Ban 'insider' tax accountants from government - MPs

 

Margaret Hodge MP said there was evidence of accountancy firms devising new avoidance schemes

A report on tax avoidance by the Commons Public Accounts Committee has urged a ban on external accountants working inside government.

The recommendation aims to stop them telling clients about tax loopholes they find while working there.

The MPs said HM Revenue and Customs (HMRC) was in a "battle it cannot win" against the accountancy firms who have thousands of people giving advice.

HMRC said it was "aggressively fighting" tax avoidance and "winning".

In its latest report on tax avoidance, the committee turned its attention to accountancy firms after previously criticising multinational companies, including Starbucks, Amazon and Google, for the amount of corporation tax they paid.

The MPs said accountants were being seconded to work in the government to advise on changes to tax law but using the position to glean inside knowledge and tell businesses how to avoid tax. The MPs want the practice stopped.

'Conflict of interest'

They also called for a ban on firms being used by the public sector if they had been selling tax avoidance schemes.

Committee chairwoman Margaret Hodge said the practice represented a "ridiculous conflict of interest".

She said: "The large accountancy firms are in a powerful position in the tax world and have an unhealthily cosy relationship with government."

Start Quote

The large accountancy firms are in a powerful position in the tax world and have an unhealthily cosy relationship with government”

End Quote Margaret Hodge MP Public Accounts Committee

The committee's report suggested that tax officials were outnumbered by well-resourced accountancy firms in key areas, such as businesses transferring their profits overseas in order to pay less tax.

It said the "big four" accountancy firms employed about 9,000 staff and earned £2bn a year from their tax work in the UK.

The report said: "We have seen what look like cases of poacher turned gamekeeper, turned poacher again, whereby individuals who advise government go back to their firms and advise their clients on how they can use those laws to reduce the amount of tax they pay.

"We are very concerned by the way that the four firms appear to use their insider knowledge of legislation to sell clients advice on how to use those rules to pay less tax."

The committee said HMRC was involved in a "never-ending game of cat and mouse" with the big accountancy firms over the issue, and added that UK tax law was "hopelessly complex and outdated".

Jim Harra, director-general of business tax at HMRC, told the BBC: "Clearly they [tax accountants seconded to the government] do go back out with some expertise and they do advise on how to use the legislation. We watch very carefully what advice accountants are giving to their clients.

"Provided that advice is how to use the legislation in accordance with the way Parliament intended it to be used, then we have no problems with that."

HMRC said that the government had announced last year it would invest a further £77m to expand the Revenue's anti-avoidance and evasion work.

An HMRC spokesman said: "The facts show that we are not only aggressively fighting battles against tax avoidance, but we are winning them.

"Since the end of 2012, we have won 11 tax tribunal cases against avoidance schemes, two of which were against large corporates.

"In the last three years alone, we have litigated more than 50 major avoidance cases, protecting billions of pounds of tax in the process."

'Strong professions vital'

Bill Dodwell, head of tax policy at Deloitte, said his firm was doing nothing wrong. He told the BBC: "We help companies pay the tax that is due."

The Institute of Chartered Accountants in England and Wales (ICAEW) said there was already international co-operation to tackle tax avoidance through the Organisation for Economic Co-operation and Development.

"The role of accountants is to help their clients pay the right amount of tax under the law," the ICAEW said.

"When it comes to strengthening tax systems, strong accountancy professions are just as vital as strong national rules and tax authorities. Accountants can help improve and strengthen tax rules."

Tax avoidance is the legal use of the tax framework to reduce the amount of tax payable whereas tax evasion is against the law.

Specialists in the field sometimes use the term "avoision" to refer to grey areas.

The BBC's File on 4 programme, Taxing Questions looked into this subject earlier in the year.

 

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  • rate this
    +3

    Comment number 685.

    #654: "US citizens who live in the UK have to pay US tax and they simply offset it against their UK liability"

    LOL - never thought I'd see the US tax code cited as a model of simplicity :-)

  • rate this
    0

    Comment number 684.

    Of course everyone wants to take home as much as they can and pay as little tax as they can. Provided that the methods used are legal, they MUST comply with the intention of Parliament; otherwise Parliament would legislate against a particular practice.

    The same principle applies to Starbucks, Google, Amazon, etc.

  • rate this
    0

    Comment number 683.

    650. markthesensible

    '52% of all tax revenue comes from the top 10% of earners in the UK.'

    Yes, yes, yes. This lie has been peddled by the media and business leaders for years to show how 'nice' they are. The fact is that they should pay a lot more. They do not deserve their wealth in most cases and are frequently rewarded for failure. Look at Fred Goodwin!

  • rate this
    -1

    Comment number 682.

    667.Ex Tory Voter
    If your opinion counts as historical fact, I am concerned.
    If I may, I have 2 straight questions:

    A) When you donate to charity, do you choose a private charity or, do you write a check to the government department in that field?

    B) Why?

  • rate this
    +1

    Comment number 681.

    644.chrisk50
    That's not the rules - you need to read them for for self employed and IR35.
    ---
    I was joking about the NMW - you would have been exempt as a director if there was no contract of employment.
    IR35 has nothing to do with NMW. But the fact that you mention it suggests that your company was a personal service company used as a 'vehicle of convenience'... tut tut ;o)

  • rate this
    +3

    Comment number 680.

    Some states have simple low tax laws for the collection revenues to fund agreed essential services - singapore, hong kong etc. Other states (UK) have complex tax laws for political reasons to modify behaviour or advantage/disadvantage various groups. Avoidance is the inevitable byproduct. The political class (Hodge et al) are solely responsible for the system. Their hypocrisy is breathtaking.

  • rate this
    -3

    Comment number 679.

    Tax system is created for and by accountants. They make it difficult for us to understand so everyone needs their advice, which they give to the highest bidder. They roll out IFRS to rest of the world as the norm, making everyone else suffer as well.
    Accountant and lawyers, pilars of our failure.

  • rate this
    +3

    Comment number 678.

    I'd like to know just how many MP's and lords make use of these accountancy firms never mind their friends, family and political donors.
    The government need to close the loopholes but talk is cheap and if each gov put their money where their mouth is maybe we would see some action on offenders but I suspect there are too many vested intersts out there.

  • rate this
    +3

    Comment number 677.

    I bet most of us have used tax avoidance schemes at some point: Duty free booze, ISAs, child care vouchers, share save schemes etc. It's not just for the rich. The only difference here is scale and the level of deception/effort required. It's going to be tricky to stop without adversely affecting the real small businesses we are hoping will drag us up from recession.

  • rate this
    +4

    Comment number 676.

    The problem is: average people do not understand everything and that includes me.

    Example, if we are summons by a court we need a lawyer, not because the case is difficult it's the wording used. it's a similar case with tax, if you know what is your right then it's easy - millions don't.

    The system makes things difficult so that it is necessary to employ expensive advisers.

  • rate this
    0

    Comment number 675.

    I know a small businessman on the edge, he employs 4 people directly, around twice that indirectly...

    His customers, the lifeblood of his enterprise, are taxed also. Imagine how many more jobs he could create, and services provided, if his customers weren't taxed so.

    What does he do? He runs an evening maths tutoring class for students and adults after his regular job.

    Give us a chance HMRC!

  • rate this
    +3

    Comment number 674.

    Margaret Hodge gets ever more embarrassing. Accountants use published tax law to advise their clients. Experience as secondees within HMRC doesn't really help their clients but does help HMRC understand the impact of tax law on real people and businesses. Presumably Mrs Hodge will now tell her colleagues Chris Leslie & Cathy Jamieson to sack the PwC employees currently working in their offices.

  • rate this
    +3

    Comment number 673.

    1) When it comes to tax, many well off people reckon the letter of the law is good enough. Loophole? use it! So law books are thick. Course if you're low paid and take cash in hand, that's wrong.
    2) Tax havens exist and are used by the ones with money. NI paid what £11,000 in Corporation Tax one year? The UK controls over half the tax havens. Either party interested in closing them?

  • rate this
    -1

    Comment number 672.

    This should have been done years ago. Members of the big four accountancy firms advise on more than tax but, without fail, usually have no expertise to do so. For instance NHS policy in England is being driven by the big four without any expertise in healthcare or public sector management whatsoever. They are all accountants and only qualified to count money. Nothing else!

  • rate this
    +2

    Comment number 671.

    I am self employed and do my own tax returns it would be handy if the HMRC equated the tax return to a specific business ie say a plumber and how to record sales and purchases via a simple spreadsheet although when you get the top earners who drive big cars live in big house living the lifestyle but paying less tax than their cleaner that cannot be right

  • rate this
    +5

    Comment number 670.

    #660 tax gap (which covers avoidance/evasion and bad collection) is only about £30b (£32b for last year figures published which was 2011-12). Of that £20-22b is evasion, £5b is avoidance and £5b is bad collection (companies going bust).

    That is just under 7% of tax due. Crack down on tax evasion using offshore accounts should bring this down

  • rate this
    0

    Comment number 669.

    If we had simpler rules they'd be easier to enforce.

    Let start by integrating Tax and NI into a single tax - this deceit now that NI is no longer what it claims could easily go.

    Then make HMRC do their job and enforce the rules instead of reaching cosy little compromises. There's already a rule that says you can't take any action simply for tax gain - covers nearly all issues so far.

  • rate this
    -3

    Comment number 668.

    @ 636 (619) of course M Hodge was rendered speechless by her complaining constituent who said "my lad was killed fighting for this country, but I didn't go around robbing OAPs because of it". Grow up Alan; the only person MPs represent are themselves!!

  • rate this
    0

    Comment number 667.

    "653.UKL_UK Libertarian
    Sorry, I don't share your and the state's low opinion of my fellow countrymen and women."

    It's not an opinion, it's a matter of historical record. That aside, Just look at the lengths people will go to avoid paying tax - tells you all you need to know about peoples concern for their fellow citizens when it comes to actually putting their hands in their pockets.

  • rate this
    -1

    Comment number 666.

    Let me get this right. HMRC paid large accountancy firms lots of money to advise them on creating tax strategies. These accountancy firms then went away and got paid lots of money by large companies to avoid getting caught by these tax strategies. Civil servants....you gotta luv em.

 

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