Labour plans radical overhaul of HMRC

Report on tax avoidance calls for more staff and resources at taxman, obligation for big business to publish returns, whistleblower protection, and supervisory board

•‘HMRC is in thrall to big business. It can no longer do its job’

Large companies should publish their tax returns and whistleblowers who expose financial wrongdoing must have protection under the law, a Labour party-commissioned report into reforming tax collection has proposed.

Responding to growing concern about repeated failures by HM Revenue and Customs to tackle avoidance by multinationals and wealthy individuals, the shadow chancellor published proposals on Thursday for overhauling the tax agency.

John McDonnell said that HMRC was now in “disarray” due to staff cuts. “With the appropriate levels of investment … we think we could achieve a fair and just taxation system, which would overcome some of the issues we now have for investment in our public services.”

The report was produced by a panel of 14 experts and will inform official Labour proposals expected in spring 2017. It recommends an independent supervisory board for HMRC, consisting of stakeholders appointed by the chancellor, to “act as a bulwark against corporate capture and inertia”.

HMRC’s board is dominated by individuals previously connected with major corporations and large accountancy firms known for marketing avoidance schemes, the panel of experts said. It has no members representing small businesses, ordinary taxpayers, HMRC’s own staff, or claimants of benefits.

The new supervisory board would provide a point of contact for whistleblowers wanting to expose tax cheats. It would also support policies to protect the jobs and income of whistleblowers, who would get broader protection under the law. There is also a recommendation that whistleblowers should receive “a possible share of the taxes and penalties recovered as a direct result of the information provided by them”.

The panel was led by Prem Sikka, professor of accounting at the University of Essex, and included representatives from campaign groups such as the Tax Justice Network and the High Pay Centre.

Sikka writes in the Guardian on Thursday that HMRC has been “thwarted” by lack of resources and is “no longer fit for purpose”.

He said: “For 100 years we have been publishing company accounts. Tax information is an important part of corporate governance. We feel this information should be publicly available.”

Sikka proposes that “all large companies” must make their tax returns public by filing them alongside their yearly accounts. The documents, which would be free to access online through the Companies House database, would include all related documents such as advice from QCs and accountancy firms recommending particular avoidance schemes.

Tribunal cases against tax cheats should be handled more quickly – many tax cases can take a decade to resolve and the first-tier tribunals have a backlog of 30,000 cases waiting to be heard. It recommends the recruitment of more judges, focused on tax matters.

HMRC is under fire for failing to bring to account wealthy individuals and large corporations. Its response to a series of high-profile scandals, including the revelations about HSBC’s Swiss private bank and the sweetheart deals negotiated by multinationals with Luxembourg, has been muted. Of the 3,600 potential wealthy UK taxpayers exposed by the HSBC Files, only one has been prosecuted by HMRC.

In January, the agency said it had abandoned its criminal investigation into the bank’s alleged collusion in illegal activities. HMRC bosses have told parliament that the agency investigates just 35 wealthy individuals a year.

HMRC claims to have only 70 staff examining data released by the Panama Papers on more than 300,000 offshore companies. “This may well suffer the same fate as the HSBC inquiry,” the Labour report warns.

A spokesman for the tax office said: “We welcome any debate about how HMRC can operate more effectively, but expect a proper acknowledgment that HMRC achieved another year of record-breaking performance in collecting tax and securing compliance yield, while continuing to deliver efficiencies.

“Last year we collected £536.8bn in tax and duties – £19bn more than the year before.”

The panel of experts want greater resources for the tax agency. HMRC has lost more than one-third of its staff since 2005, with further cuts planned. Unions are fighting plans to replace 170 local offices with 13 regional centres.

Responding to the proposals, Lorna Merry, president of the HMRC group at the Public and Commercial Services Union, warned that office closures would leave the agency “haemorrhaging” valuable experienced staff, including investigators and minimum wage inspectors.

She said: “This is a really important piece of work. Someone needs to look hard at HMRC and what its for and who its for. The issues of small businesses and ordinary taxpayers are being ignored.”

Contributor

Juliette Garside

The GuardianTramp

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