Does The Government Get Value For Money In Big Tax Disputes?
We work on reports prepared by the National Audit Office, which means we have some of the best research available to any of the Select Committees in the House on which to base our work.
Below is a report the National Audit Office issued last week about how large tax disputes have been settled. Whilst it finds there is plenty of room for improvement, it states "all five settlements (that were examined) were reasonable and the overall outcome for the Exchequer was good."
Whilst this does not bust all the myths about how various people and companies do or do not pay enough (or any) tax, it does prove that some of the biggest tax disputes are now being settled properly.
I'm sure the Committee will look at this report in great detail and only time will tell what our conclusions will be. The press notice for the report is below.
HC 188 2012-13
Report by the Comptroller and Auditor General
Settling large tax disputes
The National Audit Office has concluded, on the basis of an examination by former High Court tax judge Sir Andrew Park of five large tax settlements, that all five settlements were reasonable and the overall outcome for the Exchequer was good. However, the spending watchdog has expressed concerns about the processes by which the settlements were reached and over poor internal communication of the reasons for settlement.
The NAO review of the settlements followed serious concern by the Public Accounts Committee about how HM Revenue & Customs had handled them or overlooked governance arrangements. The NAO also examined the basis of concerns expressed by whistleblowers.
According to today’s report, all five settlements were reasonable for the Department to have reached under the circumstances and at least one may have been better than reasonable. These large settlements are complex and there is no clear answer to what represents the ‘right’ tax liability. In each case, there was a range of justifiable positions the Department might have taken. The NAO’s examination included consideration of whether the settlement in each case was as good as or better than the outcome that might be expected from litigation, taking into account the risks, cost, uncertainties and timescale of the latter option.
Specialist staff were sometimes excluded from the final settlement negotiations and the Department did not always ensure that these staff involved understood the reasons for settlement. Poor internal communication of the reasons resulted in a loss of confidence in the settlements, both internally and externally.
It is not clear that all settlements were fully compatible with the Department’s Litigation and Settlement Strategy. For instance, there are some disputes where the only possible outcomes are either that the taxpayer owes nothing or that it owes the full amount. 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.
In most cases, there was no need to seek legal advice before agreeing settlement terms. In one case, the Department did not consult its lawyers when it should have done because there was ongoing litigation.
The findings of today’s report confirm the NAO’s concerns regarding the governance arrangements operating in these cases. The Department has acknowledged that its governance processes need strengthening and is introducing new arrangements, including the appointment of an assurance Commissioner, who will approve all large settlements.
Amyas Morse, head of the National Audit Office, said today:
“On the basis of Sir Andrew Park’s reports, I conclude that the settlements reached by HMRC in these five cases were all reasonable. 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. Poor communication with staff also undermined confidence in the settlements.”
Notes for Editors
- To address the lack of assurance over the settlements where the Department set up alternative governance arrangements, or overlooked existing governance arrangements, the NAO examined the five of these settlements. Sir Andrew Park, a retired tax judge, provided expert tax advice. For each of the five settlements, the NAO asked Sir Andrew Park to consider whether (a) the settlement value was reasonable in view of the circumstances of the case; (b) the settlement was consistent with the Department’s Litigation and Settlement Strategy; (c) the Department obtained appropriate legal advice and acted upon the advice at all relevant stages; and (d) the Department followed its own procedures.
- Press notices and reports are available from the date of publication on the NAO website, which is at www.nao.org.uk. Hard copies can be obtained from The Stationery Office on 0845 702 3474.
- The National Audit Office scrutinizes public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Amyas Morse, is an Officer of the House of Commons and leads the NAO, which employs some 860 staff. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy.
Press Notice 31/12
All enquiries to Barry Lester, NAO Press Office: Tel: 020 7798 7937