Does HMRC have something to hide in relation to their settlement statistics?

By Gordon Berry

“Am I the only person to have noticed that HMRC has not issued any updates in relation to their settlement statistics for many months?

Since 27 March 2019, we’ve not heard anything. Does that not seem strange to you?

Well it certainly seems strange and concerning to me, particularly in the context of apparently conflicting and misleading information given to the Treasury Committee and Lords Economic Committee by senior HMRC officials.

For that reason, I decided to file a Freedom of Information Request to find out the correct up-to-date figures. After all, as a taxpayer I am entitled to these. Or so I thought.

Once we were beyond 5th April 2019, and that deadline had passed,  I submitted a Freedom of information request to ask HMRC some simple questions on the statistics:

  1. How many individuals (not corporates) registered for settlement?
  2. How many calculations have been issued by HMRC to individuals (not corporates)?
  3. What is the average of those calculations issued to individuals (not corporates)?
  4. Of those issued to individuals , how many signed settlement agreement offers have actually been returned to HMRC?
  5. What is the average value of offers at question 4 above?

As you can read from above, this is fairly straightforward and should present no difficulties:

Here is the answer I received: FOI (Freedom of Information) request

So basically, the answer is that they don’t want to release the information because they intend to issue it and put their own spin on it at a later date, possibly in their annual report – however, can we trust them to provide the information that I asked for?

I think the overwhelming answer is NO. Based on everything that’s happened so far with regard to settlement statistics. It’s either incompetence or deliberate misinformation – or combination of the two.

After all, HMRC is still largely using the same information and statistics which they quoted to the Lords economic committee in October 2018. 

Let’s just look at the evidence and why there is reason to be concerned about the statistics provided by HMRC:

WHAT HAS HMRC PROMISED?

At the Lords Economics Affairs sub-committee hearing in October 2018 HMRC’s  Ruth Stanier OBE gave oral evidence on the number of people who had already settled with HMRC with regard to what is now labelled DR Loan Schemes and a breakdown of who has suffered the charge. Ms Stanier was asked to follow this up in writing which she did on 31 October 2018 confirming that:

  •  To date, over 24,000 scheme users have registered”.
  • She also made a commitment to Lord Forsyth that HMRC ”are prioritising issuing settlement calculations to give clarity to those who gave us (HMRC) the information by 30th September 2018.” “We have committed to respond by 30th November 2018”

This all sounds very encouraging – until, that is, we look at the situation as at today’s date. Why’s that?

WHAT HAS HMRC DELIVERED?

Well, we know for a fact that as of today despite HMRC promise to their Lordships, HMRC have still not issued calculations to people who registered before 30th September 2018. In fact, based on information that we have, people who registered for settlement in the first quarter of 2018 have still not heard or seen anything!.

This is not in dispute and many thousands of concerned taxpayers are rightly apoplectic with worry over the continued uncertainty.

As if this was not sufficient cause for concern, there are many more issues about which to be concerned.

In the same submission to the Lords Economic Committee, Ms Stanier OBE went on to say that

“Budget & Autumn Statements 2016 documents show the expected yield from this measure to be £3.2bn by 2020-21, with 75% of that yield coming from employers. Our records show that, of those who have settled their case so far, around a quarter are from employers, and they account for 90% of the recorded yield”.

We were already familiar with this reference to £3.2bn yield from the original HMRC ‘impact assessment’ in 2016 and our suspicions were immediately raised.

I will go on to explain why.

That same impact assessment from 2016 had indicated that around 40,000 individuals might be involved.

Our suspicions were raised because we could see that the statistics are not much different from the statistics given in the letter from HMRC Chief executive Jon Thomson (subsequently knighted in January 2019) in his letter to the MP of June 2018.

In that letter Mr Thomson states  “Since 2016, we have agreed settlement with over 5,000 individuals and employers, raising over £500 million for the Exchequer. A further 20,000 people have contacted us to register an interest in settling.” That is the same letter in which Mr Thomson HMRC CEO says “The Loan Charge has also supported our efforts to settle DR cases without the need to litigate.”

Lord Forsyth asked Ms Stanier, in his letter of 1st November 2018, for a better understanding of the distribution of the 5,000 who had settled at that point. Ms Stanier responded on 5th November 2018 with a table indicating that:

There had been 5,000 settlements as at November 2018
Around 25% were from employers and 75% from employees
Around 90% of the yield came from employers and 10% of the yield came from employees.

Let’s just try to look at this information objectively:

  • It struck us that the most likely scenario was that those individuals who had settled by that point were likely those who had relatively small amounts to settle and therefore could manage to do so.
  • The idea that the average settlement for individuals was £23,000 seemed to confirm our belief that those who had settled were likely those with settlements at the smallest end of the scale
  • We would have expected that the average was probably closer to £100,000 and that for most people settlement was going to be at best a struggle and for many, nigh on impossible
  • We also noted that saying that 75% of the yield came from employers was only part of the story as those employers had a right of restitution against the employees, so whatever way you cut it, the employee will be liable for the tax on what they received

HMRC’s WORKED EXAMPLE

In a further letter dated 19th November 2018 Ms Stanier gave, in evidence to their Lordships  a worked example of a “typical settlement where the tax due is over £30,000”.

Ms Stanier’s ‘typical example’ is rather surprising in that the individual apparently had average loans of only £33,400 every year for four years and somehow that  individual then had sufficient funds to pay the settlement of £44,736.87 within 30 days (so no forward interest).

That just doesn’t smell to us like a ‘typical example’! Were HMRC prepared to mislead their Lordships?

What came next was equally as surprising.In oral evidence given to the House of Commons Treasury Committee on 30th January 2019 the HMRC witnesses of Jim Harra and Mary Aiston made some surprising statements. Remember HMRC initially set a deadline for people to ‘come forward’ of 31 May 2018, which they then revised to asking people to email HMRC by 30th September 2018 to register an interest in settlement and they were instructed to provide some specific information. Ms Stanier had promised the Lords that HMRC would then respond with calculations by 30th November 2018.

HMRC EVIDENCE TO THE COMMONS TREASURY COMMITTEE

Jim Harra referred in his evidence to 50,000 open cases and accused the taxpayers of not making full disclosure, whilst also claiming to have opened enquiries in most cases.

He said

We believe that the proposition we have put forward (he means the Loan Charge) is a reasonable and fair way of bringing disguised remuneration avoidance to an end and resolving the open cases in a way that is quick and efficient for everyone concerned.”

I think when Mr Harra says for everyone concerned, he actually means for everyone at HMRC. Mr Harra is the second permanent Secretary and Tax assurance Commissioner, so he perfectly well knows that that was not what parliament laid down in legislation as being fair to the taxpayer.

It’s Mary Aiston’s comments on 30th January 2019 on the statistics that is of most interest here, she said

We have settled about 6,000 cases bringing in about £1 billion worth of tax.” There are about 50,000 people. There are a lot more to go. In terms of getting calculations to people, we have issued 9,000 (Ms Stanier said in November over 24,000 registered and we will issue all calculations by 30th November 2018) and 7,000 of those are still to come back.”.

Ms Aiston also says “We think that the typical settlement that an individual is facing is somewhere in the order of £13,000.”. What! Well its transpired later under questioning I think from Baroness Kramer, that the new figure given by HMRC of a ‘typical settlement’ of £13,000 was actually the median figure and not the mean. Why would HMRC use the median figure?

Something doesn’t smell right. We were minded of tax barrister Keith Gordon’s earlier comments in his evidence about not trusting anything that HMRC say. Are HMRC seeking to misdirect the MP members of the House of Commons Treasury Committee?

Throughout all of this, The Financial Secretary to the Treasury Mel Stride was repeatedly using the same statistics as HMRC. Also HM Treasury were publishing the same and responding to newspaper articles with similar statistics.

Jim Harra used these practiced lines in his letter of 24th January 2019 (misdated as 2018) to the Chair Nicky Morgan when he said “The overall policy is estimated to raise £3.2 billion, 75% of the estimated amount is expected from employers.”, but he avoided the real questions from Nicky Morgan which was about how much of the Loan Charge would come from employees.

Why haven’t HMRC issued more up to date statistics?

Surely if their programme to force people into settlement was working then they would be happy to shout about the success rate?

MPs START TO TAKE NOTICE

We had by this time started to communicate our suspicions in regard to these practiced lines from HMRC in regard to statistics and MPs were starting to take notice;

Our point is that the Loan Charge is only needed by HMRC to allow them to get to employees. So if HMRC total figure is £3.2bn and HMRC estimate that only 25% is to come from employees, then all this heartache and debacle is for the sake of collecting £0.8bn or less

So this whole carry-on, HMRC retrospective charge, HMRC making a change to the legislation on 22nd November 2017 to get around the decision of the Supreme Court, suicides and mental health impact, was all for the sake of £0.8bn.

Indeed Keith Gordon has pointed out to me that the £3.2bn refers to the whole policy of settlement over the last 5 years so actually the figure is probably less than £0.8bn. Interestingly HMRC have also refused attempts to clarify what they mean by ‘employers’.

Many on social media and indeed many MPs apparently read this as Promoters, but we think it means those corporates who did full EBTs and it may also include those who did the Director variant of contractor schemes.

HM TREASURY’S (WHITEWASH) REPORT – MARCH 2019

Then on 26th March 2019 HM Treasury published its report.  Surely this would have more up to date statistics

Yes it did!

It said:

  • The policy was estimated to yield £3.2 billion over 5 years (unchanged)
  • HMRC has agreed around 6,000 settlements worth over £1 billion (unchanged)
  • 26,692 scheme users have registered an interest to settle (pretty specific and barely changed)
  • Of these 20,004 have returned their settlement pack
  • HMRC has issued settlement calculations to 15,649 users

Out of HMRC original estimates of 40,000 to 50,000 who need to ‘come forward’ this sounds to us like an unmitigated disaster.

The Loan Charge was due to come into charge at 5th April 2019 but still only 15,692 calculations have been issued. Plus only 6,000 settlements agreed! That is the same figure as that given on 30 January 2019 when evidence was given to the House of Commons Treasury Committee and almost unchanged from Jon Thomson’s letter to an MP which was dated 28th June 2018

JUST WHAT IS THE TRUE POSITION?

Of course, the truth is we just don’t really know!

However, as an eternal optimist, taking a leaf out of HMRC’s book,  I decided that I wanted to put this ‘beyond doubt’ and I waited until after 5th April to submit a FOI request to HMRC and establish the up to date statistics which I outlined at the beginning of this email.

As you know, from the reply I received, my request failed miserably.

Against the questions I put, you’ll see that I have highlighted the reasons why we need this information:

  1. How many individuals (not corporates) registered for settlement? – Is it much changed from 26,500 and what of the other 23,500 are they invisible to HMRC?
  2. How many calculations have been issued by HMRC to individuals (not corporates)? Are HMRC struggling to issue calculations due to their own inabilities?
  3. What is the average of those calculations issued to individuals (not corporates)? – because I was damn sure it wasn’t going to be £13,000
  4. Of those issued to individuals , how many signed settlement agreement offers have actually been returned to HMRC? because my experience was that many were struggling to reach agreement and finality
  5. What is the average value of offers at question 4 above? how does it compare to the average value of calculations issued, in other words would the statistics bear out my suspicion that the only people settling those who had the smallest settlement offers and were therefore able to afford it.

HMRC replied that they held the information and agreed it was in the public interest but that they were not going to honour the FOI request because they reserved the right to publish it in their annual report as they say they had always planned, which of course gives them the opportunity to put their slant on it. The  HMRC annual report is likely to be published this month just before Parliament goes to recess.

Now, just to rub salt into the wounds, last week the new Financial secretary to the Treasury Jesse Norman responded abruptly to questions in parliament arguing about protecting the tax base, then this week the Financial secretary to the Treasury Jesse Norman said  in response to a written question in Parliament

The Government estimates that up to 50,000 individuals will be affected by the 2019 loan charge. Since the DR loan charge was announced, HMRC have already agreed around 6,000 settlements with employers and individuals worth over £1 billion”.

Norman said in evidence to the Lords this week that the current figure is 7,000 settlements bringing in £1.5bn

So back to the same old soundbites then!

I think it’s entirely reasonable to pose the following questions:

Why would HMRC wish to withhold this information and only publish it just before Parliament goes to recess?

What does it show?

Does it not support HMRC’s stance?

You would think HMRC would be keen to broadcast the success of their processes to “bear down on tax avoidance” –  is it the case that the up to date statistics do not support earlier statistics given to the Lords, the Commons Treasury Committee, Parliament, MPs, newspapers and the public?

We don’t know but we are minded of tax barrister Keith Gordon’s earlier comments in his evidence about not trusting anything that HMRC say.

Would the civil servants at HMRC really mislead people on the statistics as part of a campaign to drive through the Loan Charge in spite of such public outcry and cross party protestations from MPs via the APPG and debates and questions in parliament? Will the HMRC report ultimately shed true light on these questions?

I think we already know in our heart of hearts what the answers are to the questions I pose above. Is it right to be concerned?

You bet it is.

Watch this space.”