The case of HMRC's Dave Hartnett

[David Guyatt]

The verdict:

HMRC wins Goldman Sachs court case

UK Uncut has lost its case against HMRC
Continue reading the main story

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• Judge to rule on tax deal with bank
  
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The campaign group UK Uncut Legal Action has lost its High Court action against HM Revenue and Customs (HMRC).
The group had claimed that HMRC had acted illegally when it agreed to let the investment bank Goldman Sachs off part of its tax bill.
UK Uncut Legal Action said the taxpayer had been cheated of up to £20m in national insurance contributions.
HMRC said it had changed its practices since it made the agreement with Goldman Sachs.

The background:

Judge to rule on HMRC's tax deal with Goldman Sachs

A judge is being asked to decide if HM Revenue and Customs (HMRC) acted illegally by letting investment bank Goldman Sachs off part of its tax bill.


Campaign group UK Uncut Legal Action claims the taxpayer missed out on up to £20m as a result of what it calls a "sweetheart" deal.


The one-day hearing is due to go ahead at the High Court in London later.


HMRC admits it made a mistake in finalising the deal, but says it did not do anything illegal.


It says that at most the taxpayer lost between £5m and £8m, and that it has since changed the way it negotiates tax deals with big companies.


Human error
HMRC discovered that over a period of years in the 1990s, Goldman Sachs had avoided tax by routing bonus payments through a subsidiary in the British Virgin Islands.


By doing so, the investment bank had not paid National Insurance (NI) contributions.


But instead of going through a legal process to recover the money that they believed was owed to the taxpayer, HMRC's then boss, Dave Hartnett, decided to come to an arrangement with Goldman Sachs directly, in what is known as a "bespoke settlement".


After a meeting with the bank's tax director, Mike Housden, in November 2010, the company agreed to pay the NI contributions that it owed, an amount that has not been made public.


However, HMRC decided that, for technical reasons, it could not collect the interest that had accrued.


Subsequently it admitted it had made a mistake, and said it should have collected up to £8m that was owed by the bank.


"It was the result of human error," a spokesman told the BBC.


A whistle-blower, Osita Mba, later told MPs on the Public Accounts Committee that the amount may have been nearer to £20m.


HMRC rejects that assessment.


Taxpayer value
UK Uncut Legal Action (ULA), an offshoot of the anti-cuts action group UK Uncut, claims that HMRC's action was in contravention of its statutory duty to collect taxes properly, fairly and equally.


"We believe that the deal with Goldman Sachs is unlawful," Anna Walker of ULA told the BBC.




The former boss of HMRC, Dave Hartnett, struck the deal with Goldman Sachs
"We want to show HMRC that doing these tax deals is not politically, legally or morally acceptable."


Although details of the NI back-payments from Goldman Sachs have not been made public, HMRC has always insisted it was "a good settlement".


The claim that the taxpayer received good value from it is supported by a report from the National Audit Office published in June 2012.


A retired tax judge, Sir Andrew Park, examined five bespoke settlements with big companies, including the deal reached with Goldman Sachs.


The report concluded that "all five settlements were reasonable, and at least one may have been better than reasonable".


It also suggested that reaching a settlement could be cheaper for the taxpayer, as it avoided expensive legal costs.


The report said that if both sides cannot agree, litigation can be "long and very expensive".


It was also acknowledged in the report that HMRC had since tightened up its procedures.


Following the hearing, judgement is expected to be announced at a later date.


UK Uncut Legal Action's costs are being funded by public donations, which have amounted to £20,000

Deeper background perhaps?

Whitehall's most wined and dined civil servant is HMRC's Dave Hartnett


Whitehall's most wined and dined mandarin was treated to corporate hospitality on 107 occasions over the past three years, according to new research.
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Dave Hartnett, the permanent secretary for tax at HM Revenue & Customs, was wined and dined 107 times in there years, topping a survey of 172 senior civil servants carried out by researchers at the Bureau of Investigative Journalism.
By Christopher Hope, Whitehall Editor7:00AM BST 17 Jun 2010
Dave Hartnett, the permanent secretary for tax at HM Revenue & Customs, topped a survey of 172 senior civil servants carried out by researchers at City University.
They found that the civil servants were entertained on 3,151 separate occasions between 2007 and 2009, including trips to the tennis at Wimbledon, football matches at Chelsea and Manchester United, opera performances and fashion shows.
Mr Hartnett, who is in charge of the Britain's tax system, was entertained 107 times, mostly at breakfasts, lunches and dinners, by some of the UK's biggest banks, law firms and accountancy firms, among others.
Companies that entertained him included Goldman Sachs, JP Morgan, Ernst & Young, KPMG, PriceWaterhouse Coopers, and Deloitte.
Mike Mitchell, a director at the Department for Transport was entertained on 89 occasions, and Sir Liam Donaldson, the Chief Medical Officer was treated 76 times.
Although no details were given on where the officials were taken for lunch or supper, the researchers were told if they had gone to a sports or cultural event.
Civil servants had been guests at the Chelsea Flower Show on six occasions, Wimbledon tennis on nine occasions, football matches on five occasions, opera performances seven times and at catwalk fashion shows twice.
Jonathan Stephens, permanent secretary at the Department for Culture, Media and Sport, was a guest of Chelsea FC and Manchester United FC in 2007 and 2008.
Sir David Normington, permanent secretary at the Home Office, was a guest of KPMG at the Chelsea Flower Show in 2008, while Sir Nicholas Macpherson, permanent secretary at the Treasury, was a guest of Deutschebank at the show last year.
There was an outcry when the figures for 2007 were published for the first time last year. Critics said they showed the extent to which corporate groups are now targeting faceless officials with important but relatively low-profile jobs.
Most of the entertaining took place in 2007 before lavish entertaining enjoyed by officials was scaled back.
Iain Overton, editor of the Bureau of Investigative Journalism, said: "This survey reveals for the first time the extent to which major corporations wine and dine top civil servants.
"There is nothing wrong with meeting people from industry, but fine dining and corporate boxes may lead to accusations of undue influence.
"At the least we should be entitled to know whether mandarins ate at Claridges or Pizza Hut, and whether big tenders were in the offing."
A spokesman for the Cabinet Office said: "All departments have clear rules regarding hospitality as set out in the Civil Service Code.
"We are committed to transparency by publishing quarterly the hospitality of senior civil servants. It is important for senior officials to have a network of contacts as long as it is line with the Civil Service Code."
A spokesman at HMRC said Mr Hartnett was entertained on average once every two weeks over the three year period.
He said: "Dave Hartnett engages with many people from all sectors of the economy in meetings which take place inside and outside office hours.
"The relationships that Dave has forged have enabled HMRC to transform its relationships with business and other taxpayers.
"This has made a significant contribution to the increased tax yield HMRC has achieved in the period."
You can read the full report here.
List of civil servants and the number of times they were treated to corporate hospitality
Dave Hartnett, Permanent Secretary for Tax HMRC, 107
Mike Mitchell, Director General National Networks DfT, 89
Simon Webb, Director General: International Networks & Environment, 80
Sir Liam Donaldson, Chief Medical Officer DH, 76
Joe Montgomery, Director General, Regions and Communities DCLG, 73
Jonathan Stephens, Permanent Secretary DCMS, 58
Peter Housden, Permanent Secretary DCLG, 55
Richard McCarthy, Director General, Housing and Planning DCLG, 54
Professor Robert Watson, Chief Scientific Adviser Defra, 53
Sir Brian Bender (RETIRED), Permanent Secretary BERR, 52

But more still:

Tax chief waived £20m owed by bank 'for fear of embarrassing chancellor'
Dave Hartnett overruled legal advice and HMRC guidelines to settle dispute with Goldman Sachs, high court hears


The Guardian, Thursday 2 May 2013 19.29 BST


Dave Hartnett, who wrote that rejecting a tax deal with Goldman Sachs risked 'major embarrassment' to George Osborne. Photograph: Sarah Lee for the Guardian
A controversial "sweetheart" tax deal between HM Revenue & Customs and Goldman Sachs, worth up to £20m, was agreed in part to avoid embarrassment to George Osborne, according to the government's former head of tax.


Dave Hartnett wrote that he decided to settle the long-running dispute after Goldman Sachs threatened to pull out of a prized new tax framework a week after the chancellor had announced that the bank had signed up to it.


The disclosures have emerged in an email and a witness statement placed before the high court on Wednesday where the campaign group UK Uncut Legal Action is asking for a judgment to declare that the 2010 settlement between Goldman and the tax authority was unlawful.


The court heard that Hartnett, then the permanent secretary for tax, personally overruled legal advice, the HMRC's own guidelines and its internal review board, which stated that HMRC was in a position to force Goldman Sachs to pay back the money owed.


The revelations may embarrass the chancellor who has been careful to avoid being dragged into an ongoing public debate over the Revenue's right to negotiate multimillion pound deals to end disputes with large corporations while pursuing ordinary taxpayers for small sums.


Hartnett struck a deal in a "handshake" with Goldman Sachs on 19 November 2010 to end a dispute over national insurance contribution payments dating back to the 1990s, the court was told.


But 11 days later, the deal was rejected by the Revenue's high-risk corporate programme board because it had failed to collect any interest on the disputed sum. That day, Osborne announced that the top 15 banks including Goldman Sachs, had signed up to a new code of conduct .


Hartnett sent an email on 7 December 2010 expressing concern that Goldman Sachs "went off the deep end" and threatened to withdraw from the government's bank code of practice, which was published in December 2009, when it was informed of the board's decision to reject the deal and force the bank to pay the interest. There could be a potential political embarrassment if the board's decision stood: "The risks here are major embarrassment to the ChX [chancellor of the exchequer], HMRC, the LBS [the large business service of the HMRC], you and me, not least if GS withdraw from the code."


In a witness statement for the court, Hartnett wrote that the Goldman Sachs threat to withdraw from the code of practice "would have embarrassed the chancellor".


Hartnett retired as head of tax last summer following stinging criticisms from the public accounts committee over the Goldman Sachs deal.


Murray Worthy, director of UK Uncut Legal Action, said the case exposed a "controversial cover-up at the heart of government by HMRC and former tax chief Dave Hartnett to avoid political embarrassment for George Osborne".


Rosa Curling, a solicitor from the law firm Leigh Day, which is representing UK Uncut Legal Action, said: "Our hope is that this legal action will not only declare this decision to 'let off' Goldman Sachs for tax owing unlawful, but also deter any more deals being done behind closed doors."


Ingrid Simler QC, for UK Uncut Legal Action, said HMRC reached a settlement in a dispute over national insurance due on bonuses with Goldman Sachs in 2010 without requiring the payment of interest. The potential cost to the taxpayer of the HMRC/Goldman Sachs settlement is officially put at £8m but an HMRC solicitor-turned-whistleblower, Osita Mba, claimed the sum could be as high as £20m.


The bank was allowed to skip the interest bill after Hartnett was wrongly advised there was a "legal impediment" to collecting it, said . The error was quickly noticed but, despite legal advice that the agreement with the bank was not binding, HMRC unlawfully withdrew a county court claim for what was owed without seeking to renegotiate, she said.


This went against HMRC guidelines stating that taxpayers should be treated equally and no discounts or deals should be done. Simler said: "The issues in this case are of great importance both to taxpayers and HMRC as well."


James Eadie QC, appearing for HMRC, said UK Uncut was using the courts "to pursue politics by other means". He said the Goldman Sachs deal had been examined in detail by the National Audit Office and found to be neither irrational nor improper.


The scale of the government's "sweetheart" tax deals individual secret agreements drawn up between tax officials and corporations to settle disputes was revealed this week by the Guardian after four settlements were shown to be worth £4.5bn between them.


If UK Uncut's challenge is successful, HMRC will come under further pressure to say how much tax was owed by each of the four unnamed companies before the deals were struck.


It also emerged on Thursday that Google and its auditor Ernst & Young will be recalled to parliament to restate their evidence on the internet search company's tax position following an investigation into its advertising sales practices.


A spokesperson for the Treasury said the chancellor could not comment on what he knew about Hartnett's decision to waive Goldman's alleged debt because of the ongoing court case. "Taxpayer confidentiality means that decisions are always made by HMRC without any ministerial knowledge or involvement," the spokesperson added.


This article was amended on 3 May 2013. The original said that "a spokesperson for the Treasury said the chancellor would not comment".

Fortunately, Mr. Hartnett appears to have benefitted from a soft landing:

Former UK tax chief who 'lied to MPs' to advise HSBC bank about honesty
Dave Hartnett, former head of HMRC, will work for the bank as an adviser
Retired last July after alleged involvement in 'sweetheart deals' with Goldman Sachs and Vodafone

Sensitive appointment had to be rubber-stamped by Prime Minister

Move comes after HSBC was fined £1.2billion for 'turning a blind eye' to large-scale money laundering by drug cartels, terrorists and rogue regimes
By RUPERT STEINER and BECKY BARROW
PUBLISHED: 18:33, 30 January 2013 | UPDATED: 00:54, 31 January 2013


Sensitive: The controversial appointment had to be rubber-stamped by the Prime Minister David Cameron
Britain's top taxman who stepped down after he was accused by MPs of lying has been hired by HSBC to advise it on honesty, it emerged last night.
In an explosive move, the bank has appointed Dave Hartnett, the former head of HM Revenue and Customs, as an adviser to enforce the highest standards' at the firm.
The decision to recruit the 61-year-old, who retired last July, was so sensitive that the Prime Minister had to rubber-stamp the former civil servant's new job.
Mr Hartnett has pledged not to advise the bank on its tax affairs although he has permission to lobby the Government on behalf of his new employer after a two-year cooling-off period.
The move triggered fury because Mr Hartnett was embroiled in a series of sweetheart deals' with firms such as Goldman Sachs which allowed them to slash their tax bills by millions.
Last night, it emerged that he also had dealings with HSBC during his time at HMRC.
In documents seen by the Daily Mail, David Cameron was advised that while working in government Mr Hartnett had official dealings with HSBC over a number of years'.


Deal: The banking giant last month agreed a £1.2 billion settlement in the US over accusations it had allowed drug cartels and rogue states to launder money
While there are no suggestions of wrongdoing, Murray Worthy, from tax avoidance campaigners UK Uncut, said: I think it is absolutely no surprise for someone who spent so many years cosying up to big business that he has now found himself a very lucrative job at a firm that has itself been embroiled with many cases of tax avoidance.'
MPs on the influential public administration committee repeatedly accused Mr Hartnett of lying over a £10million settlement with Goldman Sachs as well as being cavalier' with taxpayers' money.
Described as Britain's most wined and dined' civil servant, Mr Hartnett also sparked controversy over a total of 107 meals he enjoyed with corporate giants over a three-year period.


Spoof: A protest group entered a dinner at which Mr Hartnett was speaking last year and attempted to present him a spoof award, called the Golden Handshake


The protest group The Intruders presented the award at New College, Oxford
One of these included a sandwich lunch' with executives at HSBC which took place in February 2010.
But the Prime Minister was told that the contacts Mr Hartnett had with HSBC were no more significant than the contacts he had with other banks operating in the UK'.
LAWSON: BANK ADVISERS WORSE THAN PROSTITUTES
Pay consultants who advise banks on their salary packages make prostitutes look respectable', a former Chancellor of the Exchequer said yesterday.
Tory peer Lord Lawson gave his forthright opinion as MPs took evidence on standards in the banking industry.
He said: In my experience, they [pay consultants] are a profession which makes prostitution seem thoroughly respectable.'
And Lord Lawson refused to back down even when a witness giving evidence to him took exception to the characterisation.
Carol Arrowsmith, a pay consultant with Deloitte, said it was difficult' to accept the suggestion her profession was worse than prostitution.
Lord Lawson replied: It may be difficult but it may be true.'
Mr Hartnett is one of five independent advisers hired by the bank to enforce what it says will be the highest standards, in particular in relation to combating financial crime'.
HSBC said the committee on which he will serve will have a remit to cover group standards regarding tax transparency'.
A spokesman for the bank said this was more about checking the tax affairs of prospective clients, rather than the bank itself.
HSBC refused to disclose how much it will pay Mr Hartnett, who earned a salary of between £160,000 and £165,000 before he left HMRC.
HSBC has been forced to beef up its team combating financial crime after being fined £1.2billion for turning a blind eye' to large-scale money laundering by drug cartels, terrorists and rogue regimes.
The bank was attacked by American authorities for stunning failures' last month.
The US Department of Justice accused HSBC of an astonishing record of dysfunction' in allowing hundreds of millions of illicit dollars through its branches.
In other damning details, it emerged that Mexican drug gangs used the bank so often they built special boxes to fit into the HSBC tellers' slots.
Washington said at least £550million in proceeds from drug trafficking from Mexican and drug cartels was laundered through HSBC in the US.
It also accused the bank of helping countries evade sanctions with £410million from Sudan, Libya and others sent to HSBC accounts in the US.
Chief executive Stuart Gulliver said: The new committee, which will benefit from the experience of the expert advisers, will provide invaluable guidance and advice as we strengthen our capabilities and enforce the highest standards.'
At a corporate tax planning conference last year, where Mr Hartnett was giving a speech, eight protesters presented the former HMRC boss with a spoof award.
They presented an award for a 'lifetime's service to corporate tax planning' - called the Golden Handshake - to Mr Hartnett at the lavish dinner at New College, Oxford.
The other guests at the dinner were delighted, giving the news a round of applause.
But it slowly dawned on Mr Hartnett that the prize was a stunt.
The group, known as WeAreTheIntruders, launched into a rendition of 'Oh for he's a jolly good fellow... and so say Goldman Sachs' as they were escorted out.

The ways of the world in action.