The Court of Appeal’s decision in the Ingenious case was released yesterday. If rumours are true, it was a case HMRC did everything imaginable – indeed, if they’re true, some things barely imaginable – not to have to fight. And it’s a case which HMRC has now won twice: once before Mr Justice (now Lord Justice) Sales in the High Court and now again, on appeal, before the Court of Appeal.
I don’t usually write about cases on this blog. But this case is rather interesting – it concerns (quite explicitly) the question whether the law prevents HMRC from serving the public interest.
The facts don’t especially matter (is there a more welcome phrase a tax lawyer can utter?) but because they’re engaging I’ll give them to you anyway.
Alexi Mostrous, Times Journalist and Inventor of the Tax Scoop, met with David Hartnett to discuss some information that had come into Alexi’s possession and which he thought might be of interest to HMRC. Accounts of the basis on which that meeting was held vary but during the course of it the subject of Ingenious (the largest promoter of what it would style film investment structures) and its architect, Patrick McKenna, cropped up. And this exchange ensued:
Mr Mostrous: With McKenna do you think he is enacting any active schemes or any schemes that could be used to deprive the Revenue of tax now?
Mr Hartnett: I don’t know
Mr Mostrous: He’s not on your radar?
Mr Hartnett: Oh, he’s never left my radar.
Mr Mostrous: What do you think of him because he presents a very different profile.
Mr Hartnett: He’s an urbane man, he’s a former Deloitte partner, he’s a clever guy, he’s made a fortune, he’s a banker, but actually he’s a big risk for us to so we would like to recover lots of tax relief he’s generated for himself and for other people. Are we winning? I would say, beginning to. I think we’ll clean up on film schemes over the next few years”
Mr Mostrous: That applies to Mr McKenna as well as film schemes in general?
Mr Hartnett: I think we’ll clean up on film schemes over the next few years. You may end up laughing at that statement because maybe we’ll lose it in the courts, litigation’s a hell of a risk, but you won’t find anybody here at all, even the most pro-wealthy people, and I’m not sure we’ve got any, who thinks film schemes are anything other than scams for scumbags.
Mr McKenna and Ingenious took exception to what they said was a breach of HMRC’s public law duties (found in s.18 of the Commissioners for Revenue and Customs Act 2005). They said it was unlawful for Dave Hartnett to have disclosed what he did. And they said that the fact that the disclosure was in the public interest was irrelevant.
The Court of Appeal disagreed. It roundly endorsed what had been said below:
In general, it is legitimate for HMRC to seek to maintain good and co-operative relations with the press. 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 misapprehensions 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 observed that the exception to HMRC’s obligation not to disclose information was a wide one. Now, I should note that the principle in Ingenious won’t justify every public interest disclosure – but it will justify many.
The ratio of the Court of Appeal’s decision echoes a throw away observation made by Lin Homer (HMRC’s CE) in the Public Accounts Committee last month where, in response to Q172, she observed to Margaret Hodge:
One of the conversations that we have had with you in my three years has been about whether we are unduly defensive about confidentiality. We have, on a number of occasions, tried to take that advice from you and move further into transparency.
This recognition is welcome – as is the Court of Appeal’s decision. But I don’t want to get carried away.
There is a world of difference between HMRC recognising that there is no legal impediment to it acting in the public interest by enhancing transparency – and HMRC actually acting in the public interest. The former can be (and hopefully now has been) accomplished in consequence of the Court of Appeal’s decision and several brutal and public Hodgeings. But we get to the latter only through internal cultural change. Let’s hope we now see some.
Waiting for Godot 
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I know it’s a side issue, but the Ingenious case does also illustrate something I have often picked up on when people have said they want to speak to me “off the record”. It’s a phrase that has different meanings to different journalists.
The only thing you should be able to rely on, as in this case, is that your name will not be attached to it, and you will not be identifiable by context, so Mostrous attributed to “a senior Revenue official”. But it does NOT necessarily mean that what you say won’t be published at all.
There seems to be no consensus at all past this point as to what “off the record” means, so if you don’t want what you say to be published you should say something like “not for publication, only for background”. Even then, assume that the journalist is going to try and stand the story up by finding another source, or even hinting about “rumours”. If you want to tell a journalist about something that you don’t ever want to be reported in any way at all, you have to ask yourself why you are telling it to a journalist in the first place…
According the rumours, just what did HMRC do to avoid? Sounds intriguing.
Fully agree with Mike on the “dangers” of talking to the Fourth Estate. Whistleblowers aside, I think it perverse to want your views to form part of the story without accepting some responsibility, or even attribution.
On the wider story I think maybe people/campaigns/PAC should now publicly accept that what HMRC has said about taxpayer confidentiality is actually true, that CRCA etc operates to give them very little freedom in that area. But that HMRC can, does, and should provide further background on how and why it works as it does.
If that happens maybe we can avoid a lot of the unhelpful and damaging rancour that seems to have crept into discussions on tax policy, tax administration and tax compliance.
Of course, everyone will have their own views on how transparent HMRC is, or should be, or on the way it works. But that is surely where the discussion ought to be – in things like how can HMRC explain its prosecution policy, use of disclosure facilities, or taxation of non-doms, without being required to comment on individual cases.
If you look there’s quite a lot of information out there, in places like HMRC manuals, evidence to Parliament, Con Docs, reports of Stakeholder Meetings (as well as the actual meetings themselves) and so on. What HMRC doesn’t do is bring this together, and explain itself as quickly and fully as it needs to in the age of digital media. Why take days and days when things like a Press Release or Statement seems like a short summary of what the CEO told Mrs Hodge?
I don’t think anyone’s saying that HMRC should cheerfully wander about breaching taxpayer confidentiality. On the law as it stands that’s not a possibility open to them. But I don’t at all accept your next statement which is that “HMRC… does… provide further background on how and why it works as it does.” I agree that it “can”; I don’t agree that it does.
Transparency isn’t about spinning. It’s about actively going out to explain your position in the media, it’s about giving people fair data rather than misleading data, it’s about recognising there is a genuine public interest in what they do and that it’s desirable that people should be able to hold them account for doing it properly.
Perhaps the base problem at the moment is that they don’t have the political accountability that comes with having a minister and yet they behave or are perceived to behave in a politicised way. But that’s a personal diagnosis, as it were.
I think we actually agree, but we may not realise it! I ended by saying HMRC didn’t pull things together and respond quickly.I believe there is a lot out there. Things like Issue Briefings, Working Together, Stakeholder Conference.
publications/issue-briefing-tax-https://www.gov.uk/government/collections/briefings
http://webarchive.nationalarchives.gov.uk/+/http://hmrc.gov.uk/agents/partnership/working-together.htm
The status of a “non-ministerial department” is somewhat peculiar. For obvious reasons, we don’t want government ministers to be able to make operational decisions about individual taxpayers, just like we would not want ministers to take decisions about particular prosecutions (hence the DPP and the CPS) or official statistics (hence the ONS).
But the ministers do to a significant extent set the policy for HMRC – pushing through the legal framework within which it works, and setting funding and priorities – and David Gauke is nominally “responsible” for HMRC. Responsible but not accountable?
I know that’s why it’s said HMRC is an NMD. It may even be why HMRC is an NMD. I just don’t find it particularly compelling as an absolute answer to the question whether HMRC should be an NMD. Even if there is a risk which can’t be managed any other way (which is a colossal sized “if”) I’d still want (a lot of) persuading that the negative effects of the loss of accountability on the proper functioning of HMRC are negative effects worth bearing to avoid that risk.
The CoA reached its decision and I for one am convinced the greater public good was served. However, could I just clarify that Dave Hartnett’s quote here is correct and not mis-printed: “…lots of tax relief he’s generated FOR HIMSELF (my capitals) and other people”.
You see, for me there is a world of difference between HMRC on the one hand generating publicity to draw attention to schemes and to name promoters of those schemes and on the other hand naming TAXPAYERS (again, my capitals)
I’m a bit late getting to this.
The idea that HMRC should be an Non-Ministerial Departmental body seems to be one of ‘perceived wisdom’. Here’s what Lord Goldsmith said about it in 2005:
The Bill establishes HMRC as a non-ministerial department. That is driven by the important principle that the administration of revenues should be conducted at arm’s length from Ministers.
From a quick glance, most other commonwealth countries operate a similar kind of system (apart from Canada). However, it is certainly a debate worth having, if only to extract more substantial reasons as to why it is necessary that the body be non-ministerial.
Steve
thanks Steve. Really helpful contribution…
Received wisdom? Weren’t Inland Revenue and HMCE were both “non-ministerial” before 2005?
The comparison with other jurisdictions is interesting.
The IRS, for example, is a bureau of the US Treasury Department. It is headed by its own Commissioner, but falls under the authority of the US Secretary of the Treasury.
In Canada, there is a Minister of National Revenue, formally responsible and accountable for the CRA, but it also has a Commissioner and a Board of Management.
In both cases, I hope there is some sort of firewall between policy decisions, and operational actions in respect of specific taxpayers.