The National Audit Office (NAO) today ruled that Vodafone’s settlement of its UK tax bill was "reasonable", despite being almost £5bn less than it was originally thought to have owed.
The mobile operator came under scrutiny when critics claimed it owed £6bn in tax which it had avoided by having a one-man staff in a tax haven office based out of Luxembourg.
Despite going through the courts and Vodafone being ruled to owe the money to HMRC, it came to an arrangement with the treasury, including the Chancellor of the Exchequer George Osborne, to pay £1.25bn to settle the dispute – even less than the £2.2bn it admitted to keeping to one side for payment to the tax office.
This led to even more uproar, and a number of protests broke out across Britain, led by campaign group UK Uncut.
The NAO was asked to investigate the case in December last year, along with four other similar deals the treasury had struck, to make a conclusion over the validity of the deals and try to put an end to the controversy.
The investigation was carried out by former High Court tax judge Sir Andrew Park, whose report released today said the conclusion of all five cases was rational, but the process of reaching the deals needed to be re-examined.
Amyas Morse, head of the NAO, said: "On the basis of Sir Andrew Park’s reports, I conclude that the settlements reached by HMRC in these five cases were all reasonable. Moreover, in settling them, the department successfully resolved multiple, long-outstanding tax issues.
"However, our concerns over the processes by which the settlements were reached have been confirmed. It was not appropriate to set up governance arrangements specific to certain cases or to fail to apply processes correctly. Poor communication with staff also undermined confidence in the settlements."
Vodafone's chief financial officer, Andy Halford, praised the decision by the NAO, and said the company welcomed the vindication.
"For more than a year, Vodafone has been falsely accused of improper conduct," he said. "As we have consistently stated, those attacks were unwarranted and unjust. We acted with the utmost propriety throughout the HMRC settlement process, and the National Audit Office has now concluded that the outcome was good for the UK taxpayer.”
The company is not out of the woods yet, however, as this week it was revealed Vodafone had not paid any corporation tax in the UK during 2011.
The company followed legal processes by offsetting its capital expenditure against the tax bill, bringing the owed amount down to zero, but it has still received criticism, having made £1.3bn from its UK operations last year.
Sandra Hughes, member of UK Uncut – which led protests in 2010 against Vodafone – said the telecoms firm needed to start paying tax and help the country in times of austerity.
“There is an alternative to the government’s cuts – make big businesses pay their fair share of tax,” she said. “Mega-rich businesses must contribute more so that we can fund and keep open our libraries, hospitals and local services, and provide welfare for all.”
Read more on Telecoms networks and broadband communications
Loan charge MPs urge chancellor to get HMRC to soften contractor settlements
Loan charge: HMRC tells contractors not to ‘hold out hope’ of revised down settlements emerging
Loan charge: Government dashes hopes of revised down settlements for contractors
Loan charge contractors face double whammy of life-changing repayment demands as past loans recalled