HC 1531 Public Accounts CommitteeWritten evidence from Osita Mba LLB (Hons), BCL (Oxon)

RE: PUBLIC INTEREST DISCLOSURE ACT 1998

HM REVENUE & CUSTOMS’ PROCEDURES FOR SETTLING TAX DISPUTES

1. I respectfully present my compliments to you and humbly request that consideration be given to this public interest disclosure (further my letters dated 7 March 2011 and 23 May 2011) which tends to show that:

(a)HMRC’s Permanent Secretary for Tax settled the Goldman Sachs case unlawfully yet HMRC’s General Counsel and Solicitor approved it (see paragraphs 2.1 to 2.44 of the enclosed memorandum, particularly paragraph 2.36).

(b)The Comptroller and Auditor General of the National Audit Office ignored and/or concealed failure(s) to comply with legal obligation(s) in relation to the Goldman Sachs settlement which I reported to him (see paragraphs 2.57 to 2.64 of the memorandum) and in relation to other settlements, including the Vodafone case (see paragraphs 3.1 to 3.32), in his recent review of HMRC’s procedures for settling tax disputes.

(c)The Permanent Secretary for Tax misled Parliament on the nature and/or scope of HMRC’s power to withhold information for reasons of taxpayer confidentiality (with the apparent acquiescence of his fellow Commissioners, the General Counsel and Solicitor, the Comptroller and Auditor General of the National Audit Office, and the Cabinet Secretary) ostensibly to conceal the afore-mentioned failure(s) (see paragraphs 4.1 to 4.47 of the memorandum—particularly paragraphs 4.24 and 4.26—and the enclosed paper).

2. As I explained previously, I worked in the Personal Tax Litigation team of HMRC Solicitor’s Office, which dealt with the Goldman Sachs litigation, from February 2007 until November last year. I was then transferred to the Criminal and Information Law Advisory team, which advise the Commissioners and other policy clients on the confidentiality and disclosure provisions in the Commissioners for Revenue and Customs Act 2005 (CRCA 2005), including submissions and evidence to Select Committees of the House of Commons and responses to Parliamentary Questions

3. I enclose herewith for your consideration the following two documents referred to in paragraph 1 above:

(i)Memorandum on HMRC’s Procedures for Settling Tax Disputes; and

(ii)Paper titled “The Rules of Official Secrecy and Taxpayer Confidentiality and the Public Interest Exceptions for Official Accountability and Taxpayer Confidence in the Tax System: a Historical Perspective”.

Executive Summary

4. These comments by the Treasury Committee (Administration and effectiveness of HM Revenue and Customs Sixteenth Report of Session 2010–12 HC 731) provide a good background to this matter:

159. A particular source of controversy has been HMRC’s settlement of large tax cases involving corporations. Allegations have been made in the press that cases have been settled inappropriately for a lower yield than might have otherwise been achieved. We pressed HMRC witnesses and the Minister on whether the appropriate processes had been used in two high-profile cases. Dave Hartnett, the Permanent Secretary for Tax, vigorously defended the procedures that had been used to achieve a settlement with Vodafone and argued that figures cited in the press lacked credibility. HMRC said they were unable to comment in relation to another high-profile case for reasons of taxpayer confidentiality…

160. We are not in a position to judge whether individual cases were settled appropriately or not. Nor are we challenging the need for taxpayers’ affairs to be kept confidential. However, the sums involved in some of these cases are enormous. …

161. The National Audit Office has undertaken work on HMRC’s procedures for resolving large tax cases, whilst the Committee of Public Accounts has already recommended that “the Department should consider the scope for increasing transparency in the area of large and complex tax cases and for assuring Parliament and the public that due process in the resolution of these cases is being followed.”

162. The Exchequer Secretary did not believe it would be appropriate for politicians to be involved in settling individual tax cases. However, he was concerned that the current process did not allow HMRC to respond to allegations against it:

“We have to remember that some of these allegations question the integrity of dedicated public servants on the basis of little or no evidence, and it concerns me that some of these decisions are becoming politicised and it is quite difficult for HMRC to answer back because they are not entitled to put confidential information into the public domain.”

163. The public needs to be assured that cases involving large sums of money are being settled correctly. Equally it is unfair on HMRC staff and damaging to public confidence that the Department can be the subject of repeated allegations it cannot refute, even if they are groundless. We agree with the Committee of Public Accounts that HMRC should consider how the accountability and transparency of the settlement of large and complex tax cases might be improved. We are taking further evidence on how this might be achieved.”

5. It is inaccurate and misleading to assert that rules of confidentiality prohibit HMRC from discharging its duties of transparency and accountability to Parliament and the public. Section 18(1) of CRCA 2005 enacts the general duty of confidentiality in these terms: “Revenue and Customs officials may not disclose information which is held by the Revenue and Customs in connection with a function of the Revenue and Customs.” However, this duty is subject to numerous exceptions provided in subsections (2) and (3) of section 18.

6. One of these exceptions is section 18(2)(a) which provides that the duty of confidentiality under section 18(1) “does not apply to a disclosure which is made for the purposes of a function of the Revenue and Customs, and does not contravene any restriction imposed by the Commissioners.” Section 51(2) defines “function” for these purposes as “any power or duty (including a power or duty that is ancillary to another power or duty”, while section 9 authorises the Commissioners to “do anything which they think necessary or expedient in connection with the exercise of their functions, or incidental or conducive to the exercise of their functions”.

7. HMRC routinely issues press releases (also published on its own website) disclosing sensitive personal details of individuals convicted of (and sometimes charged with) tax and benefit offences. A recent press release issued shortly after the evidence by the Exchequer Secretary to the Treasury Sub Committee (referred to in paragraph 4 above) is as follows:

Disability tax credits cheat jailed—23 May 2011

A mother who faked her children’s disabilities to steal £112,000 in tax credits which she spent on tickets to see boy bands and stars of the X Factor was jailed for two years today.

Jayne McKnight, 45, from Wolverhampton, began claiming tax credits in 2003, stating that one of her four children was severely disabled. During the course of the fraud she increased this to three severely disabled children, and added a severely disabled and unemployed husband, whilst claiming she was working part-time for a temping agency. At the same time, McKnight claimed thousands of pounds in childcare and after-school club costs.

HM Revenue & Customs (HMRC) investigators uncovered neither her children nor her husband were disabled. Mr McKnight was in fact employed by a local newspaper, and the temping agency where Jayne McKnight claimed to be employed had never heard of her. Finally, she had never even contacted any of the childcare providers she claimed tax credits for, and her children had never attended any after-school clubs.

David Gauke, Exchequer Secretary to the Treasury, said:

“The Government will not tolerate dishonest people stealing public money which pays for vital services. Those who think they can cheat the benefits system should think again. The extra £900 million we have invested in HMRC allows them to step up the fight against benefit cheats and tax fraudsters.”

Notes to editors1. Defendant’s details:* Jayne McKnight, DOB 9/2/1966, of 107 Owen Road, Wolverhampton, pleaded guilty to being knowingly concerned in fraudulent activity with a view to obtaining payments of Tax Credits contrary to Section 35 of the Tax Credit Act 2002.2. Sentencing took place at Wolverhampton Crown Court.

8. It should be noted that the general duty of confidentiality under section 18(1) of CRCA 2005 applies to any information held by HMRC in connection with any of its function, including information that may be in the public domain already. As the availability of information in the public domain is not an exception to the duty of confidentiality a specific gateway is required to issue these press releases lawfully. HMRC applies section 18(2)(a) which permits a disclosure made for the purposes of its function. The Commissioners consider that the duties of transparency and accountability HMRC owes to the general body of taxpayers override any duty of confidentiality it owes to the individual customers concerned; and that in these circumstances such disclosures constitute a lawful interference with the rights of the affected customers to private and family life under Human Rights legislation.

9. The Commissioners are well aware that section 18(2)(a) of CRCA 2005 similarly authorises the disclosure of information about corporate customers involved in controversial settlements to Select Committees of the House of Commons that have oversight functions over the Department, such as the Committee of Public Accounts and the Treasury Committee. As the recent controversy surrounding the Vodafone and Goldman Sachs settlements shows, such disclosures are clearly necessary in order to assure Parliament and the public that cases involving large sums of money are being settled appropriately.

10. However, the Permanent Secretary for Tax, Mr Hartnett, who has the effective delegated authority to exercise the Commissioners’ power to forego the collection of tax for reasons of good management and also has the sole delegated authority to exercise the Commissioners’ power to withhold information for reasons of taxpayer confidentiality (including information relating to settlements he has been involved in) has effectively ensured that relevant information about these settlements are withheld from Parliament and the public.

11. As a result, Parliament and the public appear to have been deliberately misled in the following evidence and submissions:

(a)Oral evidence to the Committee of Public Accounts on 28 January 2008.

(b)Oral evidence to the Committee of Public Accounts on 28 January 2009.

(c)Oral evidence to the Committee of Public Accounts on 9 March 2009.

(d)Reply to the letter of 25 March 2009 by the Chairman of the Committee of Public Accounts, Mr Edward Leigh MP, to the Cabinet Secretary, Sir Gus O’Donnell.

(e)Oral evidence to the Committee of Public Accounts on 16 November 2010 relating to the Vodafone settlement.

(f)Oral evidence to the Treasury Sub-Committee on 16 March 2011 relating to the Vodafone settlement.

(g)Oral evidence to the Treasury Sub-Committee on 11 May 2011 relating to the Goldman Sachs settlement.

(h)Written evidence to the Treasury Sub-Committee dated 15 June 2011 relating to the Goldman Sachs settlement.

(i)Oral evidence to the Treasury Sub-Committee on 12 September 2011 relating to the Goldman Sachs and the Vodafone settlements.

12. Select Committees of the House of Commons have unqualified powers to send for “persons, papers and records” relating to their field of enquiry, and a witness issued with such an order is bound to provide all information and documents requested by a Select Committee even where there would be an excuse in a court of law. The issue of an order for an individual to attend or to provide evidence can exercise these powers formally. However, in line with certain long-standing conventions on the provision of information which have been observed in practice by successive administrations on grounds of public policy, the Committee of Public Accounts and the Treasury Committee have hitherto requested HMRC officials to give evidence to them by means of an informal invitation. Clearly, this concession is based on the understanding that HMRC’s witnesses will be as open as possible with the Committees, refusing to provide information only when disclosure would not be in the public interest, which should be decided in accordance with relevant statute.

13. It is apparent from the enclosed memorandum and paper that senior officials of HMRC have consistently breached this understanding in the past few years, despite repeated recommendations by the Committee of Public Accounts and the Treasury Committee. In these circumstances, it will be appropriate for the Committees to invoke their formal powers to send for “persons, papers and records” relevant to HMRC’s settlement of these controversial cases in order to deal conclusively with concerns that some of these cases have been settled inappropriately for a lower yield than might have otherwise been achieved.

14. In thanking you in advance for your assistance in this matter, I avail myself of this opportunity to renew the assurance of my highest consideration.

6 October 2011

Prepared 19th December 2011