Yes it appears HMRC DOES have something to hide within their settlement statistics

Only 2,000 settlements have been agreed in the time since HMRC Chief Executive Jon Thomson wrote to MPs 27 June 2018.

By Gordon Berry

I wrote an article a few days ago asking if HMRC were hiding something within the statistics being presented to the Commons Treasury Committee, the Lords Economics Affairs Committee, Parliament, Agents, the media and taxpayers at large

As I indicated, 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 that had so far been presented. I asked:

  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.

As you can read from above, this was a straightforward request and should have presented no difficulties to HMRC:

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

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 claim they had always planned.

So then, one week before Parliament goes to recess, HMRC publish their annual report and accounts. There is much I could say about the annual report, but let’s stick with the current focus.

Did HMRC answer the questions that I asked, as they said they would?

No.

For the most part, they simply did not did not release the information I requested. More worrying, the information that they did provide probably even more explosive:

What did HMRC reveal

At page 31 of the annual report and accounts HMRC reveal something quite startling

“Before the loan charge came into effect, we wrote to more than 40,000 people who we believed may be affected, inviting them to settle their tax affairs. Since then, we have agreed around 7,000 settlements, worth more than £1.5 billion”

That means that they have agreed just 7,000 settlements in over three years and assuming that the information supplied is accurate at 31 March 2019, have approximately five months to resolve 12,000 settlements.

That means that HMRC have managed to finalise only 2.000 settlements since approximately this time last year because the letter from Jon Thomson to MPs said “Since 2016 we have agreed settlements with over 5,000 individuals and employers,”

This is just preposterous.

Then at page 103

“More than 28,000 scheme users expressed an interest in settling their tax affairs, with over 19,000* returning their settlement packs under the published settlement terms.

We continue to agree settlements for this population. Between Budget 2016 and 31 March 2019, around 7,000 settlements were agreed, bringing in over £1.5 billion for the Exchequer.

* This figure follows an end of year reconciliation and is an update from the previous number published in the government’s Section 95 report.”

So there we have it:

  • 28,000 expressed an interest in settling
  • 19,000 returned settlement packs
  • 7,000 settlements have been agreed
  • From a target of between 40,000 and 50,000

A disaster for HMRC. No wonder the new Financial Secretary to the Treasury seemed irritated last week before the Lords Economic Affairs Committee when he complained of a negative campaign against HMRC!

It would be entirely reasonable to ask what action is been taken regarding the other 22,000 individuals within the target group who have not ‘expressed an interest in settlement’.

Are HMRC aware of the identity of those individuals?

If so, what action are they taking. Or do those individuals slip through the gap?

Mary Aiston OBE assured the House of Commons Treasury Committee in January 2019

“Our past experience with settlement opportunities is that around 75% of those people will come back and settle. There is a lot more work to do. We always expected that there would be a peak of people coming in February and March”

The language HMRC use is always revealing by what it doesn’t say

“Before the loan charge came into effect, we wrote to more than 40,000 people who we believed may be affected, inviting them to settle their tax affairs.”

Yes, they wrote to many just before the 5th April 2019, though some appear to have received their first communication from HMRC after 5th April 2019, not exactly three years notice.

Also “we believe may be affected”, what are we to take from that?

My previous article said, “….we are minded of tax barrister Keith Gordon’s earlier comments in his evidence about not trusting anything that HMRC say .”

What did HMRC not reveal

It is interesting that HMRC made no attempt to reveal the details I requested in my FOI request when I asked:

  • 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

  • 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.

It is just as interesting that HMRC chose not to reveal the average settlement value in the calculations issued by HMRC (we do not know how many) nor the average value of the 7,000 settlements returned and agreed with HMRC.

Remember that I explained in my earlier article that Ruth Stanier OBE had told Lord Forsyth in her letter of 5th November 2018 that the average settlement for individuals was £23,000. Then Mary Aiston OBE surprised us in January 2019 when she claimed in evidence presented to the House of Commons Treasury Committee, that “…we think that a typical settlement that an individual is facing is somewhere in the order of £13,000..”

Why HMRC needed a change to the Loan Charge on 22nd November 2017

I think it is worth re-clarifying why HMRC needed to make a change to the Loan Charge legislation on 22nd November 2017.

The Loan Charge itself was devised prior to March 2016, well before the decision of the Supreme Court was announced on July 2017. HMRC could not have known what the outcome would be or indeed whether it would even go to the Supreme Court. The Loan Charge was meant to be their insurance policy. It was mean to catch all, corporates and individuals, employer and employee.

However, the ultimate decision of the Supreme Court gave HMRC an inconvenient victory. It did mean that they could get to those companies who were still trading who had undertaken an EBT, by issuing a follower notice. HMRC went on to do the same with EFRBS and indeed even issued Follower Notices in one specific case where the judge had ruled that the facts were different and Rangers decision did not apply.

What was inconvenient was that it meant that HMRC could not get to individuals such as Contractors or those employees or Directors where the company had ceased trading, perhaps due to the retirement of the owners, possibly many years prior.

HMRC have repeatedly said that they expect the yield from employers will account for 75% of the £3.2bn. The Treasury Minister repeated that claim last week. Logically that means only 25% or £0.8bn will come from the 40,000 to 50,000 individuals.

All this heartache, debate, bankruptcy and suicide because HMRC were not satisfied with the 75% of £3.2bn and sought instead to get around the decision of the Supreme Court, the highest court in the land, just so that they could get to individuals.

In fact, it has been indicated to us on more than one occasion, that there is a desire for punishment of tax avoiders within HMRC. It looks as if this may be correct.

Interestingly, in evidence given in court, a senior inspector involved in contractor tax enquiries indicated that HMRC were not so concerned about the amount of tax (because it was small) but the numbers of individuals who participated. This tends to support the desire for punishment – for many, the punishment continues daily and it’s all down to one thing, the implementation of the loan charge and bypassing existing legislative powers available to HMRC.

What now?

The fact seems to be that Parliament voted through the Finance Bill and only Parliament can undo the mess. All tax and legal experts tell me that there is no legal mechanism to stop the loan charge now that we have passed the relevant deadlines.

I suggest that where there is the political will then the law can always find a way. If there have only been 7,000 settlements agreed up to this point, then it would be easier to revise the 7,000 than continue to pursue the other 43,000. By all means have the Loan Charge to stop any future schemes, but make it prospective from 5th April 2019 and remove the retrospective element now.