Appearing before the Treasury committee, senior HMRC figures including Jon Thompson admitted that building post-Brexit IT systems could take longer than two years, and defended HMRC’s approach to tackling disguised remuneration arrangements
Nicky Morgan MP asked about the proposed withdrawal agreement with the EU and asked if it was going to be as ‘frictionless’ as was suggested. She also asked how the proposed agreement with the EU different from a customs union.
Jon Thompson, chief executive of HMRC, replied that it was a ‘facilitated customs arrangement’ differed in that it was ‘quite difficult to give an answer’ to how IT systems, costs and data access would work under the agreement.
He said the backstop contained ‘agreed principles’ and for trade from the UK to Ireland there would be an ‘appropriate declaration for regulatory purposes…therefore one has to assume there must be some sort of paperwork’ but could not say exactly what form that would take until parliament agreed with the proposal.
‘We need further clarity on how we would operationalise the backstop…Part of that is that we would need to know what access we will have to IT systems in the EU,’ he said. He noted that HMRC would in all likelihood have to build IT systems to incorporate the changes, and that it would ‘probably take around 30 months to do that’.
Morgan asked what consequences there would be to the UK losing access to the EU’s IT system. Thompson replied that while the withdrawal agreement removed access, the political agreement ‘puts those back on the table because the extent of UK commitments on customs and regulatory cooperation is to be taken into account…the political arrangement also says there is to be reciprocal arrangements for the exchange of data’. He reiterated that if this was not fulfilled, HMRC would have to ‘build those databases itself’.
She also asked what impact this would have on the likelihood of VAT fraud. Jim Harra, director general of customer strategy and tax design, said that the withdrawal agreement gave provisions for continued access to the VAT information exchange system (VIES) ‘to the extent that is needed to run the backstop provision in relation to Northern Ireland, but that does not suppose that we will have any access to it in relation to the UK’.
John Mann MP asked what the impact of a no deal Brexit would be to small businesses. Both Thompson and Harra said that the potential cost to businesses of no deal would be twofold, in both administrative costs, such as preparing customs declarations, and in the tariffs that would have to be paid.
Wes Streeting MP raised the subject of disguised remuneration and the loan charge. He said that there were ‘concerns that some people had about how this works in practice, the type of people who have been caught up and whether HMRC’s approach is and has been reasonable’. He asked why individuals involved in disguised remuneration arrangements ‘were allowed to go on for so long without HMRC letting them know that their arrangements were regarded as unacceptable tax avoidance that could be challenged’, noting that some taxpayers who entered such schemes more than a decade ago were only now being informed of the issue by HMRC.
Thompson replied that while individuals ‘could register a scheme, and get a number, that did not mean that such schemes were approved in some way - somehow lost in this is the idea that if HMRC registered a scheme and gave it a number that somehow gave it credibility’.
‘It is conceptually possible that an employer can lend an employee money - but we believe that in these cases the vast majority of them are contrived’. Thompson also said that HMRC was increasingly pursuing the promoters of such arrangements, saying that HMRC’s view was that ‘the vast majority of tax advisers do not get into this. For the ones who do we have a range of powers to pursue those. We do actively pursue many of them’.
According to Harra, from 2014 HMRC has been given ‘increasing powers to pursue promoters’, noting that HMRC was working with professional bodies like the ICAEW and the Solicitors Regulatory Authority to determine who these agents were. He defended HMRC’s approach, saying that it got results. ‘For example,’ he said, ‘back in 2005-6 we had 600 schemes registered on the disclosure scheme. In 2017-18 this was down to 15 - so we believe we are having an impact on the whole of the chain’.
Report by James Bunney