HMRC and Big Four secondments

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The Big Four accountancy firms - PwC, KPMG, Ernst & Young and Deloitte - faced the ire of politicians when the House of Commons Public Accounts Committee (PAC) chose to examine avoidance recently

Are government secondments mutually beneficial or an unfair policy influence?

During a fiery hearing at the end of January it soon emerged that there was a belief among committee MPs that the Big Four were too close - “cosy” - to HMRC, the country’s tax collector. It is an accusation that the firms refute, but MPs made themselves clear. Richard Bacon, Tory member of the committee, told the hearing that the “cosiness” was“not just a perception”.

Speaking directly to witnesses from the Big Four he said there was “not only a cosy relationship - arguably too cosy - between a lot of corporates and HMRC, but a cosy relationship that is mediated by you guys backwards and forwards.”

Unravelling what “cosy” may mean is not an easy task, but it seems fair to assume that what MPs were concerned with was the potential for influence by the Big Four over the taxman. Nervousness centres on the number of people being seconded to HMRC by the Big Four firms, and the nature of the advice being offered once they were through the doors.

MPs are concerned that the Big Four are growing rich exploiting the complexity of the tax system, perhaps even helping make it more complex.

Disclosure

It’s not easy to gauge the total numbers going in to help the taxmen, not least because each firm reports that they do not record secondee figures centrally. HMRC said it too could provide no figures because they were not compiled in one place in the department.

Tax authorities believe the system works best when there is a professional, constructive dialogue

Mary Monfries

However, the firms were willing to disclose some numbers in spite of the difficulties. Since the election of the Tory-Lib Dem coalition in 2010:

• PwC said it has sent two people from its tax department to HMRC and six to other government departments. Eight people had been seconded to the Labour Party and six others to the Lib Dems.

• KPMG said it has sent two “tax professionals” to the taxman and two to the Treasury. Six further staff were sent to political parties while the firm says it “typically” has six working with other government departments “at any one time”. According to Ernst & Young it only has a very small number of people on secondment. “For example, over the last three years we have had one person on secondment to HMRC, but have none currently.”

• E&Y said it could disclose no further information. According to its last annual report HMRC employs 73,000 people, 18,000 of which are described as “tax professionals’.

Deloitte has been unable to provide numbers citing “confidentiality” reasons but was willing to discuss the issue. According to Bill Dodwell, a partner and head of tax policy, the firm sends few people to HMRC preferring secondments to the Treasury where they can help with policy. The suggestion of a “cosy” bond between the Big Four and government departments is “outrageous”, he says, “made by somebody who doesn’t have knowledge of how the Treasury and HMRC work and how the system of policy actually works”.

Dodwell’s argument is that secondees are often experienced, but junior, working in teams run by government officials, and with “an absolute duty of confidentiality” in relation to their work while away from the firm. Officials benefit from advice from tax professionals. Indeed, Dodwell insists that what the Treasury is interested is “the view from business”, which the firms can offer.

Policy made in a “vacuum” would “almost certainly make some pretty significant mistakes,” he says.

For some it is getting the administration right that makes the secondments legitimate. Frank Haskew, head of the ICAEW’s Tax Faculty, says the “ground rules” need to be properly established to make them work fairly. But he makes the point that it is HMRC that requests help from the firms. The firms do not approach HMRC.

“It’s a management issue for HMRC to address and if they felt it was being abused they are within their rights to terminate the arrangement,” he said. 

The need to increase competition and diversify the sources of advice is of fundamental importance 

Nicholas Shaxson

"The secondees are not making the policy, or signing off on it or writing the legislation.”

According to Mary Monfries, head of tax policy at PwC, the efficient functioning of the tax system relies on cooperation between the tax collectors, tax payers and the advisers.

“Tax authorities believe the system works best when there is a professional, constructive dialogue. That good relationship is built on a clear understanding of what roles the parties play,” she says.

Secondments are governed by letters of engagement setting out the parameters of the role and the responsibilities of those involved. The principle is embodied in the firm’s global tax code of conduct, she adds.

The firms argue that a “significant” part of what they do is to help clients negotiate the tax system, especially the numerous reliefs put in place by policymakers to aid various business interests. “In international tax that’s a complex environment,” says Monfries.

The skill sets available at the Big Four is a theme continued by KPMG. A statement issued by the firm says, “Our people bring valuable technical expertise and helpful insight into the likely practical commercial impact of policy and legislative changes being discussed by government so that the authorities can make informed choices on policy decisions.”

The wider argument

Beyond the confines of the PAC there are those that argue the issue is wider than secondments. For Prof Prem Sikka, at Essex University, the issue goes to key appointments.

“It’s not just a numbers games,” he insists and cites the position of Ian Barlow, a former KPMG partner, as non executive chairman of HMRC and the appointment of John Whiting, former PwC partner, latterly tax director of the Office of Tax Simplification and now a member of the HMRC board, as examples of growing Big Four influence.

Prof Sikka’s fears go further to the number of largely unreported and unrecorded Big Four people he says can be found on working parties and committees.

“HMRC may need them but they also need to hear a dissenting voice and a different voice from civil society because it is affected to,” he says.

Prof Sikka is not alone. The PAC needs to be heard, according to author and journalist Nicholas Shaxson. “That there’s just a big four is a huge problem. The need to increase competition and diversify the sources of advice is of absolutely fundamental importance,” he told economia. Shaxson insists the Big Four need to be “shrunk in terms of their market power”.

HMRC was unable to comment by the time of publishing.

 

Gavin Hinks

 

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