Bully the Small Ones

A few years ago I got involved in a story concerning a butcher from Liverpool, his tax accountant and the Inland revenue. It was a fascinating story for me as the IR was using Benford’s Law to try to tell the butcher he must have been cheating on his taxes.

That’s fine as far as it goes and I was sufficiently interested to talk to the tax accountant who provided me with the butcher’s bookkeeping information and some of the correspondence from the IR.

The crucial thing was that the IR were using Benford’s Law completely wrongly: they were starting from the right digit (pence) and moving to the left, tens of pence, pounds, tens of pounds and so on. The truth is that they should have started with the leftmost digit whatever that was as it could have been millions of pounds, hundreds of pounds or who knows what.

A lot of correspondence went backwards and forwards including some from a woman who claimed that my approach to Benford’s Law was wrong … I think she was from the IR and trying to defend her friends.

I am happy to say that as a result of my intervention the IR backed down, they stopped harassing the butcher and life returned to normal. What I DID conclude, however, was that the butcher MIGHT have been cheating on his taxes to some extent as his Benford results were not 100%: so the IR might have been right to pursue him. Had they done their job properly I would not have got involved. I imagine the butcher got a shock and sorted himself out.

The point of this story is really that I read in today’s FT that they are naming and shaming tax avoiders and evaders on the IR web site but guess who’s getting it in the neck? Starbucks? No! A high profile comedian? No A Russian oligarch? No! They are targeting tiny SMEs, probably mSMEs.

Yes, these people deserve to be punished if they are doing wrong but landing a load of tiddlers in a large fine mesh net is hardly the same as landing a dozen Marlin using strength, stealth and intelligence is it? I say this because if they have caught these SMEs in the same way that they caught the butcher of Liverpool then watch out for the potential backlash and we hear more and more stories of IR incompetence and bullying.

 

Duncan Williamson