Tax avoidance by the rich and big business has dominated the headlines recently with Prime Minister David Cameron and the Chancellor George Osborne’s recently commenting that it is “morally wrong” and “morally repugnant” and promised a clamp down on the issue.
However the findings of a Channel 4 Dispatches investigation into the commercial activities of the board of Directors at HMRC includes several allegations:
Phil Hodkinson, a revenue director who chairs HMRC’s ethics committee earns more than £100,000 a year from FTSE 100 firm Resolution Ltd incorporated in Guernsey.
John Spence, a revenue director who until 30th June was on the board and chaired HMRC’s audit committee is also the chairman of major estate agent and financial services group SpicerHaart, two of whose employees offered to help with schemes to to avoid stamp duty.
One said he had facilitated stamp duty avoidance for millionaires from India and China.
The programme also discovered that Apex Credit Management Ltd – a debt collecting agency the HMRC has awarded a contract to collect millions of unpaid taxes – is controlled by Anacap Financial Partners LP – a firm based in the tax haven of Guernsey.
In an interview with the programme, the Chair of the Public Accounts Committee, Margaret Hodge MP, insists that no non-executive director on any government body – particularly at the HMRC – should be associated with any schemes to potentially avoid tax and promised to challenge the HMRC on the findings.
HMRC Non-Executive Board
Tax avoidance costs the country billions of pounds a year.
Unlike tax evasion, tax avoidance is perfectly legal. But in an age of austerity, the moral debate over paying taxes has taken centre stage.
The taxmen at Revenue and Customs have responsibility for limiting tax avoidance.
Most of those who work here are civil servants. But at the top of the Revenue sits a board dominated by former bankers and businessmen. Working part-time, these non-executive directors are charged with maintaining the highest standards of governance at HMRC.
Richard Murphy, Director of Tax Research says: “The [HMRC] non-executive directors have the vital job of holding them to account, asking them what’s really going on, asking them if they are making the right decisions, checking their ethics, looking at the structure. …If they fail in that we have a revenue that goes wrong.”
Phil Hodkinson and Resolution Ltd
Channel 4 Dispatches has discovered that Phil Hodkinson, a revenue director who chairs HMRC’s ethics committee earns more than £125,000 a year from FTSE 100 firm Resolution Ltd incorporated in Guernsey.
Mr Hodkinson earns £35,000 a year for his part time position at HMRC. He is a former Group Finance Director of HBOS plc, and is also currently a trustee of Children in Need. Resolution Ltd is one of Britain’s largest companies worth nearly £3bn. It owns Friends Provident and the life assurance assets of BUPA and Axa and the multi-millionaire founder and executives work in it’s large London offices.
However, most of the board meetings attended by Phil Hodkinson take place 300 miles away in Guernsey.
After one of these meetings, Mr Hodkinson was secretly filmed by Channel 4 Dispatches using his public HMRC position to reassure a shareholder [an undercover reporter] about the tax structure of the off shore company.
At Resolution Ltd’s AGM our undercover reporter, Antony Barnett, had questioned the tax benefits of the company’s offshore status.
Subsequently in the lobby, Mr Hodkinson says: “I can reassure you on the tax point because I also happen to sit on the board of Her Majesty’s Revenue and Customs in London.”
Resolution Ltd’s own company documents explain that being in Guernsey, means Resolution Ltd avoids paying UK income tax and corporation tax. And the documents also states that it’s the intention of the Directors that the Company should not, at any time, move back to the UK.
Tax experts told us that if Resolution Ltd was in the UK then it might face a large tax bill from any future capital gain it makes when it sells a business subject to available exemptions. But being in Guernsey, means it has no such worries.
Phil Hodkinson told Channel 4 Dispatches: “As I sit on the board of HMRC it is especially important to me that the motivation for Resolution being based in Guernsey is not tax avoidance. I have kept HMRC fully informed of … my role at Resolution and its status as a Guernsey company. I am therefore entirely confident that my roles with HMRC and Resolution do not in any way represent a conflict of interest.”
Resolution Ltd told Channel 4 Dispatches: “…not based in Guernsey to reduce the tax the group pays. A Guernsey domicile provides Resolution Limited with more options than the UK for the ways in which it can fund the purchase of a business and return capital to shareholders following the sale of a business. The decision to establish Resolution Limited in Guernsey was primarily for this reason. The Guernsey domicile does not confer any tax advantage to Resolution Limited over the UK in relation to the disposal of businesses.”
John Spence and SpicerHaart
One of the most controversial types of tax avoidance and one highlighted recently by the Chancellor George Osborne involves stamp duty: “A major source of abuse – and one that rouses the anger of many of our citizens – is the way some people avoid the stamp duty that the rest of the population pays.”
Channel 4 Dispatches discovered that John Spence, a revenue director who until 30th June 2012 was on the board and chaired HMRC’s audit committee is also the chairman of major estate agent and financial services group SpicerHaart.
Our undercover reporter secretly recorded two of SpicerHaart employees offered to help with schemes to avoid stamp duty.
One said he had facilitated stamp duty avoidance for millionaires from India and China.
One employee claimed to be able to reduce stamp duty by 40-50%.
The explained he’d refer buyers to solicitors and tax planners.
Buyers would pay the stamp duty up front, but most of it would be returned within in a month.
He claimed ex-HMRC tax specialists and QCs had advised on how to structure the scheme.
And that the Revenue had not successfully challenged it.
We wanted to find out if other agents in the group were offering a similar service.
So we approached some branches of SpicerHaart’s top end agency fine and one associate director said he’d be able to help. We set up a meeting to view a property priced at over £2 million – in the top, seven per cent stamp duty bracket.
During a viewing a SpicerHaart’s associate director says: “What it is that you have to pay full stamp duty. You pay full seven per cent to wherever it goes but as soon as you get your title back you get fifty per cent of the money back.”,
He told us he had already helped several millionaires avoid paying hundreds of thousands of pounds in stamp duty including tycoons from China and India.
And adds: “Yeah we’ve got another guy who is looking to buy a ten million pound, a five and a three and he’s looking to doing all that through me in a couple of weeks and doing the scheme again.”
The agent introduced us to a financial advisor in a local bar who outlined the stamp duty saving they could arrange on a property purchase of £2.6 million.
The financial advisor says: “So you’ll be paying fifty two as opposed to a hundred and eighty, a hundred and eighty two, okay.”
He claims we would save more than £130,000. Paying just two per cent rather than seven per cent stamp duty.
Margaret Hodge MP says:
“You’re sitting as a board member at HMRC, where your prime duty is to collect tax due to the Exchequer, and actually to close down these aggressive tax avoidance schemes, you can’t do it, you can’t wear both hats and I think if he’s chairman of the company, what happens in the company he’s responsible for the culture of that company, so if individuals within the company engage in this sort of, tax avoidance advice, he has to take responsibility for it.”
In response John Spence told the programme:
“SpicerHaart… does not condone any scheme for the avoidance of stamp duty. The two managers featured in your programme were breaking our rules and the board is acting urgently to ensure that any other activity is identified and addressed.”
“There was no conflict of interest between being Chairman of the SpicerHaart group and being a non-executive director of HM Revenue and Customs for which, incidentally, I retired on 30thJune 2012 on completion of my term of office.”
HMRC told the programme:
“HMRC rejects the suggestion that the outside roles of our Non-Executive Directors are incompatible with their roles on HMRC’s board.”
“HMRC conducts thorough vetting of Non-Executive Directors before they are appointed, to ensure that there are no conflicts of interest between their membership of HMRC’s Board and their outside roles.”
Apex Credit Management Ltd
Recently the HMRC has enlisted outside help, in its attempts to tackle tax avoidance.
It’s contracted 11 private debt collecting agencies to collect up to £1.5 billion low-level tax debts.
Apex is one of the debt collecting agency the HMRC has awarded a contract to collect £100m of unpaid taxes.
Channel 4 Dispatches has discovered that Apex Credit Management Ltd- through a complicated structure of trading and intermediate companies – is ultimately controlled by Anacap Financial Partners – a firm based in the tax haven of Guernsey.
Richard Murphy says:
“The very existence of a Guernsey holding company, Luxembourg intermediate company, UK trading company structure would cause me concern. What it smacks of is tax planning.”
Richard Brooks, tax expert and former Investigator at HMRC says:
“Now the private equity industry would say what’s wrong with that we’re just using the rules that are on the statute book to their best advantage…. Others would say its tax avoidance. But at the very least it seems an odd choice of company to go to, to collect the nation’s tax bills.”
HMRC told Channel 4 Dispatches:
“Apex Credit Management Ltd is registered in the UK and fulfilled all the criteria required under the Public Contracts Regulations and there were therefore no legal grounds for excluding them from the tender process.”