Andreas Whittam Smith: Sweetheart tax deals aren't for the little people

Harry Redknapp's problem was that he was a private individual and not a large company

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The Independent Online

It was Harry Redknapp's misfortune to confront one of the most poorly organised activities of government, the work of HM Revenue & Customs. At Southwark Crown Court yesterday, Mr Redknapp was acquitted of tax evasion. The fair and efficient collection of taxes is unfortunately in the same wretched condition as control of our borders, care of old people in hospital and defence procurement. It is something that the state doesn't do very well. One of the HMRC's faults is inconsistency in its treatment of different classes of taxpayers.

Mr Redknapp, the football manager, stood accused of receiving undisclosed bonuses. If that is what they were, they would have been classified as income upon which tax was payable. He denied the charges, saying the money was received for investment purposes and that it was unconnected with his employment. As a capital sum coming to Mr Redknapp for buying shares, no tax would be liable. In due course, there would be tax on dividends received, on any profits made, but not on the original capital sum.

Mr Redknapp's problem was that he was a private individual and not a large company. The treatment of the first is rigorous, suspicious and uncompromising. Mr Redknapp had made it worse for himself, too, by opening up a bank account in Monaco. You can see the Revenue mind working here – celebrity, handling millions of pounds in transfer fees, living in a world of bungs, nods and winks, using a tax haven. To the Revenue, the conclusion must have seemed inevitable. And a good one to go for because of the warning to others a successful prosecution would have conveyed.

HMRC is under pressure itself. Earlier this week, it disclosed that the amount of unpaid tax written off in 2009-2010 was a monstrous £10.9bn. That is a colossal sum. But even £10bn plus is part of something much larger. At 31 March 2011, the Department was seeking to resolve tax issues with large companies valued at more than £25bn. So two weeks of trial at Southwark Crown Court for Mr Redknapp following five years of police investigation and preparation for a six-figure sum of money, at the most, seems out of proportion when many times that amount remains in dispute with big corporations.

Moreover, the Revenue is secretive about its dealings. Of course, every taxpayer has the right to confidentiality, but, equally, Parliament has to be able to satisfy itself that proper procedures are being followed. As a Parliamentary Committee observed in a recent report: "As it stands, the Department's decision to withhold details from us reduces transparency and makes it impossible for Parliament to hold Commissioners to account. This situation is entirely unacceptable." The Committee has been particularly critical of the Revenue's weak governance arrangements that have sometimes meant that the same officials first negotiated, and then they themselves approved, the settlements they had made.

The most notorious recent example concerned the American investment banking firm, Goldman Sachs. Owing to a "mistake", the firm paid £20m less tax than it should have done on bonus payments. Likewise, Vodafone settled a long dispute with a payment of just over £1bn whereas, it was alleged, the true figure should have been perhaps four times higher. The chair of the Committee of Public Accounts, Margaret Hodge MP, said: "You are left feeling that the sort of deals that are made with big business are different – sweetheart deals in some instances – from the sort of way in which corner shops are treated, small business are treated or hard-working families are treated."

In fact, tax avoidance is a widespread middle-class activity. The heroine of the instinctive tax cheaters is surely Leona Helmsley, the American real estate entrepreneur who became known as the Queen of Mean. She was convicted of federal tax evasion and other crimes in 1989. The turning point in her trial came when a former housekeeper testified that she had heard Mrs Helmsley say: "We don't pay taxes. Only the little people pay taxes..."

Middle-class tax dodgers rely upon the oft-quoted legal opinion that "anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the Treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike, and all do right, for nobody owes any public duty to pay more than the law demands."

To which my reply is that paying the tax that is due is a moral duty. If you don't pay, the little people will have to pay more. Judging from what Mr Redknapp told the court during his lengthy cross-examinations, he was on the side of the little people and not remotely interested in the weasel manoeuvres of the men in suits.