Audit firms" "cosy" links to the Treasury: Damning report attacks Government"s relationship with "Big Four" companies

Audit firms' 'cosy' links to the Treasury: Damning report attacks Government's relationship with 'Big Four' companiesCommittee says accountants have 'inside knowledge' of tax loopholes

By
Becky Barrow

PUBLISHED:

00:44 GMT, 26 April 2013

|

UPDATED:

00:46 GMT, 26 April 2013

Margaret Hodge said accountants knew about tax loopholes

Margaret Hodge said accountants knew about tax loopholes

Britain's biggest accountancy firms have ‘an unhealthily cosy relationship with Government’, a damning report from MPs will warn today.

The Public Accounts Committee said that 'much' of the profit made every year by the 'Big Four' accountancy firms – Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers – comes from 'minimizing the tax paid' by their wealthy clients.

And MPs slammed the firms’ practice of parachuting their tax experts into government departments to provide tax advice.

This creates a ‘ridiculous conflict of interest,’ the committee said, because it allows the accountants to gain ‘inside knowledge’ of the tax system which they then use to help big companies avoid paying tax in the UK – leaving the taxpayer millions of pounds worse off.

Margaret Hodge, the Labour MP and chairman of the influential committee, said the way the firms operated had created a generation of ‘poacher-turned gamekeeper’ accountants with ‘inside knowledge’ of tax loopholes.

She said: ‘When those staff return to their firms, they have the very inside knowledge and insight to be able to identify loopholes in the new legislation.

‘[They can] advise their clients on how to take advantage of them.

‘The poacher turned gamekeeper for a time returns to poaching.’

The report, published today, said it is ‘inappropriate’ for tax experts from accountancy giants ‘to advise on tax law and then devise ways to avoid the tax.’

Mrs Hodge said these controversial secondments into the Treasury and HM Revenue and Customs should be ‘banned’ in a new code of conduct for tax advisers.

Tax bosses from the Big Four insisted the expertise that they provide is not sinister in the way that the report suggests

Tax bosses from the Big Four insisted the expertise that they provide is not sinister in the way that the report suggests

The PAC report comes amid a growing furore over the widespread tax avoidance by big companies in Britain, with some paying not a single penny in corporation tax.

Earlier this month [apr], the energy firm nPower admitted it has not paid UK corporation tax for three years despite making 766million in profits.

Amazon, Google and Starbucks have also come under fire for making millions in Britain while contributing little to the Treasury’s coffers.

Yesterday the accountancy firms insisted the number of staff seconded into the Treasury or HMRC is tiny.

PWC said it sends just two a year, while it is understood that Deloitte sends just one. Ernst & Young said it has had one person on secondment to HMRC over the last three years.

The report says a ‘substantial’ part of the Big Four’s revenue comes from tax advice, equal to an average of around 22 per cent of their total UK turnover.

It highlights how HM Revenue and Customs is waging a David and Goliath type battle with the accountancy firms due to the key Government department’s ‘limited’ resources.

HMRC employs around 65 tax specialists who are experts in how multinational companies operate the payments between their overseas divisions, while they have around 250.

Yesterday tax bosses from the Big Four insisted the expertise that they provide is not sinister in the way that the report suggests.

Bill Dodwell, head of tax policy at Deloitte, said: ‘We have responded to requests for secondees and have provided a small number of people with some tax experience to help the Treasury and HMRC teams working on policy initiatives.

‘Our secondees have all reported to experienced Treasury and HMRC officials and have never driven any policy initiative.

‘We do not believe that there has ever been any conflict of interest but would want to help ensure that there is no perception of conflict.’

Kevin Nicholson, head of tax at PwC, said: ‘We strongly disagree with the PAC’s conclusions about the role of large accountancy firms which seem to be based on a misunderstanding both of what we do and how we do it.

‘We operate under a clear code of conduct, professional guidelines, and work constructively with HMRC.

‘We provide technical insight to Government but only when asked and are never involved in deciding tax policy which is a matter for the Government.’

A Treasury spokesman said: ‘The suggestion that Government shouldn’t work with business and indeed anyone affected by its policies is totally absurd.’