With an annual budget of £3.1bn in 2014/15 HMRC raised £518bn of tax (and paid out £43bn in benefits).

The £3.1bn number is so low in good part because around 98 per cent (237,000 enquiries of 11m returns) of personal self-assessment returns go unchecked. We allow them to go unchecked because we believe the overwhelming majority of taxpayers to be compliant. This is often what we mean when we talk of tax being “voluntary”: by and large, no one checks what we say about what tax we owe.

This state of affairs is not unusual to the UK. It is baked into almost all tax systems. It works well when what the OECD calls ‘tax morale‘ – citizens’ motivation to pay their taxes – is high. But if tax morale declines, the tax gap (the difference between what should be and is paid) is apt to widen, receipts to fall and costs to rise.

But tax morale is affected by (amongst other things) the confidence that we have in our tax authority and our perception of whether others are paying their dues. So, when HMRC faces challenges to its competence or honesty – like that represented by the press coverage of the Google story over the last few weeks – the stakes are very high indeed.

One of the most predictable consequences of these stories is the immediate fracture they effect between tax professionals and the public. The instinct of the former, by and large, is to leap to HMRC’s defence. But I’m less interested in them. What I am interested in is why it is that the public distrusts HMRC  – and how it is that we might address that distrust.

The lack of trust centers on a suspicion of sweetheart deals: done for enormous sums of money and behind closed doors.

These days such suspicions fall on fertile ground. Once we talked of the tax net – but today corporation tax is more a slalom course. Shift right, shift left, right again and you arrive at your destination of a tax burden that seems, in the process, somehow to have slipped a zero or two.

We might blame politicians, or taxpayers, or their advisers. We might properly call a curse on all their houses. But not on HMRC’s. Blame does not fall upon the policeman for defects in the law.

Nevertheless, it is public confidence in HMRC that suffers. And it is this that we must address.

Is the process for signing off deals flawed?

Here’s what happens before HMRC signs off a sensitive deal with a big corporate taxpayer.

  • The Case Team should follow HMRC’s Litigation and Settlement Strategy which states that HMRC is not allowed to haggle or do deals.
  • It then reports to the Tax Disputes Resolution Board which makes recommendations to three Tax Commissioners, including the Tax Assurance Commissioner, who must agree unanimously.
  • Afterwards, decisions are reviewed by HMRC’s internal audit team – its work is overseen by the Tax Assurance Commissioner – and is reported to HMRC’s Audit and Risk Committee who can recommend further action.
  • The Tax Assurance Commissioner publishes an annual report detailing this governance in action.
  • And externally HMRC’s actions are scrutinised by the Public Accounts Committee, the Treasury Select Committee, and the National Audit Office.

In the abstract this looks like a good and rigorous process. Whether, in actuality, it represents proper scrutiny depends on who occupies these roles.

We can generate a dozen different layers of assurance. But if we populate them with individuals with a cookie cutter outlook the result will neither look like – nor represent – good scrutiny. The reality is that few people move into HMRC from the outside world – the traffic is almost all the other way – and the pool of Tax Commissioners is drawn almost exclusively from HMRC and the tax profession. I am aware of no-one who occupies a role of strategic importance in the process of approving deals whose background is such as to reassure the public that they are likely to provide independently minded challenge.

This isn’t a criticism of HMRC: it doesn’t make these appointments. But this state of affairs reflects badly on an appointments strategy that asks outsiders to be reassured by the fact that insiders say things are working properly.

You want to reassure outsiders? Put them at the heart of the approvals process.

Does HMRC get its decisions right?

My criticism of the fact of the homogenity of HMRC’s decision makers goes beyond a procedural one.

We ask for diversity in decision making not merely because it signals that decisions will be made properly – although it does that. We also ask for diversity in decision making because it brings meaningful challenge to decision making – and should bring about better thinking and better decisions.

Writing before the General Election I noted that in the last decade there had only been one tribunal challenge to an assertion of an entitlement to non-dom status. The 3,600 names on the Falciani list led to only one prosecution. And I am aware of only one transfer pricing challenge ever having been brought before a Tax Tribunal.

These statistics do not suggest to me a Department which is sufficiently mindful of the need for it to manage public perceptions of its fairness.

I do not know whether HMRC has struck a good deal with Google UK Limited: I have reason to think HMRC may actually have struck a rather better deal than the £130m headline suggests (I may write more on this). But I do know that against the background of investigations into Google’s French and Italian sister companies, the revolving door between senior Google management and Government positions, and the very modest tax liability attaching to Google’s enormous (and enormously profitable) UK revenues, a high level of public interest was inevitable.

Given the extent to which our overly strict taxpayer confidentiality laws (to which I will turn) inhibit HMRC’s ability to explain or justify its actions to a sceptical public, HMRC should, I think, have taken the view that it was in the public interest that tax justice should be seen to be done. I hope HMRC will do so in the future.

Has HMRC become politicised? 

HMRC is a non-ministerial department. The reasons why it has that status are given as these:

The debate around tax has become ever more politicised. A consequence has been an increase in the need for a tax department – one which wishes to preserve the confidence of the public – to remain scrupulously neutral.

Regrettably HMRC has done exactly the opposite.

I have heard directly from one Commissioner the pressure he feels himself under to remain on the right side of Ministers. One does not have to look too hard to find instances which suggest HMRC has yielded to this pressure. This document, for example, issued in the run up to the 2015 general election contained, in section 3, a number of future policy commitments. These are not within HMRC’s province and it is unfortunate that the document bears HMRC’s crest. Although I hear repeatedly that the politicisation of the Department began under Gordon Brown, we do not have to cast our minds that far into the past to find a notable example of a Minister taking political credit for what he (then) considered to be the successful conclusion of a deal with a particular taxpayer. And this document (in the “Ministerial Involvement” section) also states that HMRC provided then private information to Ministers, possibly to help with a Press Conference.

When HMRC enters the political fray, when it aligns itself, or allows itself to be aligned, or is aligned by Ministers with party political objectives it must understand that a loss of public confidence is the inevitable corollary.


It would be difficult for any department to retain public confidence against the background that I have described. Such an outcome could only be achieved if the workings of that department were transparent. But HMRC’s are not.

This provision imposes strict duties of confidentiality on HMRC. Breaching them is a criminal offence punishable by up to two years in prison. Perhaps unsurprisingly in the circumstances, officers at HMRC tend to take a conservative view of the limitations imposed upon them by the duty of confidentiality.

The consequence is that HMRC regards itself as unable to respond to press coverage which suggests it has struck ‘sweetheart’ deals. This state of affairs is not conducive to public confidence in HMRC. (Nor, one might think, is it necessarily in the interests of individual taxpayers. The fact that HMRC was unable to respond to media briefings by Google made it more difficult for me to get comfortable with the explanations Google provided. I cannot have been alone in this and it may well be that it affected the tone of the media coverage afforded to Google.)

This state of affairs is undesirable. As a judge noted here:

The efficient and effective collection of tax which is due is a matter of obvious public interest and concern. Coverage in the press about such matters is vital as a way of informing public debate about them, which is strongly in the public interest in a well-functioning democracy. HMRC have limited resources to devote to the many aspects of their tax collection work, and it is legitimate and appropriate for them to seek to maintain relations with the press and through them with the public to inform public debate about the tax regime and the use of HMRC’s resources. It is also relevant to the exercise of HMRC’s functions to provide proper and accurate information to correct mis-apprehensions or captious criticism regarding the exercise of their functions (such as any misplaced suggestion that they had engaged in unduly lenient “cosy deals” with certain taxpayers), in order to maintain public confidence in the tax system. If such confidence were undermined, the efficient collection of taxes could be jeopardised, as disaffected taxpayers might withhold co-operation from the tax authorities.

And it is illogical.

Once HMRC takes a dispute before a tax tribunal, the duty of confidentiality (meaningfully) disappears. The rule that tax appeal hearings should be in public is scrupulously observed. Members of the public can sit and hear all the evidence. The documents in that hearing – witness statements, skeleton arguments, appendices to witness statements – become a matter of public record and are available to anyone who makes an application for them. It is difficult to see what coherent principle there might be that could preclude public disclosure of any material until a taxpayer decides to disagree with a HMRC determination but then throw open the doors to public scrutiny. What is it in the act of a taxpayer disagreeing with a HMRC decision that so fundamentally alters the public interest in confidentiality?

Government is handing over to HMRC powers beyond the strict power to determine tax liabilities. Our policy making in the field is increasingly directed towards discouraging taxpayer behaviour which looks to ‘walk the line’. This discouragement often takes the form of increasing the risks attached to such behaviour. These are good and sensible responses to the increased moral opprobrium with which such behaviour is regarded.

A logical further step along this road would be to remove the protection of confidentiality from those taxpayers who cross the boundary. If an enquiry into a self-assessment return reveals a taxpayer to have wrongly declared a materially lower than the correct tax liability, HMRC should be able to make this fact, and the details of it, public.

It is beyond doubt that Google UK Limited, which has a simple business model, engaged in multiple acts of fiscal boundary testing. It is clear (as I explain here) that there are at least two discrete instances of it telling HMRC that the tax it was due to pay was lower by tens of millions of pounds than the tax it was actually liable to pay. I find it difficult to see how the balance of public interest lies in protecting the confidentiality of the author of that behaviour at the cost of a loss of public confidence in HMRC. There is no sensible clear-eyed assessment of the public interest that leads to that outcome.

These are serious challenges. The stakes are high. This is no time for the sort of complacent response urged upon Government by several commentators. Assume that they are right to assert – without any better knowledge than you or I – that the public is wrong to believe that sweetheart deals are being done. Where does that take us? The public nevertheless believes it and a loss of confidence in HMRC is the inevitable corollary.

We can avert our eyes from reality; stumble on, and watch as the situation worsens. Or we can recognise that the world has changed and take steps to address the undoubted challenges that HMRC faces.

Jolyon Maugham QC, barrister, Devereux Chambers