Published in Tax Careers, January 2009. Click here to see typeset article as PDF.
Retiring HMRC assistant director Richard Thomas talks to CALUM ROBSON about his career highlights
As he approaches his retirement, Richard Thomas, HMRC’s specialist in insurance taxation, has had a full and varied career that’s included pouncing on criminals, confrontations in the High Court and even going up against Jeremy Paxman in the TV studio.
At 21, after graduating from Cambridge, he applied to join the Civil Service as an administrative trainee: ‘The Civil Service Commission clearly decided that being a Sir Humphrey wouldn’t do for me,’ he recalls. ‘They considered that I might be better off training as a tax inspector. I think they recognised that I had an enquiring, analytical mind – that tended to be the main reason people were selected as Tax Inspectors; I believe it still is.’
Thomas began his career at the Inland Revenue in the traditional fashion, a mixture of formal training and on-the-job learning, starting with filing. He embarked on a four-year training course, including the Revenue’s highly respected exams; when not studying or attending training centres, he carried out standard tax inspector work, primarily dealing with self-employed accounts and smaller companies. He says he never explored a potential switch into practice: ‘I didn’t really see it as something I wanted to do, certainly so long as I was happy doing what I enjoyed. Yes, lots of people left to work in accounting firms for the pay. But I’ve never been seriously approached – nor have I ever been tempted.’
Fighting fraud
In 1976, the Revenue set up a Special Office for complex and novel tax investigations, and Thomas moved into a role there that he found both challenging and hugely rewarding: ‘It appealed to me because there weren’t really any rules,’ he says. ‘The investigation work the Revenue had conducted up until then was very narrowly focused on accounts frauds and run along rigid lines. The new office was given a brief to range widely over everywhere, trying to uncover anything that didn’t look right. It was all so new; we were thinking outside the box and encouraged to do our own thing. In effect, we were told: go out and find the work, and some of it was real high-adrenalin stuff.
‘We’d find new ways of collecting tax from companies by taking out Mareva injunctions, as well as winding up those incorporated in tax havens at the High Court. At one point, based on information from an informant in the Channel Islands, I went to Heathrow one night to serve a writ on someone who was trying to sneak back into the country.’
Thomas was responsible for the first prosecution that the Special Office mounted, against an individual who claimed to be residing in the US – but was actually living in Chelsea. ‘You certainly needed detective skills in that job,’ says Thomas. ‘We even collected evidence from his milkman.’
Thomas discovered, via the culprit’s credit cards and other evidence, that despite saying he spent only 16 days a year in the UK, he’d been here for over 200 days in the previous 12 months. ‘We had him arrested and brought to the police station at Chelsea. We’d had a tip-off that he was about to abscond to Bermuda on a one-way ticket – but once he saw how much evidence we had, he pleaded guilty, getting 18 months in prison and a criminal bankruptcy order. It was, I think, one of the largest criminal bankruptcies at the time – and as was my right as a representative of a creditor, I had the opportunity to cross-examine him in the High Court.’
In 1984 and 1985, Thomas had his first experience of being in charge of a tax district, as district inspector in Southwark with over 90 staff and cases ranging from a High Street supermarket chain to Darth Vader (or rather, the person inside the black suit).
Following promotion to what is now the Senior Civil Service, Thomas spent time in the Revenue’s international tax team in the mid-80s, leading first the transfer pricing and then the CFC (controlled foreign companies) teams, work that often involved travel overseas, meeting with other tax authorities to coordinate cross-border work.
Into insurance
In 1989, Thomas joined the part of the Inland Revenue that would become the Large Business Service (LBS). ‘I was a district inspector again, but with only four staff, however, I was in charge of areas with some of the biggest organisations and most complex tax cases. My district, City 23, specialised in insurance companies, the most complicated sector for tax.’
His role was to determine the corporation tax liabilities, primarily of life insurance companies, although he also dealt with organisations in other sectors, notably a large pharmaceutical concern: ‘In those days, you were given some areas of non-insurance – just to keep you sane.’
Today, the insurance industry has changed almost beyond recognition, which Thomas believes creates challenges for the tax authorities. ‘There have been so many M & A type transactions: demutualisations, plc acquisitions, especially by banks, and purchases by foreign concerns – with a resultant greater emphasis on shareholder value,’ he says. ‘And because of pressure from the regulators, insurers have also had to pay more regard to policyholders’ expectations especially in relation to with-profits – so there are tensions between obtaining best value for shareholders and ensuring that policyholders get the value that they too deserve.
‘But there’s also been a marked trend away from traditional business like with-profits towards linked business – where the investment risk is with the policyholder rather than the company. And there are now more sophisticated ways of funding insurance companies, which have given rise to even more tax issues.’
The traditional tax system that had been developed was based on the traditional with-profits model, assuming companies funded themselves simply from the profits they put by, without resort to seeking external sources of funding: ‘That system didn’t really cope with the new ways of operating that were emerging,’ says Thomas. ‘Consequently, since 1993, I’ve mostly been concerned with ensuring the tax law is in a fit state to deal with the way industry has been changing.’
One of the other factors that’s had the potential to create headaches for tax inspectors – and with which Thomas has had to grapple – has been the way that regulatory returns completed by insurance companies for the FSA (and its predecessors) and the accounts produced for their shareholders have diverged over the years. Until the mid-90s, those figures were broadly similar – but with the FSA increasingly demanding information in greater volume and sophistication, there are today two widely varying sets of numbers upon which tax liabilities can potentially be worked out.
‘On several occasions since 1994, we have had to decide which we want to use – by switching to the shareholder figures or sticking with the regulatory returns,’ says Thomas. ‘One of the projects I’ve been involved in over the last few years is a major consultation exercise on taxing life insurers. I’ve been working closely not only with representative bodies such as the ABI but also the insurance companies themselves, as well as their professional advisors – the Big 4 accounting firms and lawyers – and the FSA.’ This exercise was singled out for praise in Sir Gus O’Donnell’s Capability Review of HM Revenue & Customs.
Avoiding avoidance
A large part of Thomas’s responsibilities in recent years has revolved around minimising the scope for tax avoidance by companies. In 2004, legislation was introduced requiring companies to disclose tax avoidance schemes that used complex financial instruments to reduce corporate tax liabilities; Thomas’s team had to decide what action to take on disclosed schemes.
‘We considered whether schemes had worked – and if they did, whether we should legislate to stop them for the future. And if we thought we could challenge them in court we had to decide whether to legislate anyway for safety’s sake’ he explains.
‘I was involved in making those decisions – in particular, ensuring that what we did was neither too narrow nor too broad. Too narrow, and we might only hit part of the field – for instance, if we closed down a scheme, it might be revived with a slight alteration to get round the legislation – so we’d have to think through all the potential variations and ensure the law was wide enough to catch them all. But at the same time, it was important not to be too broad – so that straightforward but necessarily complex commercial transactions didn’t get caught simply because they shared some features with schemes we were trying to stop.’
Thomas’s team went after not just companies but individuals – for example people who invested in ways that didn’t produce interest (which would be taxable) but instead used a combination of derivatives, shares, subscriptions and other transactions to gain an interest-like return in a form that avoided tax.
Challenging Paxman
In 2003, Thomas received an unexpected invitation – to represent the Revenue on University Challenge: The Professionals. The then chairman, Sir Nicholas Montagu, had been on University Challenge Revisited with his original college team from Cambridge, which prompted a call from the producers asking for a Revenue team to audition for a spin-off series featuring teams from different occupations.
Thomas and colleagues (selected from the Revenue’s sports association’s most successful quiz teams) sailed through a test in London against some 200 other works teams, before travelling for a long weekend’s filming in Manchester, which saw them win through three rounds before beating a team from the Royal Meteorological Society in the final.
‘Being grilled by Paxman was a little intimidating – but that’s all part of the show,’ says Thomas. ‘There was a moment when I argued back, as I thought one of the questions was misleading – but of course they never showed that. You have to stand up to him!’
Looking ahead – and keeping tabs
With his retirement due to officially begin in February, Thomas has a few irons in the fire that may see him continue to play a public role to some degree – but otherwise, he plans to simply relax.
But he’ll be keeping a close eye on the tax arena: ‘I’ll be watching to see how a major exercise we’ve been conducting – around taxing of foreign profits – works out, as it’s something I was personally involved with. And of course there’s the work I’ve done over the last five years on tax avoidance; I’ll be looking to see if we achieve what we’ve hoped for, which is to make tax avoidance – at least for big business – not worth doing.’
