Documents leaked by Private Eye magazine recently revealed that HMRC had let Wall Street investment bank, Goldman Sachs, off from paying £10m in interest on a failed tax avoidance scheme.
In the 1990s Goldman set up an offshore company named Goldman Sachs Services Ltd that allowed his UK employee bonuses to remain confidential by ‘employing’ them on a secondment.
To avoid paying national insurance on UK employee’s six figure bonuses; Goldman bought blueprints for a failed tax avoidance scheme named the employee benefit trust (EBT).
The EBT diffused UK employee bonuses into complex share investment schemes and was found out by the Revenue in 2005 to be nothing more than an illegitimate tax avoidance scheme.
Another 21 firms involved in the EBT tax avoidance scheme came forward and paid HM Revenue and Customs (HMRC) the tax they had avoided through the scheme; Goldman Sachs refused.
The tax avoided amounted to £30.81m, over the last five years and refusal to pay the bill has accumulated interest to a total sum of £40m.
Due to a deal between HMRC’s permanent secretary for tax, Dave Hartnett, and Goldman Sachs, the Revenue is only going to receive £30m, instead of £40m, from the investment bank.
Hartnett has admitted to making a ‘mistake’ that allowed the global investment banking and securities firm to avoid paying £10million in interest to tax authorities.
Hartnett came under fire for closing the five year interest free deal with Goldman Sachs yesterday, during a meeting with the HOC Public Accounts Committee, 12 October 2011 from 15:21 – 17:02 UKST.
Chair of the Commons Public Accounts Committee, Margaret Hodge, opened the meeting by accusing Hartnett of lying to MPs, on the 12th of September 2011, when saying he was not involved with Goldman Sachs’s tax affairs:
“You lied when you told the Treasury select committee that quote ‘I do not deal with Goldman’s tax affairs’.”
Hodge then brought to the attention of the Commons Public Accounts Committee minutes from an HMRC lawyers’ meeting, 8 December 2010, that said Hartnett had “shaken hands” with Goldman Sachs and settled a deal on his tax affairs.
Hartnett responded to these accusations by saying “I did not lie” and that he had “no deep knowledge of Goldman’s tax affairs” as he had not worked on Goldman’s taxes in a routine way.
Discussing the day of the HMRC lawyers’ meeting in question, Hartnett said that himself and Goldman Sachs had reached a settlement, but he had no recollection of shaking Goldman’s hand.
Hartnett said he was only brought into the dispute with Goldman Sachs after relationships had broken down between both HMRC and the investment banks representatives.
Responding in defence to Chairwoman Hodge’s persistent accusation of lying, Hartnett said that what he had meant was:
“I do not deal, as my colleagues deal on a regular basis, with Goldman’s tax affairs.”
Many have voiced their opinion that Hartnett should be sacked for his involvement in the deal with Goldman Sachs with has resulted in a loss of around £10m in tax for the Revenue.
Tory MP on the Treasury select committee, Jessie Norman, who was lied to by Hartnett on 12 September 2011, said:
“This settlement with Goldman Sachs is the last straw. He [Hartnett] strongly implied he was not involved in the Goldman Sachs case. He told me the Revenue never charged less than the tax owing. The…case shows this to be false.”
Admitting that he had made a ‘mistake’, Hartnett said:
“We have made sure that a mistake like that can’t be made again.”
Sources from HMRC have said that a ‘technical mistake’ had been made by an anonymous official at the Revenue, who is a junior to the secretary of tax [Hartnett], and that their misinterpretation of the law had led to losing £10m of taxpayers’ money.
The National Audit Office (NAO), who are responsible for auditing HMRC operations, has apparently accepted the situation, sources say.
Kevin Kinsella, of KinsellaTax, said:
“I do not think I want to make a comment about this matter.”
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