Big tax settlements were reasonable, NAO says

Dave Hartnett at HMRC's offices
Image caption Chief tax collector Dave Hartnett retires from HMRC this summer

Five large tax settlements agreed by HM Revenue & Customs were "reasonable", the National Audit Office has said.

The NAO looked at the way the controversial deals had been struck, after MPs complained they involved favourable treatment for big companies.

The way the deals were done, however, did not fully comply with HMRC's own internal policy, the NAO said.

On Wednesday, the High Court gave permission for a legal challenge to an HMRC settlement with Goldman Sachs.

Multiple issues

The NAO's own enquiry into the controversial settlements was advised by Sir Andrew Park, a retired tax judge.

It was prompted by a report from the Public Accounts Committee last December which accused Dave Hartnett, the HMRC's outgoing permanent secretary for tax, of striking "cosy deals" with some big companies.

"On the basis of Sir Andrew Park's reports, I conclude that the settlements reached by HMRC in these five cases were all reasonable," said Amyas Morse, head of the NAO.

"Moreover, in settling them, the department successfully resolved multiple, long-outstanding tax issues.

"However, our concerns over the processes by which the settlements were reached have been confirmed. It was not appropriate to set up governance arrangements specific to certain cases or to fail to apply processes correctly," Mr Morse said.

'Questions remain'

The NAO said specialist HMRC staff were cut out of the final negotiations with the large taxpayers, thought to include Goldman Sachs and Vodafone, and were left in the dark about why the deals had been struck.

This had undermined confidence in the Revenue's behaviour, it said.

Margaret Hodge MP, chair of the Public Accounts Committee, welcomed the NAO report.

"This report confirms my committee's concerns about the uncontrolled way that HMRC has been doing secret deals with large companies," she said.

"If the final settlements in these cases were reasonable, as Judge Park has concluded, questions still remain over why officials bypassed the proper processes.

"These deals have sent a message that it's one rule for big business and another rule for everyone else," she said.

Unorthodox methods

In its report, the NAO pointed out that the issues in each case were complex, with no obvious "right" answer about how much tax should be paid.

Compared with the risks and costs of expensive, long drawn out litigation, the eventual payments obtained by the eventual settlements were reasonable, it decided.

But it highlighted the unorthodox way one of them had been arrived at.

"There are some disputes where the only possible outcomes are either that the taxpayer owes nothing or that it owes the full amount," the NAO explained.

"In these circumstances, the department's litigation and settlement strategy does not permit 'splitting the difference'.

"In one settlement, the department settled for less than if it had won in litigation. This was reasonable, given the costs and uncertainties of litigation, but was not clearly compatible with the strategy," the NAO said.

New guidance

HMRC welcomed the NAO report.

"We have always maintained that the settlements represented good value for the UK, by making sure that large businesses play by the rules in often complex international transactions," a spokesman said.

"In February we announced new governance arrangements for significant tax disputes, to provide greater transparency, scrutiny and accountability, and we are currently appointing a new tax assurance commissioner, to ensure a clear separation between those who negotiate and approve settlements."

Despite the NAO's verdict, the issue will still be examined in public in the High Court.

The campaign group UK Uncut will pursue its judicial review of the way HMRC struck a deal with the investment bank Goldman Sachs.

This allowed it to avoid paying interest on previously unpaid national insurance payments on staff bonuses.

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