Corruption

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Companies House reform is heading in the right direction. Would you like to nudge it along?

Published by Anonymous (not verified) on Mon, 25/01/2021 - 6:22pm in

In December the government announced a consultation on the future accounts filing arrangements with Companies House. The consultation document is here.

Now I know that the above might seem pretty dull.  But please trust me, because as it turns out I think this consultation is really important. That is because the consultation suggests that the content of the accounts to be filed on public record by UK companies should be substantially enhanced by the inclusion of a profit and loss account (or income statement) in each and every case. In addition, it proposes that much-enhanced checks are proposed on the data filed so that for the first time Companies House will be responsible for seeking out fraudulent filings by UK companies.

Both of these things is a really big deal because for the last thirty years the government has done everything it can to remove checks and reduce the amount of information companies have to disclose, and now this move is in completely the opposite - and right - direction.

The result is that the consultation challenges the current situation where the data at Companies House goes virtually unchecked and, on top of that, over 90% of all companies are entitled to not file any information at all on their trading, meaning that the accounting data that they put on public record is, to be candid, almost meaningless.

Refreshingly, the consultation finally recognises that the risk of fraud within UK company filings is high. I have been arguing this for a decade now, when very few others have. During much of this period my claim that lax regulation has resulted in massive fraud, and tax loss, has been ridiculed by those who would rather that abuse continued. And now the government plans to do something about it.

As example of how things have changed, the consultation document notes that:

Some respondents raised concerns that companies could deliberately file under the wrong regime to disclose less financial information than the law would otherwise require. This was backed by evidence from law enforcement bodies referencing money laundering investigations, where companies often falsely filed dormant accounts with the Registrar, when their bank accounts showed the company was clearly trading with millions of pounds moving through their accounts.

And they also note:

There is evidence that the micro-entity regime introduced in 2013 is being used incorrectly and many entities are reporting as micro companies when they are not eligible to do so. The aim of the regime was to save the very smallest companies both time and costs by offering a highly simplified format of statutory accounts and simplifying the accounting standards that should be applied. However, a joint data project between Companies House and HMRC identified several thousand cases where ineligible companies had submitted micro-entity accounts. This may be because companies do not understand the eligibility criteria or are confused by the range of filing options that are available. There is also, as noted for dormant accounts in the previous section, evidence of micro-entity accounts being used in a deliberate attempt to avoid disclosure. Fraud investigation bodies have reported that micro-entity accounts are often used by companies that are investigated in money laundering cases.

I added the emphases. Fraud is now recognised to be commonplace, as I have long suggested, and now officially confirmed to exist.

As welcome is the suggestion that there are many users of accounting data who rely on this information from Companies House, and cannot get information from anywhere else. As the consultation document notes:

Company accounts contain valuable financial information and are published on the register to support investment, enable business transactions and hold directors to account. A recent report has shown that the financial information held at Companies House is the most valuable dataset for its customers. The information is used by businesses, financial institutions, civil society groups, academics, journalists and the public at large. Improving the quality and integrity of the information will bring widespread benefits.

This flies in the face of the assumptions of the accounting profession, which has assumed that accounts need only be produced for the benefit of the shareholders of companies.

But the key thing is that they intend to address these issues. I will do a separate blog on how fraud might be addressed. The issue is big enough to justify that. But even more significant than their moves on that issue are the suggestions that the micro-entities accounts filing regime might be removed, and that the abbreviated accounts regime might also go the same way, because it too is being abused. The result is that the indicated direction of travel within this consultation is that the full accounts of companies as prepared for their shareholders in accordance with appropriate accounting standards should now the accounts filed on public record.

I have prepared a submission to this consultation on behalf of the Corporate Accountability Network, which works on such issues. This is available here.

It would, however, be fantastic if others could also submit to say why they want full accounts on the public record. And to make that easier I have also prepared a much shorter form letter that might be adapted for this purpose with a pile of reasons why you might have an interest in this issue listed to choose from, or add to or amend, plus a suggested submission. That is available here, as a Word document. The email to submit to is in the document.

If you are interested in tax justice, fair trade, fair government procurement (which seems a pretty important topic right now), beating corruption, supporting local business, or simply protecting us all against the risk that limited liability creates them this is a massively important issue. It would be great if you could give a small amount of time to making a submission and I would really appreciate it if you did. There has rarely been a better chance to improve UK accounting for public benefit than this.

Just as the UK announces it plans to be a tax haven it has to announce an investigation into corruption on the British Virgin Islands

Published by Anonymous (not verified) on Tue, 19/01/2021 - 3:28am in

I mentioned this morning the confirmation that the UK government has made that it plans to turn the UK into a tax haven. I made clear that my concern that this is, in effect, the launch of an assault on democracy.

This afternoon Dominic Raab, the Foreign Secretary, has issued a statement to parliament saying (and I have edited the length):

Statement

The UK is extremely concerned about the state of good governance in the British Virgin Islands (BVI).

A consistent and deeply troubling array of concerns have been put to the Governor by local institutions and the community. The Governor has set out these concerns to me, they include, but are not limited to:

- Allegations of political interference and coercion in relation to appointments in the public service and statutory boards, the criminal justice system and individual criminal cases;

- Claims that people in public service, media and community leaders have been intimidated to such a degree that they describe living in a climate of fear;

- Allegations that funds set aside for struggling families during the pandemic may have been re-allocated to political allies;

- Concerns around spending on Government contracts without any proper procurement process;

- Misuse of taxpayers’ money on infrastructure and transport projects.

Successive attempts have been made to address these concerns through local institutions, many of which have done commendable work to bring them to light. However, the scope and seriousness of the concerns are now beyond local capacity to address.

The UK Government is responsible for ensuring the security and good governance of BVI. We have a constitutional and moral duty to protect the interests of the people of BVI. We cannot ignore such serious allegations.

With this in mind, on Monday 18 January, the Governor of BVI, supported by the UK Government, announced an independent Commission of Inquiry

What is my concern? Actually, it's that many of the highlighted issues (excepting, maybe, the third) could all quite reasonably be raised here and that's before we are a tax haven.

For those who are not aware, the BVI is a notorious tax haven, and is permitted to be so by the UK. We have long permitted the criminogenic nature of those tax haven activities. Why is anyone surprised that a break down in good governance follows? That is what tax havens promote?

The government added:

The Commission will inquire into whether there is information to substantiate claims that corruption, abuse of position and serious impropriety has taken place in public office in recent years, and it will make recommendations.

If only we could have such an inquiry here.

The noise of government ‘playing’ us

Published by Anonymous (not verified) on Mon, 18/01/2021 - 8:37pm in

According to this shameful article by Housing Secretary and three houses Robert Jenrick, who has even now, failed to resolve the cladding crisis caused by the Grenfell Tower fire, nonetheless now he has time, in the middle of this pandemic, to turn his attention to the important matter of statues and streetnames as written up... Read more

The addiction to cheapness makes the economy especially ‘fragile’

Published by Anonymous (not verified) on Tue, 12/01/2021 - 9:21am in

There are some things that ‘should’ , it seems, be cheap: food, ‘labour’ and consumer goods are most usually cited…. What isn’t ever cheap is housing – whether purchased or rented – indeed any ‘real estate’ property is rarely cheap. Though it is virtually never mentioned, expensive housing inhibits the ability to compete ‘globally’ (to... Read more

Is HMRC finally cracking down on big business tax abuse?

Published by Anonymous (not verified) on Mon, 11/01/2021 - 9:43pm in

I noted this in the FT this morning, with interest:

The UK tax authority has opened multiple criminal investigations after probing whether large companies are wrongly paying less UK tax as a result of their cross-border financial arrangements.

HM Revenue & Customs opened a criminal investigation in connection with transfer pricing, under which businesses allocate profits between different countries, in 2018, the body told the Financial Times — the first occasion since the introduction of tighter legislation on the area six years ago. This has since grown to multiple live criminal investigations involving transfer-pricing disputes, HMRC added, although it declined to specify the exact number arguing this risked identifying the companies involved.

I have been arguing about the need to tackle transfer mispricing since 2003, when I created country-by-country reporting.

HMRC have now, of course, got that as a tool to help them make allegations in criminal cases, if appropriate. And, whilst I make it very clear that country-by-country reporting does not prove a transfer mispricing case, it can very strongly support the suggestion that there is systemic abuse from high to low tax jurisdictions both in a period and over time. In that case, I hope HMRC are using it for that purpose, because that was my intention.

And if that turns civil cases into criminal ones, that is all to the good. Only then will this abuse end, because no director wants to end up in the dock. It will only take a few to do so for the tax environment to change, quite radically.

The head of state is leading a coup in the USA, but don’t rule out that it could happen here

Published by Anonymous (not verified) on Thu, 07/01/2021 - 7:47am in

I am sitting watching the BBC News Channel at 8.25 on Wednesday evening. And what is happening as I watch is an attempted coup in the USA. Incited by Trump, thousand have stormed the Capitol. Admittedly, most of them look pretty confused. But the reality is that they have deliberately sought to prevent the endorsement of the President-elect of the USA. If that is not a coup, led by Trump, then I am not sure what is.

For some years now I have talked about the threat to democracy from right wing politicians, like Trump. I have been suggesting the same risk exists here. Indeed, emulation is so common now that it now seems almost inevitable that copy cat actions will now happen in other parliaments when right wing politicians dislike results in the future.

What is happening tonight cannot be dismissed as a freak. This is what fascism looks like. And we should all be worried. What is at stake tonight is liberal democracy. And that matters. Our right to choose is under threat. And a President of the USA orchestrated this.

And you think this could not happen here? You should believe it could. Let me provide an example. There is now ample evidence that people in one country of our Union want to leave the UK. Their political leadership is asking for the democratic right to choose. And that is being denied to them. Is this very different from what Trump has been doing in defying and seeking to deny democratic choice? I see little difference. The contempt for the will of people is similar.

When politics ignores people’s wishes for proper representation democracy is at threat. That is clearly happening in the US now. And it’s also happening here. Johnson smirked with contempt when saying he would not allow a Scottish referendum on Sunday. We have a democratic crisis here too, led by our head of state.

Worry.

Towards understanding our right wing populist government

Published by Anonymous (not verified) on Mon, 04/01/2021 - 11:55am in

I have stumbled across a review of Anne Applebaum’s book Twilight of Democracy: The Failure of Politics and the Parting of Friends on populism. I understand that she suggests that a society based on merit may sound fine if you want to live in a country run by talented people. But what if you are... Read more

The UK does not need the abused that freeports generate – so why are they the supposed big bonus from Brexit?

Published by Anonymous (not verified) on Sun, 27/12/2020 - 11:25pm in

I wrote this in July, but since Freeports are supposedly to be one of the big advantages of Brexit (even though they are possible within the EU) it seems worth sharing it again. I would add when doing so that the government admitted in conversation at the time that the plans they had announced provided limited explanation of their intentions, and I was encouraged by the Treasury to consider all possibilities. I did, in my paper, and fear the worst:

One of Rishi Sunak's big plans for the UK is the introduction of so-called 'freeports'. He has been promoting them for a long time, and long before entering government. The government has said of their plans:

The government is working to boost economic activity across the UK, ensuring that towns, cities and regions across the country can begin to benefit from the opportunities of leaving the EU. As part of this work, the government aims to create up to 10 freeports in locations across the UK.

And they added:

The government wants to establish freeports, which have different customs rules than the rest of the country, that are innovative hubs, boost global trade, attract inward investment and increase productivity. In doing so, the government wants freeports to generate employment opportunities to the benefit of some of our most deprived communities around the UK.

The government has the following objectives for UK freeports:

  • establish freeports as national hubs for global trade and investment across the UK
  • promote regeneration and job creation
  • create hotbeds for innovation

The government has drawn on evidence from successful freeports around the world to develop a UK freeport model. The proposed model includes tariff flexibility, customs facilitations and tax measures. We are also considering planning reforms, additional targeted funding for infrastructure improvements and measures to incentivise innovation.

I was asked by the Fair Tax Mark to look at this issue and draft a response for then, which has now gone in. But I also wrote a much longer version, which is available here.

The summary of my submission says:

This submission details considerable concerns relating to the freeports that the UK government is proposing to create. These concerns relate in particular to:

  • The significant money-laundering risks that they will create that are unavoidable without a comprehensive reform of the enforcement processes relating to UK company law;
  • The extensive risk of tax avoidance activity because of the uncertainties that freeports will create with regard to a range of taxes including corporation tax, value added tax, income tax and social security;
  • The inability of the freeport proposal to address the government’s concerns with regard to stamp duty land tax, business rates, research and development credits and other related issues;
  • The absence of any apparent economic need for freeports;
  • The risk to UK tax morale that they will create;
  • The threat to the UK’s international tax relationships that they will pose;
  • The challenge to the international consensus on ending the harmful race to the bottom in tax matters that they represent.

In our opinion none of these issues can be addressed by modification to the proposal made and as such we suggest that the proposal to create freeports should not be preceded with.

The submission is of thirty pages and highlights a great many issues, because as became apparent in discussions I had with the Treasury and others during the submission process, it is deliberately scant as to the proposals to provide the government with maximum opportunity to introduce ideas without prior notice having claimed a consultation has already been done.

My fear, to be blunt, is that the aim is to introduce tax havens in the UK.

It's an issue I will come back to, but for now I offer these paragraphs from the submission on which this proposal is not needed:

Economic need

We understand that the Government’s intention in promoting freeports is to encourage increased economic activity in the UK. It intends to do so by providing incentives through the tax system and by relaxing other regulation.

There is little evidence that freeports have ever achieved this goal for a government. There is quite strong evidence that, at best, freeports relocate activity at cost to a government.

In addition, there is no evidence at all at present within the UK that there is a shortage of capital available for investment purposes. There is, for example, regular and informed comment on the pages of the Financial Times and The Economist on the existence of a savings glut, which savings are not put to use by investors.  What is more, that capital is available at incredibly low cost, meaning that the hurdles to be overcome before investment can take place have little, if anything, to do with the cost of finance, which is all that can be influenced by reduced taxation and a reduction in the cost of regulation within freeports. In that case there is very little economic evidence to suggest that freeport creation will address any known economic problem: it would seem that all desired economic activity in the UK is currently being funded at very little capital cost without the assistance of freeport arrangements. The economic rationale for such arrangement is, then, very hard to discern. The government has not stated what they are in the current economic environment. We would very strongly suggest that this be done before any legislation is presented to Parliament so that proper appraisal of the proposal can be made.

Regulatory need

We have one final observation to make. The logic of freeports is that there must be regulatory failings in the UK that requires that they exist. The consultation document does not specify these failings, but if they exist it is logical that the whole country enjoy the benefit of reform rather than just some selected areas. We would therefore suggest the government address this broader issue rather than introduce freeports if they think there are regulatory issues requiring attention.

We do not need ten new tax havens in the UK. So why is the government intent on creating them?

 

Why Turing for Erasmus?

Published by Anonymous (not verified) on Sun, 27/12/2020 - 8:21am in

At the beginning of the year, Johnson maintained that leaving the EU was no threat to the Erasmus scheme: Now he seems to have implied it is too expensive, though when even somewhere like Afghanistan can be an associate member, I don’t think he is telling the truth. Additionally, earlier this year a Guardian report... Read more

Lack of support for self-isolation is so self defeating

Published by Anonymous (not verified) on Fri, 18/12/2020 - 7:29am in

Please just look at the World Health Organisation video rather than the rest of this guff below – it is the only place I can find the actual WHO video: So if, as Dr Maria Van Kerkhove says, asymptomatic transmission is very rare why on earth is the government not bearing down on test, trace... Read more

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