Why don’t we trust HMRC?

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% (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.

12 thoughts on “Why don’t we trust HMRC?

  1. I’m not posting what I just typed. Either way, it wouldn’t help!

    Good article though. HMRC need to not look like idiots if taxpayers are to respect them. Big tax avoiders like Google make them look like idiots, due to their lack of ability to reply. This should be changed.

  2. Thank you for a brilliant, thoughtful and hugely important piece. A good deed in a dark world.

  3. Why don’t we trust HMRC? Actually I think we do trust HMRC most of the time, but if we don’t, perhaps because we don’t understand what they are doing. Or perhaps we because fear an organ of the state, with the power to force us to divulge private information, to demand money from us with menaces (and interest and penalties), and to cause immense damage to our lives. For example, the Abbey Forwarding case. http://www.telegraph.co.uk/finance/financial-crime/9716421/How-one-family-were-brought-to-their-knees-by-the-taxman.html

    Just in relation to Google, no doubt the company is very well advised and followed through properly on the advice they were given, and no doubt HMRC looked them very hard before concluding that taking a case to the tax tribunal was not worth the candle. Is there a suggestion here that HMRC should spend limited public resources in litigating a matter they know or suspect they will lose, to save public face?

    So, only 11 million income tax returns are filed, from 30 million taxpayers in a population of about 64 million people. Most taxpayers are dealt with through PAYE (and for a short time longer by withholding of tax on interest). Similarly, HMRC relies on businesses to act as unpaid tax inspectors to collect and pay over VAT and most NICs. So that is 60% or more of tax revenues given up without HMRC intervention (stamp taxes are also largely paid over without compulsion). Quite a lot of feathers plucked from the goose with a bare minimum of hissing, yet at some considerable risk to the businesses involved, if they get something wrong in their unpaid role as amateur tax inspectors.

    As you indicate, HMRC has a range of internal and external reviewers, including NOA and PAC. Are they all insufficiently independent, or prone to some sort of regulatory capture or group-think? Lin Homer comes from outside HMRC and is not a tax expert – is that the sort of external expertise you want?

    It seems that part of your solution to a lack of public confidence in HMRC is naming and shaming of taxpayers who agree adjustments to their tax affairs: a sort of public vilification, putting malefactors in the public stocks for a while, so everyone can throw brickbats at them, pour encourager les autres. I wonder what effect that might have on the pro-active engagement of businesses with HMRC, and the open and honest culture of discussing issues with HMRC in advance, to make sure that the right amount of tax is paid at the right time. Or indeed to the morale of the unpaid tax inspectors we rely upon for at least 60% of our tax revenues. It also overlooks quite how hard it can be to determine the right tax treatment in some situations.

    I’m not saying there is no role for greater transparency about the way HMRC operates, or indeed some public education on how the tax system works and how settlements are reached. But abolishing (or perhaps just further weakening) taxpayer confidentiality seems a rather extreme lever to reach for. For example, what effect might it have on the willingness of other jurisdictions to share information with the UK, knowing it could become public? And can HMRC deal with the inevitable uptick in tribunal cases, when taxpayers decide they might as well got to court and try to win in cases where reaching any sort of settlement will open them to public opprobrium anyway? It is really so illogical for the court process to be in public, when the preceding dispute is in private? The details of police investigations are not open to the public, when the criminal courts generally are. Commercial disputes are not open to the public (and maintaining confidentiality is certainly a factor that makes mediation and arbitration attractive in commercial disputes, when going to the public courts would bring matters into the public arena).

    Sorry, I wrote too much. Perhaps I need my own blog 🙂

  4. Tax should be simple and easy to understand.Examination of the system never mind criticism of its main part being HMRC does undermine it.When you are answering questions,you are losing.Your credibility is under scrutiny.
    The whole process of taxation should be simplified as follows
    1/HMRC should issue clear understandable interpretations of legislation (no double negatives,no weasle words etc) and the intended results of the legislation
    2/If the legislation is not accepted by the taxpayers in accordance with HMRC policy statement or not interpreted by the Courts in accordance with its intended effect,then the legislation should be amended with retrospective effect to ensure that only the intended results of the legislation is achieved.
    This will ensure that no unintended benefits will accrue.There would be no stupidity such as that arising from film investment schemes.Taxpayers would not be duped by “tax factories/schemers” and hit with tax bills long after their earning capacity has waned or disappeared as in the case of Sportspersons.
    The result will be that tax will be levied as intended.The process of taxation will be open,transparent and in accordance with the intention of the legislators.There will be no need for scrutiny of HMRC except in relation to their stated interpretation of legislation
    All self employed persons are minded to reduce their tax bills as that will make more money available for investment in their business.All business operates to minimise expenses which includes tax dues.It is not revolutionary to believe that this mindset will continue if the status quo remains.The chase for tax advantage will not abate.Special deals based on “cost effective” decision making within HMRC will continue. The impact will be an erosion of confidence in a crumbling,chaotic,closed taxation process.
    RIP confidence/belief in the taxation fairness,openness etc

  5. I find this a very difficult circle to square. I have always believed that public loss of trust and faith in HMRC to “do the right thing” could disrupt the enormously important level of voluntary compliance we have in the UK. So yes, I agree with you on that score. I do think that the media reports about Google undermine public confidence that HMRC is even handed with large businesses, small businesses and individual taxpayers. I suspect that such a view is almost inevitable, particularly from those who have recently faced compliance checks which have produced a tax settlement. There is probably quite a widespread belief that there is “one rule for large companies and another for everyone else”. And in a way that is true – large companies normally have a customer relationship manager (or more than one) to smooth the relationship between the tax authority and the company; but this is sensible planning – the higher the risk (big numbers often mean big risk) the more resources need to be devoted to making sure that the taxpayer company is on the right page. Eliminating tax lost through error or failure to take reasonable care is an essential part of managing the tax system where large companies are concerned.

    What I think we had with Google was a company taking a different view about the correct tax treatment of particular transactions. This difference of opinion continued for some years, as you have previously written. The matter under dispute was clearly something HMRC was aware of over this period of time. Eventually the dispute was resolved without reference to the courts, and one must hope, according to the governance procedures you outlined above. There is then a question of penalties for inaccuracies in the returns submitted, and HMRC must take into account the behaviour of the taxpayer. Was the inaccuracy a result of failure to take reasonable care? Was it a deliberate misstatement? This would have been part of the dispute and the decision would have determined the level of penalties applied for the inaccuracy (rather than late payment of tax. It seems to me that Google took a different view than HMRC of the relevant statutory provisions. If that view was unsustainable under the circumstances (for example, a wild punt rather than a reasoned view) it is likely that a penalty would apply for – at a minimum – a careless inaccuracy. Further up the scale it might be regarded as deliberate. With a deliberate inaccuracy of the size of Google’s, HMRC would then be permitted to use the publicity methods available to them when a taxpayer is found to have deliberately avoided paying the right amount of tax, and there you lift confidentiality.

    Is there a case for breaching confidentiality rules over and above this? I just can’t get comfortable with that idea, however much I worry about the public’s view of HMRC – and I do worry, not just about Google but about unanswered telephone calls and unjust penalties for oversights. On what grounds would HMRC talk about a specific taxpayers’ affairs? What would be the limit on the information they could disclose – and who would decide that?

    Another alternative is to use the NAO a bit like a “Police complaints Commission” to review all major settlements to ensure that process was correctly followed and that the best deal was obtained for the UK taking into account the costs of litigation. Would the public trust that more?

    Thank you for tackling such a difficult and important subject. Still worrying away at the problem….

  6. For what my opinion is worth I think Andrew has this right.

    I’d just add (as a non-accountant, lawyer etc) is – I watched the PAC Google hearing & most of the MPs were pathetic (e.g. will Google lose employees because of their tax issues, whilst paying very large salaries – what?) Plus this 3% thing was destroyed by Google, if anyone was actually listening.

    So, HMRC were let down by the PAC & did a fair job of explaining to the PAC what they had done. Most of the PAC had left by then as there’s no publicity in it.

    The point here being that the PAC rubbished HMRC, Yourself & Murphy, Sikka etc al are constantly telling us that HMRC are rubbish & need someone (who could that be?) to take charge etc etc.

  7. Thanks Rebecca. I’m not (in this piece at least) especially interested in the Google deal as exemplifying anything about HMRC getting things right or wrong. Neither you nor I can *know* – although I also think it far more likely than not that HMRC did, in strict tax terms at least, the best that might be done. My point, obviously, was more about how we confront the reality of repetitions. What might we do to protect against the corrosive effects of the harm to public confidence? My own view is that pretending it’s all going to go away just isn’t an option.

  8. I read your comment after replying to Rebecca’s. I think my reply answers your rather poor observations about what I say and why I say it.

  9. There are many reasons to distrust HMRC.
    For starters, when someone is *deliberately* acting in a dishonest manner, it does not exactly build trust.

    Just one example: HMRC serving deliberately miscalculated Accelerated Payment Notices to thousands of contractors in order to maximize the amount of “tax collected” (or more accurately: extorted).
    In the case of so-called “Contractor Loan Structures”, there is ample evidence that HMRC has been using artificial models to estimate the value of APNs, even as *they had all figures in their possession to make an *exact* calculation. Incidentally, the “artificial model” produces vastly overinflated figures!
    We are not talking individual cases here and there, but an industrial-scale process.

    How exactly can HMRC be trusted when they deliberately doctor figures to artificially increase intake, hoping that a large fraction of taxpayers will not challenge them?

  10. I don’t trust HMRC because they make mistakes.

    I have just had to demand correction of my tax code. I have a modest income (I’ve never paid higher-rate tax) which doesn’t change much from year to year. Each year I complete my tax return (I’m a company director) in April or May and get a tax calculation in return. So HMRC have a long series of data with my income.

    Imagine my surprise when I received a tax code of 20T (i.e. tax-free allowances of £200). Looking at the notice I saw that I hadn’t been given any personal allowance. I know that the personal allowance is withdrawn between £100k and £120k so inferred that HMRC had decided that my income next year will be more than £120k. What do they know that I don’t?

    Normally I communicate with HMRC in writing (that way I get an audit trail). But on this occasion I was so intrigued as to what HMRC thought was my income that I waited the required 15 minutes to speak to a human on the telephone. “Paul” was helpful (they refuse to give full names when you ask) and was able to tell me that “the computer” had estimated my income for 2016/17 as £438,000. Perhaps they’ve seen that I’ve posted a comment on this blog and have decided that secretly I’m a tax lawyer (sorry Jolyon)!

    This experience followed a wrong tax calculation for my wife in which they had multiplied one item of income by 100 and ignored another.

    So, to answer your question, practical experience tells me that HMRC cannot be trusted. They also lose my trust by anonymising their address (where is BX15?); not giving a name at the bottom of a tax notice or return; and instructing their call centre staff not to divulge their full names, even when asked.

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