Lord Carlile QC CBE argues the Revenue’s purpose ‘must be to project light, not shadow’ as misinformation and frequent U-turns have far-reaching consequences for taxpayers and the nation.
The Panama Papers and David Cameron’s ongoing anti-corruption initiatives place the unpredictable stare of Her Majesty’s Revenue and Customs into tight focus. Despite repeated and emphatic assertions by successive governments that they would clamp down on vast scale serious tax avoidance, HMRC has provided little evidence of any solid or convincing attempts to help ministers achieve that goal.
The reverse is in fact true, with HMRC repeatedly issuing items of published guidance to be followed by taxpayers and responsible financial advisers, only to abandon it later. The result has been that individuals have received confident advice based on such guidance, with the legitimate expectation that it was sound; but ultimately have found themselves paying far more tax than expected, as a result of unheralded and unexpected changes of heart by HMRC.
The consequences are bad for the affected taxpayers, bad for HMRC, and bad for Britain. Wealthy and successful people are choosing elsewhere to invest their money, and elsewhere to live. This is inconsistent with the reasonable ambition that the UK should be a desirable location for global business, and for personal wealth properly earned.
Surely the essence of a good public service is that it will provide published guidance that accurately reflects the law? Tax relief proposals are designed to encourage people to invest. Some have accepted the encouragement, only for the advantage later to be denied to them.
The public service should not be permitted to smash expectations by new interpretations designed to the disadvantage of individuals who are merely doing as they were told. It is not only individuals who are affected by such arbitrariness. In one case a charity followed written HMRC guidance. They were told that dealing in their properly held portfolio of shares was a business activity for VAT purposes, so that they could recover substantial VAT on certain costs, for example professional fees. On the second day of a tribunal listed for hearing for the previous 18 months, HMRC changed their interpretation of the law.
Other examples of unfairness have arisen from questions of residence. One person informed a seminar I chaired recently with a leading law firm, that he had been resident abroad for more than 30 years. HMRC had accepted this for more than two decades. Repeatedly, he had been advised by top professionals, in more than one jurisdiction, who had relied on intentionally relevant, deliberately provided, public, written HMRC guidance on residence. Suddenly, HMRC changed their view of the law, and were held to be correct in that interpretation. As a result, the person involved has been faced with demands for huge quantities of back tax.
Another disturbing scenario has been the Revenue’s inconsistency over film financing and production schemes. The result of HMRC’s inconsistency with these schemes has been to chill the UK as a destination for film production. Who will invest in a scheme when there is evidence that the encouragement and incentive of a tax break may be whisked from under them, without warning?
Whereas most government activity is liable to High Court Judicial Review of erroneous and disproportionate administrative action, those standards do not apply to incorrect and misleading HMRC guidance, even if it has existed and been relied upon for years. The result has been the unattractive sight of the Revenue arguing against their own guidance in court, indeed dismantling it totally during litigation; and the taxpayer instructing expensive advisers to submit that the guidance was correct. The intellectual perversity of this situation is self-evident.
One conclusion has to be that HMRC is a suitable case for some drastic treatment. Of course it is desirable that they should issue written guidance, and plenty of it. But its purpose must be to project light, not shadow.
Ultimately this is a political problem. To retain wealth within the UK, and lessen the temptation for taxpayers to move abroad, government should intervene to leave business people with a lesser sense of being victims of an overbearing and unsympathetic revenue service. The perception that officials are able to make major, life-changing decisions without accountability is bad for the reputation of the nation.
At the very least, taxpayers should be allowed the luxury of believing that government tells the truth – and that the consequences of HMRC’s errors should not be visited on individuals who have believed what they were told by agents of the State.