Examination of Witnesses (Questions 80-99)
HM REVENUE AND
CUSTOMS
11 JUNE 2008
Q80 Mr Davidson: Why?
Mr Hartnett: Because we have strict
confidentiality rules.
Q81 Mr Davidson: But they have committed
an offence?
Mr Hartnett: Yes.
Q82 Mr Davidson: It is similar to
a butcher, say, selling duff sausages or a landlord selling a
pint that is short. So people who cheat their income tax have
anonymity?
Mr Hartnett: Everybody is entitled
to confidentiality about their taxation affairs unless that confidentiality
is lifted by statute or publicity for the prosecution or something
like that.
Q83 Mr Davidson: So these 57 upholders
of the law, who have been breaking it by cheating on their tax,
are guaranteed anonymity?
Mr Hartnett: Unless we refer them
for prosecution.[7]
Q84 Mr Davidson: How many of them will
you prosecute?
Mr Hartnett: I do not know at
the moment.
Q85 Mr Davidson: What sort of decision
would be taken? What is the process by which you decide whether
or not to prosecute?
Mr Hartnett: Well, we would look
very carefully at whether any were involved in delivery of the
tax system, were advising on tax. We are more likely to prosecute
when someone is doing that; we look at the amounts of money involved;
we look at whether it was a first offence and at whether there
were any aggravating features. If someone, for example, was charging
their fees out under a false name we would take that very seriously
indeed.
Q86 Mr Davidson: Can you let us know
how many were prosecuted of those 57?
Mr Hartnett: Of course.[8]
Q87 Mr Davidson: It just strikes me as
being unfair here. If one of my constituents was caught, say,
stealing £5 from a post office, they would undoubtedly be
prosecuted and there would be consequences of publicity, yet if
a barrister steals several hundred by avoiding his tax, then there
is no publicity and he is allowed to carry on regardless. It does
seem a trifle unfair, does it not?
Mr Hartnett: I can understand
where you are coming from but we cannot prosecute everybody. We
do that selectively.
Q88 Mr Davidson: Moving on to medical
consultants, I think you said these are people working in the
private sector on the side and not declaring their income. Can
you tell us the hospitals they have been working for? Is there
a pattern?
Mr Hartnett: Same answer, I am
afraid. That is taxpayer confidential information.
Q89 Mr Davidson: But I am not asking
about the particular taxpayer. Is there a pattern whereby a particular
hospital, a private hospital, has a whole string of consultants?
Mr Hartnett: Not that we are aware
of.
Q90 Mr Davidson: So, as far as you
are aware, there is no deliberate path? It is down to the dishonesty
of particular individuals?
Mr Hartnett: Were we to discern
a deliberate pattern we would take a very serious view of that,
and we have not so far.
Q91 Mr Davidson: It seems as if this
is an offence, particularly in the upper areas, where people can
get away without any stain on their character and there is virtually
no penalty at all. What would be the level of charge levied on
the barristers?
Mr Hartnett: As I was explaining
earlier on, it depends whether they had taken reasonable care
and made a mistake; it depends whether they were not taking reasonable
care. It is hard to think they had taken reasonable care and failed
to tell us about themselves. It would then depend on whether it
was deliberate and whether there was some concealment, so it could
be anything up to 100%.
Q92 Mr Davidson: Can I turn to the
question of offshore jurisdictions and the issue of the amnesty
and so on? Can you clarify whether people that you catch after
the amnesty will be worse off than if they had come forward as
part of the amnesty?
Mr Hartnett: Let me be a little
picky, first, if I may; we have not had an amnesty. We charged
a lower penalty than we would otherwise have done and, if people
have not come forward and we now detect them, we are looking for
a much larger penalty and are investigating, with a view to referring
for prosecution some who have failed to come forward as well.
Q93 Mr Davidson: But you are only
prosecuting some? I hear the same sort of caveats apply. I am
just trying to assess whether or not on the balance of risk it
is worth somebody thinking, "Well, they won't catch me and
if they do catch me the penalties are so low it is worth a chance".
What evidence can you put forward that would convince me you are
applying a regime which would frighten people into coming forward
rather than continuing? You are making a cold-blooded calculation
as to whether it is a risk worth taking.
Mr Hartnett: Let me make two points.
In our experience a relatively small number of people consciously
take the risk. Some do and some pay huge penalties, some go to
gaol for taking the risk, but tax administration in the United
Kingdom is dependent on others besides HMRC, it is dependent on
accountants and lawyers, for example, and certainly the accountants
and lawyers I have dealt with over the years are pretty vigorous
in advising clients not to take the risk, because although we
are selective in our referrals for prosecution[9]
we do prosecute, and I think the total number of prosecutions
we are involved in each year is something around 1,000.[10]
Mr Norgrove: In total, yes.
Q94 Mr Davidson: Can I clarify this
point about not taking the risk? Presumably all of those who had
their offshore accounts, the sole purpose of which was to avoid
tax, as I understand it, were well aware they were taking the
risk that they would be caught at some stage or another?
Mr Hartnett: Not at all, no. Of
the 64,000-ish who came forward to tell us they may have an issue,
something like 45/46,000 then came forward with a disclosure,
we are looking at the gap between that at the minute, and of those
who came forward, a number of thousands, had no tax to pay either
because the amounts involved were small or there were other reasons
why there was no tax to pay. So I think it is wrong to say that
everyone—and I am not sure you were saying this—with
an offshore bank account is fiddling their tax.
Q95 Mr Davidson: Can I clarify the
question of the amounts involved being small? I think there was
a £2,500 cut-off point. If you had had that amount of income
in the United Kingdom you would have been taxed on it, would you
not?
Mr Hartnett: People came forward
with £25, Mr Davidson, despite the cut-off. People were worried
about being caught.
Q96 Mr Davidson: Even on £25
there actually would have been something to pay?
Mr Hartnett: Depending. We found
some older people who had nothing to pay.
Q97 Mr Davidson: No other income?
Right. Can I just ask about the co-operation you have had from
British Overseas Territories? Are you satisfied that all of those
are providing as much assistance as they ought?
Mr Hartnett: I think that, compared
with a few years ago, we get excellent co-operation.
Q98 Mr Davidson: And you have no
issues with jurisdictions such as Jersey, Guernsey, the Cayman
Islands, and so on? Anything you ask for, you receive?
Mr Hartnett: We have more trouble
with Liechtenstein today than we have with British Overseas Territories.
Q99 Mr Davidson: I understand that,
but we have more pull perhaps with Overseas Territories than we
do with Liechtenstein. Can I ask about money laundering and so
on? If somebody is caught with money and a criminal record and
so on, the money would be confiscated but, in those circumstances,
how do you investigate their tax affairs? My understanding is
if somebody is prosecuted you then have the opportunity to go
back several years, but if they say nothing at all and just give
the money up then you do not have the opportunity to go back six
years or so. Is that correct?
Mr Hartnett: That is news to me,
I have to say. There are cases, they go back a few years but I
think they bring the point out, where people caught fiddling their
taxes have burnt the cash, the cash no longer exists, but we have
still taxed them on the best estimate of what they have destroyed,
and, depending on the precise circumstance of the situation you
describe, if it was income from trade we would want to tax it
whether someone had received it or not.
7 Note by witness: HMRC are not a prosecuting authority Back
8
Ev 12. Back
9
Note by witness: HMRC are not a prosecuting authority. Back
10
Note by witness: This includes tax credit prosecutions. Back
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