Accounting firms blasted over corporate tax loopholes

Margaret Hodge, the chairwoman of the House of Commons Public Accounts Committee, told the heads of tax at KPMG, PWC, Ernst & Young and Deloitte that certain activities to reduce tax liabilities were “shocking”.

Companies which deliberately advise wealthy firms and individuals on how to cut the tax they pay to the Treasury should be barred from receiving lucrative public contracts worth hundreds of millions of pounds a year, Ms Hodge said.

But the accountancy firm executives rejected claims that they were marketing “aggressive” tax avoidance schemes to clients and insisted their work benefited the UK by encouraging companies to locate and recruit here.

The four heads of tax appeared for a grilling lasting almost three hours at the House of Commons in the midst of huge public controversy over the low tax bills paid by multinationals like Amazon, Google and Starbucks.

In his speech to the World Economic Forum in Davos last week, Prime Minister David Cameron said there were “some forms of avoidance that have become so aggressive that I think it is right to say these raise ethical issues” and warned he would use Britain’s presidency of the G8 to press for action from the world’s most powerful governments.

Ms Hodge said PWC reported income of £162 million from public sector contracts, Deloitte £159 million, KPMG £94.5 million and Ernst & Young £72.6 million.

“You all get a not insubstantial amount of money from the taxpayer, and yet your main purpose in your tax businesses is to cut the tax paid to the Treasury for the common good,” said Ms Hodge.

“Do you think you should be excluded from providing services to the public paid for by the taxpayer?”

When Jane McCormick of KPMG said “our main purpose is to help our clients pay their tax”, Ms Hodge cut her off, dismissing her answer as “laughable”.

“Nobody would pay your fees if they didn’t think you would help them pay less tax. They come to you to minimise their tax,” said the PAC chairwoman.

“My own view is that it is questionable whether you should be getting public contracts. I don’t think people who audit should be giving tax advice. I don’t think people who give advice deliberately to cut the tax payable should be getting public business.”

Kevin Nicholson, head of tax at PWC, said: “I think we have an equal right to go through the procurement process and, if we are the right people to add value to the Government, then we should be chosen.

“The Treasury, the HMRC (Her Majesty’s Revenue and Customs) and the OECD (Organisation for Economic Co-operation and Development) have all recognised that the role we play helps the tax system work. Without the tax system working there would be no revenue coming in to the Exchequer.

“And we pay our taxes. We disclose in our accounts an effective tax rate of 47%. We paid a cheque for nearly £1 billion last year. I don’t see any reason at all why we should not be able - if we are the right firm - to work on Government contracts.”

Ms Hodge told the four executives - who all confirmed that they earn six or seven-figure packages: “You are a bunch of really clever people, extremely well remunerated, very expert.

“What really depresses me is you could contribute so much to society and the public good and you all choose to focus on working in an area which reduces the available resources for us to build schools, hospitals, transport infrastructure.

“You choose that, and I don’t get it. I don’t know why you do it.”

Mr Nicholson insisted he was proud of his company’s work, helping clients to build businesses and employ people, while John Dixon of Ernst & Young said: “I am incredibly proud of my firm - I think we make a fantastic contribution to our society.”