Andrew Goodall

HMRC’s tax guidance for MPs and ministers

David Grossman at the BBC's Newsnight seems to have his finger on the MPs' tax and expenses button, as Mark Lee mentioned here. In this video, posted last week, Grossman illustrated how some MPs have been able to save capital gains tax on their second homes. The CGT exemption is set out clearly in the legislation, and HMRC guidance to MPs (published by Newsnight) includes this statement:

"If you have more than one residence you can choose which one is to qualify for the exemption from capital gains tax. It does not have to be your 'home' for the purposes of [the MPs' additional costs allowance] and travel."

HMRC adds that:

"You can change your choice at a later date ..."

All very helpful, well known to tax advisers and hardly controversial until now. Suddenly the rules seem rather too generous, and people are starting to ask why.

On expenses, the HMRC guidance also seems perfectly clear. A list of items that are not allowed as a deduction includes:

"Accountancy fees incurred in the preparation of the self assessment tax return or related expenses claims."

That's the tax position. The really interesting question, though, is why on earth the taxpayer should be expected to pay a minister's fees for personal tax advice. David Cameron has said, according the Telegraph:

"It beggars belief. If any Conservative MP has used an accountant to do their personal tax return and has claimed that off the taxpayer I will make them pay that money back. They ought to pay that money back, it is completely wrong."

Expenses, personal tax advice and vilification of MPs

I was back at work yesterday after a fortnight's holiday that began on day two of the MPs' expenses scandal as revealed by the Daily Telegraph. Now I need another holiday. I am outraged, of course, by the behaviour of some of our MPs, and I worry about the effect of the scandal on our already weak democracy. If this "political earthquake" leads to more transparency and accountability, then some good will have come out of it. Scandal is the right word – even Jack Straw, the justice secretary, used it several times in a radio interview yesterday.

But there are limits and it would be completely wrong and dangerous to vilify politicians generally. As Joan Smith as pointed out, most of our elected representatives have not done "anything terrible". The danger is that "in this uniquely poisonous atmosphere, years of conscientious public service count for nothing".

There are a few important tax angles here, with possible implications for all taxpayers. I trust we can expect HM Revenue and Customs to conduct a thorough investigation into MPs' tax returns – including those of government ministers whose fees for personal tax advice have been funded by the taxpayer. More on this soon. But I'm going to see MPs' scrutiny of the current Finance Bill in a new light, I think.

Tax is too important to be left to the professionals

Alan Rusbridger of the Guardian and Ian Hislop of Private Eye have told a committee of MPs that the "chilling" costs of legal action are "increasingly deterring investigative journalism," the Guardian has reported. The press is

"growing wary of running controversial stories about large companies and rich individuals because of the potential cost of dealing with legal action".

Two figures illustrate the challenge facing journalists investigating the scale of tax evasion and avoidance and the response of governments and international institutions like the OECD. The Guardian report said:

"Rusbridger said that the Guardian had spent £90,000 on pre-publication legal work to make sure [its recent "Tax Gap" series] on tax avoidance was free of errors."

And the Press Gazette has reported that:

"Rusbridger said it would cost about £100,000 to appeal against the [recent High Court injunction banning the paper from publishing leaked memos relating to the tax affairs of Barclays Bank]."

A Guardian editorial pointed out that the vast majority of journalists do not have the resources to tackle the complexities of tax law, and that the resulting lack of scrutiny means that large accountancy firms and powerful voices from business have a "disproportionate share of influence" on government.

No public interest issue should be too complex to be above investigation by independent media. The Chartered Institute of Taxation welcomed the "unprecedented level of informed coverage of tax issues" in the Guardian's Tax Gap series. But the debate is hindered, as the Guardian editorial explained, by a knowledge gap between mainstream media and those with the specialist knowledge, few of whom seem prepared to engage.

Tax is high on the political agenda. Informed public debate of tax issues is more important now than ever. But this knowledge gap, added to the "chill wind" of our privacy and libel laws, is looking bad for taxpayers and bad for democracy.

Tax avoidance – let’s have a ‘rational debate’

The public debate about tax avoidance "must be rational", says Andrew Hubbard, incoming president of the Chartered Institute of Taxation. "Witch-hunts at one extreme, or blanket denials even to admit that there is an issue on the other, will get us nowhere and will surely lead to ever more entrenched positions," he says.

Hubbard suggests a framework for public debate and considers how complex tax issues can be "articulated to an intelligent and interested public without patronising them [or] blinding them with jargon".

Tolley's Practical Tax newsletter has more on this and other developments, including:

• The OECD has indicated that it will encourage small tax havens to seek multilateral rather than bilateral tax information exchange agreements, after G20 leaders signalled an end to "banking secrecy".
• Residence and domicile – new guidance replaces IR20.
• HMRC sets "benchmark" subsistence rates.
• HMRC welcomes anti-avoidance advisers.

How well is HMRC serving its 'customers'?

Last night's Tonight programme on ITV illustrated the understandable distress caused when HM Revenue and Customs has made mistakes resulting in people being made bankrupt unnecessarily. The programme, having obtained figures under freedom of information laws, alleged that the problem was bigger than HMRC's Dave Hartnett suggested. Hartnett defended HMRC, a very large organisation that gets it right in "the vast majority" of cases. But the programme raises some real concerns. Does HMRC have its priorities right? Is it going for the easy targets?

Another thing. Hartnett told the programme that "... our customers appreciate what we do". This still jars whenever I hear it. Several people have already objected, in response to the programme, to being called customers. HMRC deals with "people", some of whom are taxpayers and some of whom are tax credit or child benefit claimants. Lots of people are all of these ... They cannot take their "custom" elsewhere. They are "people", and perhaps HMRC should try using that word more often.

The Barclays papers – is it time to outlaw avoidance?

My immediate reaction to the High Court's gagging order against the Guardian – forcing the withdrawal from the Guardian website of memos setting out details of tax avoidance schemes alleged to have been devised by Barclays Structured Capital Markets division – was that it had to be. I am of course angry that the reckless behaviour of some of our major banks, assisted by "light touch" regulation, triggered this recession. A bank that is supported by the taxpayer should not be engaging in dreaming up complex transactions created with the sole purpose of avoiding tax. But it is HMRC's job, not the media's job, to tackle avoidance and as the judge said yesterday, the documents contain confidential commercial information and legal advice.

However, Justice Blake is also reported to have said that there is a strong public interest in how the banks do business, that the subject of their tax avoidance is "acutely topical", and that to ban the Guardian from referring to the documents would be "unrealistic and disproportionate". Furthermore, a Guardian leader today makes two excellent points that are worth quoting in full:

"While the judge agreed the Guardian's tax coverage was important he seemed to think there was no merit in allowing a wider public to read the detailed documents in which Barclays employees discussed how they planned to structure these schemes and how they would argue their legitimacy with the taxman. It is better, in his view, that banks, tax advisers and lawyers should be allowed to have private conversations with Her Majesty's Revenue & Customs without any kind of wider scrutiny. This ignores widespread concerns – articulated by the Barclays whistleblower among others – that it is precisely the private nature of these conversations that has allowed banks and corporations to get away with such rampant tax avoidance over so many years.

"This is not an arcane dispute between a newspaper and a bank over marginal tax-dodging at the fringes. If Barclays were to be forced to follow RBS into abandoning its tax avoidance adventures, many hundreds of millions would be removed from its annual profits and leave the bank. Shareholders and government need to know what is going on. And the public should be allowed a glimpse into the cosy world of secret negotiations between bankers, lawyers and tax inspectors over who can get away with what. It is a worrying day when a judge thinks he knows better."

I am not saying I agree with every word here, but if today's editorial does not make the case for disclosure of confidential papers stolen by a whistleblower, it surely strengthens the case for outlawing structured tax avoidance. Can we expect the government to look again at the case for a general anti-avoidance rule (or principle)? Perhaps the time has come.