We have a longstanding principle of taxpayer confidentiality in the UK. My tax affairs are confidential between HMRC and me. The essential effect of this principle is that my financial affairs are my business and (subject to my duty to disclose income to HMRC for the purposes of paying tax on it) mine alone.
HMRC staff are under a legal obligation to maintain this confidentiality as their Guidance Manual reminds them:
you must not give or disclose HMRC information to anyone, including other government departments and their agencies, local authorities, the police or any other public bodies, unless you have lawful authority to do so – Section 18 CRCA
Note that this confidentiality extends within government as well as externally. HRMC is a non-ministerial department; there is no Secretary of State responsible for the actions and performance of HMRC as there is with other departments.
I would suggest that this is now a situation that must be seriously reconsidered.
The arguments for the status quo are that politicians should not be able to influence the actions of HMRC towards specific taxpayers. I don’t think anyone would really argue with this, it makes complete sense. Unfortunately, I’m not at all convinced that the current arrangements actually succeed in stopping political interference in HMRC’s operations. There may be no Minister with direct responsibility for the department but the Government does appoint those at the top. Those people are then beholden to their political sponsors for their job. Also, Ministers set the policy agenda for HMRC and the department has to work with those Ministers to deliver that policy.
It cannot have escaped the attention of readers that the tax affairs of multinational companies have been to the fore again lately. The media has been full of stories about the Google settlement a few weeks ago, the more recent speculation around the affairs of Facebook and Apple as well as many others. Indeed, there almost appears to be a race within parts of the print media to “expose” the latest company that “pays no/little tax in the UK”.
All of this leads to much heated debate within and between the profession and tax campaigners. At present, one of the trending topics of this debate is whether or not there should be greater transparency in the way HMRC deals with the larger corporates, especially the big multinationals. To be honest, the real question isn’t “whether” there should be greater transparency, but how do we achieve it. That we do need it is, in my opinion, now beyond doubt.
The principle of taxpayer confidentiality, however, extends to all taxpayers, not just to those that are individuals. Given what I have written above, I would like to suggest that this is something that now needs to change.
At least partially.
Companies – at least those big enough not to benefit from exemptions – already have to publish detailed financial information every year. That information is publicly available to anyone who wants (and can be bothered) to look at it.
Those publicly available accounts already contain summary details of the company’s corporation tax position. So why don’t we also require companies to provide a basic tax computation summary in their accounts, taking the reader clearly from accounting profits to PCTCT?
What confidential information would this reveal to the outside world?
The accounting profit is already known.
The tax charge is already disclosed.
Of course, the tax charge might be adjusted in next year’s accounts if the tax return is subsequently adjusted in discussion with HMRC. Now, here’s the really important part, such adjustments should be fully explained and reconciled in the accounts. In this way, those interested will be able to see how HMRC and the company have approached those adjustments. At least in terms of the detailed outcomes, if not the actual discussions.
There is a real swell of public opinion that politicians are doing deals with big companies to allow them to pay less than “their fair share” of tax (whatever that might mean). The response is that HMRC is independent of political interference and that it treats all taxpayers equally. The latter argument cannot be proved, of course, because of the principle of taxpayer confidentiality and, frankly, the former argument is becoming less and less credible.
The way the Google settlement was communicated, in particular the way the George Osborne tweeted about it so quickly and crowingly, has lead many to cry foul. Was HMRC put under political pressure to settle in a way that would please Ministers? Did Ministers know supposedly confidential details of the settlement?
If Google was required to disclose details of the settlement in its accounts (in reconciling the adjustments to the previous tax disclosures), I suggest that HMRC would find it much harder to do anything other than play a straight bat in reaching such a settlement. Political influence would be harder to hide.
Tax transparency, certainly for larger companies, can very easily be improved by requiring much more detailed disclosure of tax in the accounts (note that I say “improved”, it may not be perfect but it would be a start).
Finally, any changes in this area must, in my opinion, be accompanied by greater understanding of the principles of corporation tax – e.g. loss relief, interest deductibility, capital allowances – amongst the press, public and MPs. Otherwise we are still going to see those silly-season stories.