City Eye: This is no way to be running a tax system, Dave

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The Independent Online

This week, we have a tale of two difficulties. One local, one much more widespread and serious.

The little local difficulty is the undoubted fact that Dave Hartnett, acting chairman of HM Revenue & Customs, has a PR problem. For a kick-off, the sobriquet "Dave" is something of an embarrassment in modern, media-mad Britain, but more serious is the extreme antipathy – and I mean snarling anger and contempt – that Dave's recent letter on residence and domicile tax changes has provoked in the City. The consultation period closes at the end of the month, and I have spoken to several bankers, accountants and lawyers who genuinely believe that HMRC is being disingenuous and, in plain terms, not playing fair.

Yet, on other occasions, HMRC can be flexible and helpful. Insiders who know the story of childcare vouchers and their journey to tax-exempt status say that the taxman was ingenious and creative in helping to bring about a financial environment conducive to getting young parents to return to work.

But there are buts. I have an acquaintance, a successful banker, who loves Britain and being British, and is happy to pay tax. Not for him the sad status of the tax exile. He wants to live here and contribute to society. He did a deal some time ago, and on its conclusion paid the larger of two possible tax sums up front on his lawyers' advice. At this point he entered fiscal hell. He really couldn't get HMRC to take any consistent position on whether the monies he'd paid tax on should be treated as income or capital.

The only consistent attitude, he claims, is that HMRC seemed determined to keep his money at all costs. Eventually, it decided to launch an investigation into his tax affairs – despite having been fully briefed over the years by top City lawyers. My acquaintance believes that this was simply a delaying tactic, a way of deferring payment. He's thinking of leaving the country.

This personal experience reinforces the difficulties being experienced with the impending tax changes. Witness the comments of Dominic Adams, a partner at the City law firm SJ Berwin, and one of the country's best and brightest tax lawyers. He's as cross as any professional adviser I've dealt with in years.

Dave's consultation letter says he wants "to make clear what the Government's intention has always been and how it will be set out in the legislation to be brought forward".

Mr Adams describes this as "yet more disingenuity". Basically what the chairman of the Revenue says in the letter directly contradicts what was stated as the intention behind part of the new trust tax rules in the Revenue's own press release.

Dave's PR problem, though, is as nothing compared with the dilemma facing the taxpaying public. "The main point," as Mr Adams says, "is that it has by now cost taxpayers millions of pounds to try and order their trust affairs in less than a month [the original deadline], based on what now looks, at best, like negligent misrepresentation by the Government."

I really do believe that the City is losing confidence in this Government. All Gordon Brown's efforts to promote a business-friendly image, and even to create a real, business-friendly environment behind the image, may be in vain. Or maybe it's already too late. Consider Mr Adams' parting shot: "Either Darling or Hartnett should resign, or both – we will be lobbying for one or both of them to do so."

martin@martinfdbaker.com

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