How the Queen's estate has given HMRC a taxing PR headache

The rot in our financial system goes all the way to the top, and it won’t stop anytime soon – not as long as the big fish are the very people who make the laws.

Meanwhile, HMRC’s PR strategy sticks to prosecuting the smaller fry in a series of show trials that might scare the little people but don’t halt the run on our nation’s wealth, not by a long chalk.

The Queen can’t be amused, but we must assume her estate managers have been complying with the law or, judging by this HMRC ad, her own officials would be after her.

Of course, a dawn raid on Buckingham Palace is never going to happen, and the media has been at pains to point out that the Queen has done nothing illegal. The palace press office will have made that very clear.

Still, there’s no denying that the Paradise Papers show how the Duchy of Lancaster, the Queen’s private estate, has invested more than £10m in the tax havens of Bermuda and the Cayman Islands. Some of her money went to a retailer accused of exploiting the poor and vulnerable.

It leaves HMRC in something of a bind as the semantics distinguishing evasion from avoidance get lost in the clamour for a fairer system.

According to HMRC, tax evasion robs Britain of £14bn each year. That’s money that could be spent on the NHS, education and welfare – not to mention transport and boosting legitimate small business.

Legal tax avoidance is a whole other ball game, mostly played offshore by the rich elite. There’s a lot of talk but very little action to end it while the UK remains firmly at the centre of a problem that’s endemic to the financial system globally.

If it feels like there is one set of rules for the rich and another for the poor, it is because there is. A report in September, co-authored by the economist Gabriel Zucman, estimated that approximately 10% of global GDP – about $7.8trn (£6trn) – is held offshore.

Appleby, the offshore law firm hacked in the leak, said in a statement it was a firm which "advises clients on legitimate and lawful ways to conduct their business. We operate in jurisdictions which are regulated to the highest international standards".

All this may be legal, but it’s not exactly fair. The trouble is, no world leader is going to close a loophole that allows them and their friends to avoid tax with impunity.

Remember Jimmy Carr? David Cameron singled him out in 2012 and called his legal investment in the K2 scheme “morally wrong”. In hindsight, that was pretty rich. The former PM’s own father had an offshore trust which later came to light the Panama Papers.

The former chancellor, George Osborne, called tax avoiders “leeches on society” but still no one in government seems prepared to change the laws and structures that allow this country’s lifeblood to be sucked from it.

Meanwhile, HMRC carries out very costly PR stunts in the form of show trials to scare the living daylights out of ordinary folk all forced into paying tax at source in the form of PAYE.

Its website talks of its top 10 most significant fraud cases. It says 672 individuals received prison sentences in 2016, “totalling more than 730 years” in Her Majesty’s prisons. This includes accountants, film producers, tobacco traders and charities.

According to HMRC's PR, the number of evasion cases lined up for prosecution nearly doubled to 1,135 in the three years to 2015-16, as HM Revenue & Customs “sharpened its focus on tackling tax cheats”.

What’s not so clear is how much money it recovers. Shadow chancellor John McDonnell, writing in the Guardian, offers another insight, specifically into the HMRC specialist unit set up in 2009 to investigate “high net worth individuals”.

He wrote: “When the House of Commons public accounts committee examined the unit earlier this year, they discovered it was today bringing in £1bn less than when it was set up.

“The same report found that of the 72 investigations into wealthy individuals opened by HMRC in the five years to 2016, only one resulted in a prosecution. HMRC has been woefully under-resourced by this government, losing 40% of its staff in a decade.”

Maybe it’s this lack of resources that stops HMRC from going after the big guns in favour of easier prey.

My brush with the tax man is a case in point. By HMRC's own admission, I was late in filing a VAT return due to a muddle caused by my former accountant who had created a new legal entity without my authorisation.

This somehow escalated into accusations of international money laundering and suddenly, without even so much as a phone call warning, on 12 June 2012, six HMRC officials in bullet-proof vests were running around my house in Somerset.

They took my now ex-wife and me to a police station in Taunton for DNA sampling and questioning. Eventually the spurious money laundering allegation was watered down to 'cheating Her Majesty's public revenue'.

Convictions are even easier when you can invoke anti-terror legislation. In my case, we’re told they received a SAR (Suspicious Activity Report). That allowed them to invoke the legislation which meant the workings of HMRC were off-limits to public scrutiny.

A SAR gives HMRC criminal investigators carte blanche to do what it takes to secure a conviction. They are accountable to no-one, not even the courts.

HMRC spent over £1m of taxpayers’ money in prosecuting me, first in an aborted one-week trial in 2013 and then a three-and-a-half-week trial in March 2014 at Bristol Crown Court.

I believe the non-professional jury reached their guilty verdict largely because the anti-terrorism legislation didn’t allow them to hear the full story.

On top of that, an HMRC criminal officer admitted to the judge that a record of £50,000 that I had actually paid in taxes had mysteriously disappeared from their computer, only to reappear miraculously on the last day of the trial.

Still, I was portrayed as a high roller who couldn’t be bothered to pay my taxes. Far from it. It was HMRC that decided to waive the £98,000 I owed them from that late VAT return.

With my marriage and family life in tatters by this stage, all I could hope for was the judge’s leniency.

Thankfully, my 15-month prison sentence was suspended. The shaver and toothbrush I had packed for prison on 27 May 2014 wasn't required. Instead, I gladly carried out my 200 hours of community service and have recently set legal proceedings in motion against my former accountant.

I believed my best PR defence would be to shine a spotlight on the case, rather than become just one more statistic in the HMRC PR mincing machine, so I agreed to take part in a Channel 4 series called Catching The Tax Dodgers.

The series was an obvious attempt by HMRC to copy easyJet’s reality TV PR strategy that’s proved so successful for the airline, but I don’t think it’s going to catch on for the tax man. So far only one episode has aired.

HMRC’s PRs must have envisaged a tough reality show that would bolster its reputation and serve as a deterrent to would-be tax cheats. The reality wasn’t so cut and dried, and they obviously didn't like how it came across.

At one point I’d held up a cardboard cut-out of the Queen suggesting “Her Majesty would be truly shocked by what HRMC criminal investigators are up to in her name".

Outside the court, HMRC officer Colin Spinks vowed on camera that he would get me. He might as well have said: “This time, it’s personal.”

The show aired on 14 August this year – a full three and a half years after filming ended – and HMRC filed for personal bankruptcy against me two days later. It had been happy previously for me to pay my personal tax liability over some time, but the show seems to have changed its mind.

The notice of an impending bankruptcy hearing wasn’t served on me immediately, but on 12 September, in the street in front of the Rolls Building where I was representing my client Joe Corré, son of Dame Vivienne Westwood. He was in the High Court challenging Swiss multinational petrochemicals giant INEOS’s fracking injunction.

The difficulties of the past few years made bankruptcy inevitable at the hearing on 3 October. HMRC seemed more interested in a scalp than recouping taxes owed.

In my view, the H in HMRC stands for Hypocrisy. Let's be clear, semantics aside, there isn't any real difference between tax avoidance and evasion. Both are simply not paying your taxes.

Taxes, in my opinion, should be paid in real time, not at the end of a tax year after investments and expenses have been offset. Let’s stop all the legal loopholes that allow taxes to be routed around different tax friendly nation-states.

Conservative governments might talk tough on tax avoidance, but their hearts aren’t in it. On Twitter, the shadow chancellor was quick to make the point: ““In spite of government claims of cracking down on tax dodgers, #paradisepapers confirm tax avoidance is clearly continuing.”

Even now, after the Paradise Papers leak, we see Theresa May making excuses and pointedly refusing to back a full, public register of offshore companies and trusts that campaigners against tax avoidance are demanding.

It’s said to be unlikely that the Queen knew details of the Duchy of Lancaster’s investments. Protocol has it that she doesn’t get involved in its day-to-day running. HMRC would deem any normal person responsible, even so.

The Labour leader Jeremy Corbyn has suggested that the Queen and others like her should apologise for using overseas tax havens. Nothing short of that and a public inquiry leading to an overhaul of the system will limit the damage in this case.

On the bright side, there may be trouble in paradise, but this latest leak could prove to be the tipping point that finally levels the playing field in our society.

Bang On to Richard on email richard.hillgrove@6hillgrove.com and Twitter @6hillgrove