MPs urge greater HMRC vigilance over abuse of tax reliefs

Report by the Public Accounts Committee says HMRC too slow in identifying potential abuse of tax reliefs

By matt.foster

26 Mar 2015

HM Revenue and Customs must do more to ensure that tax reliefs are not being used for avoidance purposes, MPs have said.

A report by the cross-party Public Accounts Committee (PAC), which has focused heavily on tax during the course of this parliament, says HMRC is not doing enough to track the impact of reliefs and spot potential abuses.

"Tax reliefs add to the complexity of the system and may be exploited as a way of avoiding tax," the committee says. "HMRC does not effectively monitor changes in the cost of tax reliefs so is slow in identifying instances where a relief is being exploited for a purpose parliament did not intend."

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The committee calls on HMRC to draw up a "set of principles to guide its management and reporting of tax reliefs", saying it should regularly publish an up-to-date list of reliefs based on a clear definition – agreed with the Office of Tax Simplification – of what constitutes tax relief.

The MPs also call on the government to consider taking into account the impact of reliefs when setting departmental budgets, in order to give ministers a clearer picture of the cost of policy priorities.

"Clear and accurate data on the costs of reliefs are essential to help parliament consider the value for money of reliefs and whether their costs reflect its priorities in providing financial support to different areas and services," the report says.


A separate report published by PAC this morning also questions whether HMRC has the resources needed to challenge individuals and firms who are "determined to cheat the tax system".

"We note that HMRC has continued to reduce its headcount, which fell by 24,600 between 2008 and 2014," PAC says. 

"To address the deficit in the public finances, it is critically important that HMRC collects as much of the tax revenue that is due as is possible. Investment in HMRC more than pays for itself, with a minimum return of £10 for every £1 invested in HMRC staffing. 

"Its resources must also reflect the scale of the challenge it facings in tackling a vast and sophisticated tax planning industry which supports aggressive tax avoidance by wealthy people and large companies."

It says the department continues to face an "uphill struggle" in outmanoeuvring those intent on tax avoidance, and points out that HMRC has just 65 cross-border tax specialists compared to some 250 across the 'big four' accountancy firms.

However, the report also acknowledges that HMRC has accepted "over 80%" of the recommendations made by PAC since 2010, and says while there remains "much more for HMRC to do" the department has "responded positively to many" of its concerns.

Responding to the set of reports, a spokesperson for HMRC said: "We are pleased that the committee recognises the progress that HMRC has made in clamping down on tax evasion and avoidance, by relentlessly pursuing those who seek to cheat the system.

"We have shut down marketed avoidance schemes, closed loopholes, secured tough new enforcement powers, and opened up international information exchanges so rich evaders will have no safe havens where they can hide their money.

"As a result of our compliance efforts and the £1 billion extra investment over this Parliament, we have secured more than £100 billion in additional revenues in the past five years to pay for essential public services, raised penalties for tax evasion to 200 per cent of tax owed and increased prosecutions five-fold.”


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