Imagine you are presented with a brilliant new wheeze to reclaim your taxes from more than 40 years ago: taxes that have long ago been spent on services from the NHS to schools to welfare. Clever lawyers and accountants sell the idea to you; they spotted the opportunity at the turn of the millennium. But just like elaborate transnational tax avoidance, it only works if you are a large multinational business operating in different jurisdictions. What would you do? Balk at something that sounds so unfair? Ask: how is this possible? Or take up their invitation and ask who to call?
Lots of multinational companies made that call, and it is a huge but little-known problem facing any incoming UK government that HM Revenue & Customs acknowledges it may have to repay big business a staggering £55bn of old tax.The figure is enormous: that is nearly half the NHS’s annual budget. It’s more than the total amount of corporation tax and capital gains tax collected by HMRC in 2015. It makes arguments about whether Labour’s manifesto is properly costed look footling, and the Conservative promise to move in to surplus look wild.
After years without a real pay rise for ordinary workers, of benefits cuts and public sector job losses, it’s an amount that roughly doubles the 2016-17 deficit. Yet there it is, sitting like a time bomb on page 176 of HMRC’s 2015-16 annual accounts. In a note on its bills arising from legal challenges, HMRC records that it has already repaid £1.9bn in the 2015-16 year, and has potential liabilities of a further £55bn.
So how on earth is this possible, and why isn’t the government making more fuss about it? The answer lies in a decade and a half of legal tax battles that few outside a handful of specialist law and accountancy firms can grasp. Even the judges have described the saga as being of “exceptional complexity”.
In outline, big businesses have joined together in a series of group litigations to challenge past UK government…