of parents cars doing the school run affecting traffic. A catostrophic all round result, but HMRC were determined…

HMRC finally and very reluctantly backed down when it was pointed out that the minibuses were over the 3500 kg weight referred to in HMRC’s own internal manuals at Employment Income Manual EIM22725 and exceeded the “van” weight and outside the benefit in kind rules.

The client had however lost the will to fight over some other minor issues and paid around £1000 tax to HMRC on the other issues.

Two years of an Inpectors time, and lots of wasted time for our client and unnecessary cost.  HMRC even had to pay most of the accountants fee to the client which exceeded the £1000 tax raised because of their bad behaviour and flawed arguments.

This is certainly not an uncommon example of a small privately owned company under attack by HMRC and why HMRC is indeed in need of a major overhall.

I see it all the time.

HMRC wasting everyone’s time and money with flawed arguments and lack of real knowledge of the law they are supposed to enforce.

Just like most career politicians have never had a normal job for very long if at all, most tax staff have very little knowledge of how business really works, or inded the tax law they are supposed to be working within.

The number of time I hear accountants complain that “HMRC  just seem to make it up as they go along“ is most days now.

Senior management at HMRC is responsible for training and supervising the actions of it’s staff. But they are not held to account.

Rachel Reeves said that the current government has cut over £1 billion from HMRC’s budget and that perhaps this should be reversed.

I for one certainly do not think that any more money should be spent on HMRC until HMRC show at this would be money well spent.

What HMRC really need is a substantial overhaul in both the way they do business and the way they interact with taxpayers generally.

The example I have used above may not be the Goldman Sachs’s  of this world as it is a relatively small to medium-sized employer not a massive bank.

However I do not believe that reporting or the understanding of people like Rachel Reeve, or the Public accounts committee have fully grasped the true root of the problem at HMRC and tax in the UK generally.

Certainly Dave Hartnett and others should not be treating large businesses on unfair or bias basis.

However I think it is far more likely that HMRC in the case of Goldman Sachs were suggesting tax was due based on opinions of the tax law which were either debatable or fundamentally flawed and that is the reason why HMRC did not pursue collection of some of the tax. Ultimately no doubt HMRC believed that they would not win the technical arguments they were pursuing if it went to court .  Personally I doubt that it was favouritism although that makes far better headlines.

Dave Hartnett and other senior managers should be held to account for the failings of HMRC for certain.

Root Of The Tax Problem With HMRC

One of the main root causes for so many disputes between HMRC and taxpayers is the vague unclear and indeed unhelpful way that most tax law is worded.

We still rely in the world of tax on tax court cases which form a large chuck of the law and go back over the last 200 years. Before the age of cars, the internet, mobile phones, and modern business practices and employment.

Even HMRC’s understanding of what is a mobile phone is completely archaic and out of date. Basic stuff is ridiculously outdated and unhelpful.

What Rachel Reeves needs to understand when talking in a politically tribal fashion is that  a large chunk of the tax law that we now work with was introduced under the Labour government and is the root cause of why so many disputes arise between taxpayers and HMRC.

On the pensions front Gordon Brown when he was Chancellor almost single handly destroyed private pension viability by changing the tax rules that affect private sector pensions all in the name of proping up public sector jobs and pensions! It is crazy and frankly unsustainable.

In UK tax law one of the fundamentally unfair issues in the tax system is that the taxpayer is “guilty until proved innocent” unlike other law in the UK. A taxpayer has to prove that HMRC are wrong, not the other way round. That part of tax law is one of the main reasons HMRC behave often very arrogantly, aggresively and unfairly. HMRC Inspectors know that many taxpayers cannot afford a fight either financially or in the time it will take, detracting from their business focus.

Only big businesses can afford a fight with HMRC or small determined ones, and they are not villains for doing so, in fact the truth is that without their willingness to take on the fight with HMRC many smaller businesses would suffer greatly.

Just one example of this is a Marks & Spencer’s leading VAT case that enabled many businesses who Customs and Excise refused to pay back overpaid VAT to, had to in the end refund VAT to going back to 1973 as HMRC had been both arrogant and foolish in the way they had interpreted the law.

It would therefore be foolish for most ordinary citizens especially in the private sector to complain about many of the big businesses in the UK who create so much employment and wealth within this country compared to the public service who simply use the wealth created to try and create good services for all the citizens of this country. Without big businesses there would be no public service.

With such complex tax law and with an extremely aggressive HMRC towards small and medium-size businesses HMRC spends a lot of time arguing instead of doing.

It would be more productive if HMRC would spend less time arguing technically complex cases and stead spoke to the Treasury about simplifying the law and spent the resources they have in ensuring they collect the tax that they know is clearly obviously due under PAYE or CIS which they seem to so often fail to do.

Goldman Sachs is just the tip of the iceberg.

The real “iceberg” though is the fundamental  failure of HMRC to collect tax fairly, efficiently and focus on the real areas in which tax is being lost to the Exchequer which is fair and squarely down to extremely poor management HMRC.

Tags: accounts, committee, Dave Hartnett, failure, Goldman Sachs, HMRC (HM Revenue & Customs), public, Rachel Reeves, tax