Tax chiefs faced a mauling by MPs today for bending rules to do favours for big firms at a cost of millions to the taxpayer then hiding the details from a watchdog.
Calling for senior officials to face punishment for a series of costly errors and failures, the public accounts committee warned millions more were at risk unless procedures were tightened.
Its report called for safeguards be put in place to avoid the impression that HM Revenue and Customs (HMRC) enjoyed an “unduly cosy” relationship with major companies.
And the MPs demanded explanations of why officials wrongly claimed they could not discuss deals with the committee and gave “imprecise, inconsistent and potentially misleading” answers.
The report represents the conclusions of a fiery public inquiry by the influential committee, that at one point saw the country’s top tax official Dave Hartnett accused by the chair of lying.
The National Audit Office has now appointed a former judge to investigate.
Mr Hartnett, who it was recently announced will retire as HMRC Permanent Secretary for Tax in the summer, has admitted an error led him to sign off on one tax avoidance dispute.
Banking giant Goldman Sachs was allowed to skip a multi-million pound interest bill on unpaid tax on bonuses after Mr Hartnett was wrongly advised there was a “legal impediment” to collecting it.
The potential cost to the taxpayer is officially put at £8m but the committee was given evidence from a whistleblower that the sum could be as high as £20m.
In its report the MPs expressed astonishment that HMRC “chose to depart from normal governance procedures” by allowing the same senior officials to both negotiate and approve such deals.
Worse, it said, the Goldman deal was done “without legal advice” or an official note being taken of the meeting, with officials relying on the firm’s records.
No good reason had been given either for why the deal was not halted when the error was found, the MPs said - also expressed concern that a whistleblower who exposed it may have been harassed.
Noting that Mr Hartnett alone had enjoyed 107 dinners and lunches with companies, tax lawyers and advisers over two years, the MPs raised concerns relations could seem “unduly cosy”.
While such contact was undoubtedly necessary to the role, their report concluded, HMRC paid insufficient attention to whether there could appear to be conflicts of interest.
Records of such meetings should be accompanied by evidence of the official’s involvement in settling any disputes with the hosts.
It was unfair that big operations were given discounts and more leeway in deadlines for repayment than were available to smaller outfits and individuals, the report complained.
The committee’s hearings were punctuated by a number of run-ins between committee chair, Labour MP Margaret Hodge, and Mr Hartnett and others over their refusal to discuss details of the cases.
HMRC, the report alleged, “consistently failed to give straight answers to our questions which has severely hampered our ability to hold it to account for the settlements reached”.
Mrs Hodge disputed their arguments that they were bound by confidentiality not to disclose details and the report found they had failed in their duty to assist parliament.
“Any failure to do so is a failure to perform a core responsibility and should be treated as such by the Cabinet Secretary,” the report said.
During the investigation, it emerged that the relatively junior official responsible for the mistake in the Goldman deal had been punished by losing a bonus.
But the committee said there should be punishments imposed higher up the chain - especially given a history of errors by HMRC.
“The failure to apply proper governance processes is the latest in a series of errors made by the Department in recent years, including the debacle over PAYE and tax credits.
“There appears to be little or no sense of personal accountability when things go wrong. We expect leaders to take responsibility for both systemic issues and for specific mistakes, for which they are accountable.”
Mrs Hodge said: “This report is a damning indictment of HMRC and the way its senior officials handle tax disputes with large corporations.
“We uncovered both specific and systemic failures which must be addressed.”
HMRC flatly rejected the committee’s conclusion that there were systemic failures in its management of tax disputes.
“The report is based on partial information, inaccurate opinion and some misunderstanding of facts,” a spokesman said.
The spokesman denied the error made in the Goldman Sachs case was evidence of a wider, systemic failure and rejected the claim that the loss to the taxpayer could be as high as £20 million.
“This assertion, based on untested, leaked information, is without foundation,” the spokesman said.
The spokesman also denied that HMRC was too lenient in its treatment of large businesses and insisted officials had tried to co-operate with the committee’s inquiry.
The spokesman added: “We agree that public confidence in our processes is important, and as we have already informed the Public Accounts Committee, we propose to make further improvements to our governance and to increase transparency about our work with large business.
“We also welcome the further review that the National Audit Office is to carry out as an opportunity to confirm this and clear up the concerns about foregone millions.”
UK Uncut Legal Action announced it will issue proceedings in the High Court on Thursday to seek a declaration that the Goldman Sachs tax deal was unlawful, as well as to return £20m to the public purse.
The campaigning group said it made the decision to go forward with the case after receiving a “dismissive” response from HMRC to letters from its lawyers demanding the quashing of the deal agreed between Mr Hartnett and Goldman Sachs.
Richard Stein, from solicitors Leigh Day & Co, which is acting for UK Uncut Legal Action, said: “We wrote to the HMRC in October asking them to quash the deal and reclaim the millions unpaid in taxes from one of the world’s richest banks but received no response. We chased again in November and they claimed they needed more time.
“They have now replied with what we feel is an extremely weak argument as to why this decision cannot be reversed. Therefore, we will now progress this legal action and issue proceedings in the High Court.”
UK Uncut Legal Action’s director Tim Street said the group has raised nearly £10,000 in two weeks from the general public to support its legal action, which has won backing from unions and anti-poverty charities.
Exchequer Secretary to the Treasury David Gauke said: “Last year HMRC brought in record revenues for the UK.
“This included £13.9bn that would have been lost to the Exchequer without the hard work of its staff, over half of which was secured directly from large business.
“The Government has reinvested over £900m in the Department over the next four years to enable it to step up further its efforts to tackle avoidance, evasion and fraud.
“Revenues collected from large businesses continue to grow, while HMRC’s approach provides greater certainty for business.”
Owen Smith, shadow exchequer secretary to the Treasury, said: “This Conservative-led Government talks tough on tax evasion but, as this report reveals, stood by while HMRC cut a sweetheart deal with Goldman Sachs and other unnamed corporations.
“George Osborne should be instructing HMRC to come clean on the details of these deals and opening up to proper scrutiny the tax settlements in question. Big business must pay its fair share of taxation and HMRC must operate a level playing field for all taxpayers.”