An investigation into improving tax collection by Parliament’s Public Accounts Committee has reported that HMRC is failing to clamp down on both evasion and aggressive tax avoidance.
Committee chair Margaret Hodge says the “complexity of tax law and constraints on HMRC’s resources” mean the Revenue is “fighting an uphill battle against those who are determined to cheat the tax system”.
She adds: “HMRC could collect more of the tax that is due if it had more resources devoted to this work, and it should be assertive about making this case to HM Treasury and Parliament.”
The number of tax reliefs increasing by over 100 in this Parliament, according to the PAC.
Hodge says both HMRC and the Treasury have shown “a worrying lack of curiosity” about tax reliefs.
She adds: “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.”
Hodge cites the example of R&D tax relief, which increased from £100m in 2001 to £1bn in 2011/12, while the amount of business expenditure on R&D remained flat.
In addition, the committee notes HMRC headcount fell by 24,600 between 2008 and 2014, despite MPs argue every £1 of investment in staffing would return a minimum of £10 for the Revenue.
Further, the committee argues HMRC is failing to provide a successful deterrent against evasion by following a policy of civil settlement, rather than criminal prosecutions.
MPs say HMRC should gather evidence to establish the effectiveness of prosecutions in deterring tax evasion by wealthy individuals, and work with the Crown Prosecution Service to “significantly increase” numbers of prosecutions.
“As it stands, tax avoidance – and even evasion – can be a risk worth taking,” Hodge says.
The report comes after Chancellor George Osborne promised a raft of measures to tackle tax evasion in the 2015 Budget, while both the LibDems and the Labour party have also pledged to introduce new legislation to hit tax dodgers if elected in May.