The taxman gives big corporations a break

Published July 2002

The two thousand largest corporations in Britain are being allowed to cut corners in tax law and to escape Inland Revenue penalties as part of the government’s efforts to produce a business-friendly environment.

As Gordon Brown lays out his plans for extra cash for public services in this week’s spending review, minutes of Inland Revenue meetings show that the companies, who between them last year were caught failing to pay more than £2,000 million in tax, have been offered a series of concessions which will deprive the Treasury of multiple millions of pounds of revenue. The companies have also been invited to rewrite the rule book on how the Inland Revenue should investigate them.

After the accounting scandals in the United States, the disclosure that the Inland Revenue is not applying its own rules to major corporations is likely to lead to calls for an inquiry into its links with business. Norman Baker, Lib Dem MP for Lewes, who has pursued the Guardian’s earlier disclosures about tax avoidance by the richest man in Britain, last night called for the Public Accounts Committee to hold an urgent investigation into the conduct of the Inland Revenue.

“Why should ordinary wage earners, often on low income, pay their tax on time and in full when the grandest corporations and the richest individuals are apparently being allowed to get away tax free?” he said. “This is becoming a two-tier tax system. We’re taking from the poor and giving to the rich.”

Official minutes show that at meetings with multinational executives, senior Revenue officials have agreed:
* not to impose penalties in most cases where big companies are caught failing to pay their correct corporation tax;
* to give chosen corporations special deals which break Revenue policy;
* “not to examine in any detail” some tax payments which may be faulty;
* to cut corners in new law which is supposed to clamp down on international tax avoidance.

Insiders say the Revenue has come under intense pressure from government to attract multinational investment. “It may be very important to get business here,” one told us, “and tax may be part of that. But you should have rules designed to work, instead of allowing the old rules to be bent or broken by specially favoured taxpayers. Where is the equity in that?”

The agreements are part of what insiders call “a new strategy of appeasement” towards multinationals. The Inland Revenue’s director of policy, Dave Hartnett, has called on specialist departments to act as “champions for business”. In a review of Revenue links with business, Hartnett has produced a string of recommendations designed to make its work with large companies “forward-looking and supportive of business”.

Criticism of the new policy has come from tax inspectors and even from tax advisers who work for the big corporations. “The Hartnett review is a most pernicious document,” one told us. “The whole flavour of the document is that we are not going to be too difficult, we are not going to pursue things – we are not going to ensure they pay their correct tax”.

Despite the evidence of the minutes, the Inland Revenue denies its inspectors have been told to cut corners in the law. The deputy chair of the Board of Revenue, Ann Chant, who is responsible for service delivery, told us: “That suggestion is completely untrue and I refute it without reservation.”

Norman Baker last night was tabling a series of questions, challenging the Inland Revenue to calculate the loss to the Treasury as a result of its new policy. “We can’t have this cowardly and spineless attitude from the Inland Revenue who haven’t got the guts to enforce their own tax law,” he said.

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