Supplementary written evidence submitted
by HM Revenue and Customs |
At the hearing on 11 May, Members of the Committee
raised a number of questions with the Exchequer Secretary and
Stephen Banyard, about the settlement of Large Business enquiries
by HMRC and about the High Risk Corporate Programme (HRCP) in
particular. The following notes give some background information
on the Programme and then deal with the specific queries raised.
With large businesses, which account for around 60%
of tax receipts and up to a quarter of the overall tax gap, HMRC
explicitly seeks relationships based on openness and transparency.
For the 2,000 largest businesses, one-to-one Customer Relationship
Managers (CRMs) ensure that HMRC has extensive understanding of
tax and avoidance risks in the context of the commercial environment
in which customers are operating. This supports a strong response
to avoidance threats while also allowing high levels of customer
service, for example through clearances.
"Real time" working, where differences
of view are settled even before the accounts are finalised, is
now increasingly the norm. For customers, this provides greater
certainty and reduces costs. For HMRC, it gives confidence that
risks are being managed up-front, at the time when there are still
opportunities to change the law if necessary.
HMRC aims to prevent disputes from building up as
far as possible. However, where necessary, HMRC does not hesitate
to litigate, particularly on avoidance transactions which have
a read-across to similar transactions by other users.
In response to the recommendations of the National
Audit Office and Public Accounts Committee in their reports on
the management of Large Business Service (LBS) Corporation Tax
in 2007 and 2008, HMRC has focused its efforts on the most serious
tax risks whilst reducing the number of minor issues taken up
and resolving older issues.,
For those customers who are low riskjudged by their internal
systems and controls and attitude towards avoidancefewer
audits take place. This allows HMRC to devote most resource to
cases where revenues at stake are the most significant. Between
2007 and 2011 the total number of open enquiries in the Large
Business Service has fallen from 7,500 to 2,700, the number of
minor issues has fallen by 97% and the number of issues over 18
months old by 58%. This has allowed us to focus our effort on
the bigger issues. At the same time tax under consideration
in LBS cases has reduced from £35 billion in 2007 to £25.5
billion in 2011 and yield from interventions in LBS has risen
from £3.9 billion in 2006-07 to £5.7 billion in 2010-11.
For the highest risk cases, which frequently involve
multiple avoidance schemes, HMRC has for some years put in place
dedicated project teams and sought engagement with the customer
at Board level through its High Risk Corporate Programme (HRCP).
The Programme was designed initially to tackle aggressive
tax behaviours by some major corporates, such as:
artificial tax avoidance.
levels of secrecy and lack of openness and transparency.
or no Boardroom accountability for tax.
large number of open enquiries going back years.
million pounds of tax at risk.
In addition to Board-to Board contact and active
project planning, the HRCP process typically involves a period
of investigation and of technical analysis and debate before decisions
are taken on the resolution of issues by the High Risk Corporate
HMRC has seen improvements in behaviours in a significant
number of cases in the Programme, including:
and transparency and improved relationship with HMRC.
accountability and engagement.
away from artificial structures.
on future tax strategies.
Initially HRCP was focused on a small number of cases
but the success of the approach has led HMRC to apply it more
widely, and some 39 large businesses have now been brought within
If a case results in an agreed settlement with the
customer (which may cover all or some of the issues in a HRCP
project) the business is not removed from the Programme until
the Programme Board is satisfied that the level of risk has significantly
reduced. In particular, in this post-settlement phase, the Programme
Board will monitor the approach to tax planning and avoidance
and ensure that the Company is open and transparent in its disclosure
of tax issues.
Since it began, the Programme has resolved over 1,500
issues and brought in additional revenue of over £9 billion.
The recently introduced Managing Complex Risks (MCR)
programme provides a similar multi-tax approach for large businesses
outside the LBS.
The HRCP Board also governs decisions on litigation
and settlement in other large business cases where tax involved
is more than £100 million.
HMRC regards the Programme as having been highly
successful in helping to resolve many large and complex tax issues,
whilst maintaining strong governance and oversight of the decision-making
process. Where issues have been settled by agreement, the key
consideration for HMRC has been the strength of its case in law
and the likely outcome if the matter were tested through litigation.
1. Q400: Mr Ruffley: How much tax was estimated
to be at risk, before an enquiry had been completed, involving
CFC legislation in each of the last three years and in how many
cases was the tax at risk more than £100 million?
HMRC Large Business Service records show the following
amounts of tax under consideration on CFC issues in each of the
last three years:
|Date||Tax under consideration|
|31 March 2009||3,791|
|31 July 2009||4,578 |
|31 March 2011||3,749|
Because of the risk of indentifying individual companies, HMRC
is not able to provide the number of cases with more than £100
million under consideration, but the total number of CFC issues
being considered by the Large Business Service was as follows:
|Date||Number of open issues
|31 March 2009||159|
|31 March 2010||128|
|31 March 2011||134|
2. Q401: Mr Ruffley: How many are in the team at HMRC that
deals with these high-risk corporates?
There is not a single team apart from a small central programme
office. Discrete, temporary project teams are created to handle
the different cases and issues that are within the Programme.
The number of staff deployed on those businesses varies depending
upon the size and complexity of the case and the stage it has
reached in the HRCP process.
During the active phase of an HRCP process the number of staff
deployed can vary between 25 and 75. There have been instances
where over 100 staff or more have been involved at some stage
in the working of a case. But it should be borne in mind that
staff can be engaged in other HRCP cases or in non-HRCP work whilst
they are part of a particular HRCP case team. We deliberately
aim to retain as much flexibility as possible in the deployment
of specialist resource.
This means that over the last five years, many of LBS' tax specialists
have been involved in HRCP cases at one time or another, along
with other technical experts and professionals (such as solicitors
and accountants). This has enabled HMRC to expose them to good
practice in the collaborative working of major risks, whilst maintaining
careful control of confidential customer information.
3. Q402: Mr Ruffley: The person or persons who decide finally
to settle, when to settle and at what quantum to settle: who are
they, what grades of officials are they?
All cases within the Programme are overseen by the High Risk Corporates
Programme Board which is responsible for selecting suitable cases
and for monitoring progress.
It is the Programme Board which takes all the important decisions
on individual tax issues and decides how cases are settled, unless
the case is so large or sensitive that the matter has to be referred
to the Commissioners for a final decision. In this case, the Programme
Board will usually make a recommendation to the Commissioners.
The Programme Board is a very senior body chaired by the Director
of the Large Business Service. All of the business areas of HMRC
that have an interest in the cases are represented at Director
or Deputy Director level. HMRC's Solicitors Office is also represented
on the Programme Board. Current membership comprises:
Director, Large Business Service, SCS2
Director, Specialist Investigations, SCS2
Director, Corporation Tax, International, Anti-Avoidance, SCS2
Director, Solicitor's Office, SCS2
HRCP Programme Team Leader, Large Business Service, SCS1
Deputy Director, Charities, Assets and Residence, SCS1
Deputy Director, Specialist Investigations, SCS1
Senior Tax Specialist, Corporation Tax, International, Anti-Avoidance,
Head of Anti-Avoidance Group, SCS1
HRCP Team Head, Solicitor's Office, SCS1
Deputy Director, Local Compliance, Large and Complex, SCS1
The National Audit Office is currently carrying out a review of
the settlement of HRCP and other large cases as part of its report
on HMRC's 2010-11 accounts. HMRC will respond fully to NAO's findings
and any recommendations that it makes.
4. Q405: Mr Ruffley: The question I think arises of the
numbers of officials who resign or retire, leave HMRC and then
go on to work either for tax consultancies or law firms or FTSE
250 companies. Do you have the data on the number of officials
who at one time or another have worked on the high-risk corporates
programme or its predecessor, those who have left in the last
three years and how many have gone into any of those consultancies,
law firms or companies?
HMRC does not collect data centrally on all requests for permission
to take up outside appointments. Requests are decided by the applicant's
manager based on rules relating to outside employment set out
in HMRC's Code of Conduct. The manager keeps a record of the application
and decision on the applicant's personnel file.
Because of the large number of officers who have been engaged
on cases within the High Risk Corporates Programme (HRCP) in various
capacities, it is not possible to provide a definitive number
for those who have left the Department. A number of officers are
known to have left to join accountancy firms or the tax departments
of commercial companies having worked on HRCP cases at some point.
Tax experts recruited on fixed term appointments will naturally
move to such posts on leaving HMRC as part of their professional
5. Q407: Mr Umunna: Could you provide us with the aggregate
value of claims brought in court in relation to the high-risk
corporates programme and the aggregate value of the sums for which
those relevant cases were settled for each of the last five years?
Since its inception, the High Risk Corporates Programme (HRCP)
has generated in excess of £9 billion in additional tax which
was not offered by the companies in their self assessments, whilst
settling over 1,500 open tax issues.
Issues are always settled in accordance with the Litigation &
Settlement Strategy (LSS). The bulk of this additional yield has
resulted from the settlement of issues prior to litigation coming
before the Tribunals or Courts. In some cases HMRC has agreed
with the customer at the conclusion of the active HRCP process
that litigation should commence or continue. Indeed, in recent
months, the HRCP Board has decided that litigation should commence
in relation to a number of corporates across a range of issues
where the total tax under consideration is close to £1 billion.
Only a handful of the issues settled (fewer than 10) have been
subject to litigation in the Tax Tribunal or the Special Commissioners
before the case as a whole was settled. It is therefore not possible
to make the sort of aggregate comparison that has been requested.
In the few cases that have been litigated during the HRCP process,
some have resulted in a successful appeal by the company; in others,
HMRC's arguments were accepted. In all such instances, HMRC believes
that the final settlement reached was fully in line with the Tribunal's
or Special Commissioners' determinations. Where HMRC has decided
not to take an appeal further, this decision was made in accordance
with the normal LSS process, that was, based on the judgement
that a further appeal would be unlikely to succeed.
The only differences identified by HMRC, therefore, between amounts
"claimed in court" and the amounts for which issues
were settled in HRCP cases, have arisen directly from the decisions
of the appeal bodies themselves.
6. Q413: Mr Umunna: Now,
in relation to Goldmans, there are serious allegations which have
been made in the media in relation to HMRC settling this case
and also in relation to Mr Hartnett in particular. Would you consider
as an organisation publishing or providing to us information about
that case so that the public can be assured that the proper procedures
have been followed?
7. Q415: Mr
Umunna: Could you also tell us in relation to the particular
case that I have raised whether the internal procedures were met
in relation to the Goldman's settlement?
HMRC has carefully considered the extent to which
they can answer the questions asked and have concluded that they
cannot give any information, for reasons of taxpayer confidentiality.
29 The National Audit Office report in 2007 found that
58% of issues amounted to less than 1% of the total potential
intervention yield. Back
The Public Accounts Committee reported that in 2007 42% of enquiries
were over two years old. Back
The tax under consideration in an enquiry is initially estimated
before any consideration of the specific facts has taken place
or before applying any reliefs or allowances. It is not tax owed
or unpaid - it is a tool which helps LBS managers to better direct
resources. The "tax under consideration" figures given
are not annual figures. They are snapshots as at 31 March each
year and include some enquiries which had been open for several
years. The totals fluctuate from year to year as cases are settled,
as new returns come in and as HMRC's view changes on the possible
outcome of enquiries, in the light of facts established and legal
advice obtained. Back
The totals for 2008-09 and 2010-11 are taken at 31 March 2009
and 31 March 2011. For 2009-10, we have provided the figure at
31 July 2009. This is because, from August 2009, we introduced
an amended definition of tax under consideration. The totals for
the rest of the 2009-10 financial year are therefore unreliable
as this was a transitional period where two measures were being
run in parallel. See also footnote 33 for "tax under consideration". Back