Labour Party proposes its own HMRC reforms

On the back of HMRC’s plans to restructure, the opposition party, Labour, has revealed its own plans to reform HMRC, proposing the creation of a supervisory board, consisting of stakeholders, to improve on the quality of service, strengthen public accountability and tackle tax evasion, reports Amy Austin

John McDonnell, shadow Chancellor for Labour, commissioned the 36-page review, Reforming HMRC: making it fit for the twenty-first century, which investigates the difficulties HMRC faces and makes recommendations on how to improve the tax authority and strengthen its public accountability.

Supervisory board

The review suggests introducing a supervisory board made up of stakeholders to give HMRC direction and enhance public accountability. The review states: ‘The supervisory board must focus on HMRC’s ability to meet its objectives. These are to maximize tax revenues, make sustainable cost saving and improve service to customers.’

The stakeholders will question HMRC on policies, practices and processes.

Board members would be appointed by the Chancellor, according to publicly approved criteria and would be agreed by the Public Accounts Committee (PAC).

John Cullinane, CIOT tax policy director, said: 'The idea of a supervisory board, to scrutinise HMRC and watch over the actual HMRC board, is an interesting one. We already have parliamentary committees, who surely should regard scrutinising HMRC on behalf of taxpayers and the wider public as their job. But it is worth exploring this further.' 

At Labour’s review launch, McDonnell said: ‘Problems with HMRC often come from the changes in policies that now seem to happen on a regular basis, for example, the recent Aspire contract.’

However, the wide ranging review did not cover critical restructuring for HMRC as it enters digitalisation through Making Tax Digital.

The new board will also be the point of contact for whistleblowers releasing information about tax avoidance and evasion.

Tax evasion and avoidance

The review states that tax returns from all large companies should be made available to the public, suggesting that this would deter companies from using tax avoidance strategies through fear of being named and shamed.

This has been preempted by the amendment to the Finance Bill introduced by Labour MP, Caroline Flint, which would require all multinationals to make their country-by-country reporting public for the first time. The size of multinationals profits, where they were made and what taxes they paid would be disclosed, this information was previously only supplied to HMRC.

Professor Prem Sikka, author of the review, said: ‘There needs to be a healthy distance between HMRC and large businesses.’

Cullinane commented: 'Some proposals appear driven by a belief that HMRC has been ‘captured’ by big business, which I think is mistaken, and which I am sure will come as a shock to all those in business who deal with HMRC.

'Publication of large companies’ tax returns and related documents would put a huge quantity of figures and technical data into the public domain but would probably not add a great deal to the sum of human understanding or reassure the public if they believe that some multinationals are not paying enough tax. In particular, no amount of ‘transparency’ in the UK will correct deficiencies in the US tax system.'

HMRC’s board and various other committees involve representatives from large companies of which many are ‘directly implicated in tax avoidance or designing, marketing and implementing tax avoidance schemes.’

To combat tax avoidance, the report suggest that the General Anti Abuse Rule (GAAR) should be rewritten so that HMRC is guided by the Department of Justice rather than big business, further distancing the tax authority from large businesses.  

Under the current GAAR ‘transforming income into capital through artificial transactions may not be construed as tax avoidance.’ This means that businesses such as Starbucks and Amazon will not be affected.

This is the first release in a four-stage proposal from Labour to reform HMRC. McDonnell said that the second stage of the review, a survey of HMRC staff views of the tax authority, will be released in October.

McDonnell said: ‘With the appropriate levels of investment, respect for HMRC staff to lift morale and the appropriate legislation, we believe we can achieve a fair and just taxation system, which would overcome some of the issues we now have for investment in our public service.’

A copy of the report, Labour party Reforming HMRC: making it fit for the twenty-first century is available here

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