The Government is under pressure to take further action to stop advisers promoting “aggressive tax avoidance schemes” as policymakers struggle to cope with an “increasingly complex” tax code.
In a report published this morning, the Public Accounts committee says the introduction of the Disclosure of Tax Avoidance Schemes system has allowed HMRC to target these schemes more quickly.
Despite this, the committee argues that more might need to be done to stop advisers promoting tax avoidance vehicles.
It says: “The tax avoidance industry makes profits from devising and selling avoidance schemes. Some high risk promoters in particular make money from their fees rather than from the success of any avoidance schemes.
“It is questionable whether there are sufficient disincentives and sanctions in the system to prevent advisers promoting aggressive tax avoidance schemes.”
The report says that while Government policy has been for simpler taxes the system has become “increasingly complex” and each new relief provides an opportunity for “avoidance and abuse”.
The number of tax reliefs offered by Government rose from 1,042 in 2011 to 1,128 by the end of 2013. The committee’s report says that, despite the Office for Tax Simplification calling in 2011 for 47 tax reliefs to be abolished, only 43 were actually removed while 134 new reliefs have been introduced.
It adds: “[HMRC and the Treasury] are unable to cope with the demands of an increasingly complex tax system.”
The report also suggests Parliamentary approval of tax reliefs through Finance Bills is inadequate because it does not take into account whether they are working as intended once they are in place, citing film tax relief as an example.
Introduced in 1997, film tax relief was forecast to cost £30m in the first three years. By 2005/6 the cost had risen to £700m and by the time action was taken to reduce the costs the Government had shelled out £2bn.
HMRC told the committee that of the 43,000 cases currently stuck in a backlog, around 17,000 related to film tax relief.