HM Revenue and Customs permanent secretary Jim Harra has told MPs his department has limited powers to raise concerns about the tax affairs of ministers – but suggested the Cabinet Office could explore the introduction of beefed-up disclosure rules if it wanted to.
Members of the Public Accounts Committee grilled Harra about HMRC’s approach to ministers’ tax affairs against the backdrop of former chancellor Nadhim Zahawi’s admission that he reached a settlement with HMRC over a “careless and not deliberate error”.
The prime minister’s independent adviser on ministers interests, Sir Laurie Magnus, is currently investigating Zahawi’s tax situation, which reportedly resulted in a £5m settlement that included a penalty last year.
Speaking this morning, Harra pointedly avoided directly referring to Zahawi – who would be fully entitled to disclose details of his tax settlement to clear up the questions surrounding it. So far, he has chosen not to do so.
Harra told MPs his department is not routinely contacted by the Cabinet Office or No.10 ahead of ministerial appointments.
“The process for appointing ministers is handled in Cabinet Office. They have got their own processes for that,” he said. “I’m not privy to them or responsible for them. There’s no part of that which involves routine engagement with HMRC or routine disclosure of information by HMRC.”
Hillier asked whether the Cabinet Office could simply require prospective or new ministers to sign a waiver allowing HMRC to offer a brief rating on the health of their tax affairs.
“If they wanted to look into doing that, then that’s something obviously we could look into,” he said.
Proactive disclosure about ministers ‘extremely rare’
Harra was asked whether HMRC has a responsibility to advise No.10 or the Cabinet Office about behaviour that might be in conflict with ministers’ responsibilities.
“Responsibility for complying with the ministerial code and for declaring any issues in relation to the ministerial code is a matter for ministers,” he said. “It’s not a matter for me as an official to police or enforce compliance with the code.
“But on each case we would have to consider whether... it was in our legal functions to make a disclosure. But proactive disclosure would be an extremely rare matter for HMRC to be involved [in].”
Speaking generally about the exchange of information between HMRC, the Cabinet Office and No.10 Downing Street, Harra said the tax-collection agency is asked to give basic information on people nominated for honours.
“We have a memorandum of understanding with the honours secretariat in the Cabinet Office,” he said. “The information we give is limited. It’s based on what risk a nominee might pose to the integrity of the honours system, because of their tax affairs. Broadly speaking, we would give a rating of low, medium or high – or green, amber or red.
“That would be the extent of the information that we would provide. Then it’s up to the people who make decisions about honours to take that information into account together with any other information they have.”
Harra was asked whether he would be able to discuss Zahawi’s tax situation in front of the committee – or the Treasury Select Committee – if the former chancellor were to give his consent.
“Taxpayers can consent for HMRC to share details of their tax affairs with other people. It would still not be normal for HMRC to publicly comment on someone’s tax affairs, even if they had said that it was OK for us to do so,” he said.
“But we have in the past, in relation to Google, given evidence to this committee. And we were able to give more expansive evidence than usual because we had that company’s consent.
“Our requirement not to disclose information publicly sits whether a taxpayer is relaxed about it or not relaxed about it.”
MPs also quizzed Harra about HMRC’s definition of a “careless” error in tax terms.
“There are no penalties for innocent errors in your tax affairs,” he told MPs. “If you take reasonable care, but nevertheless make a mistake, whilst you will be liable for the tax, and for interest, you would not be liable for a penalty.”
The fact that Zahawi acknowledges having been subjected to a penalty would suggest that HMRC did not deem him to have made an innocent error.
‘Frustration’ over public claims
Harra told MPs that high-profile tax disputes are a source of “frustration” for the department because while individuals are able to make claims about their affairs, HMRC is not able to challenge them.
Hiller asked the perm sec directly whether he would be able to make a statement challenging “categorically false” claims that a prominent politician made about their tax affairs. He answered that he would not.
“As a general rule, our duty of confidentiality would mean that if a taxpayer made a public statement about their affairs which we felt we did not agree with, that would not be a matter that we would correct,” he said.
“We would look at things on a case-by-case basis and decide, whether in that particular case, the issue was such that it was within our functions to disclose information. But as a general rule we do not disclose.
“It can be a source of frustration for HMRC, because people will brief the press or perhaps brief MPs about their tax affairs.
“We will sometimes feel it is not the full story, but we will have to deal with it on the basis that it is their disclosure because we’re not in a position to disclose further information.”
Hillier asked Harra if HMRC might contact such individuals directly.
“If we felt that a taxpayer had misunderstood their position and they needed to understand that in order to administer their tax affairs, then perhaps we would,” he said.
“But people are entitled to say whatever they wish to say to friends or family or the press. It’s not my responsibility to police their behaviour in that way.”