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MPs: HMRC ‘fighting an uphill battle’ on tax cheats

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.

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. correlationstreet 26th March 2015 at 9:54 am

    This article is quite remarkable. We all know that the tax system is insanely complex and continues to get more so. HMRC is suffering from low morale directly associated with resource cuts etc etc. Then we have MPs sat in their ivory towers claiming that every £1 spent on staffing returns a minimum £10 of tax (how do they know this?) Then the Coup de Grace, Margaret Hodge says (out loud I assume) that actually evasion & avoidance can be a risk worth taking. What on earth is going on here. Even if Hodge really thought that was the case why say it out loud? I’m sure she’ll claim she was quoted out of context blah blah blah………

  2. Dear Mrs Hodge

    I seem to recall that your own family business dealings are not quite whiter than white – irrespective of the fact that you may not have any or much input. Like all your colleagues in Westminster perhaps you might first like to clean your own stables. Apart from the persistent expenses diddling we have the house flipping – if that is not aggressive CGT avoidance the please explain what is.

  3. My thoughts are: Well I have a solution for companies like amazon who I believe have a huge warehouse in Fife which received grants to build, reduced council tax and as it pays its staff so little their pay is made up by tax credits but it pays little or no co orporation tax because its sales are routed through Luxembourg and a whole host of complex companies, loans etc

    If you sell to a UK person then you pay corporation tax on profits from dealings in UK. People who order goods or pay for goods normally resident in UK then which ever company provides the goods has to pay the profit tax which should be set at 5-10% on top of VAT. If you can prove at the end of the year after you paid the corporation profit tax upfront that you made no profit you might be legible for a discount from the tax office the following year.

    No tax official should be allowed to leave public service on a pension and work for any company involved in tax avoidance. No more gamekeepers turning poacher. If you do go and work for a tax avoidance company your public pension stops for ever.

    If I was on a jury and some plumber is being harassed by tax authorities I would think is what he/she did worse than amazon, stacks, and most international companies doing business in UK.

  4. It’s all hypocrisy and double standards. We also have the (deliberate ?) interchanging of the terms evasion and avoidance. There are now five levels of tax “compliance” :

    – Evasion (= illegal)
    – Aggressive Avoidance (legal, but no clear definition)
    – Immoral Avoidance (Irrelevant. People are free to make voluntary donations to the Treasury if they wish)
    – “Legitimate Avoidance” (ISAs, Pension Relief, etc etc)
    – Tax minimisation

    I’m not sure which category the house flipping (Extra Statutory Concession) comes under. It doesn’t just apply to MPs although they do enjoy special privileges in terms of getting taxpayer assistance for a second residence.

  5. There has been a blurring of lines here by HMRC to mobilise the masses against companies and individuals who even though they earn what they earn and pay tax according to the rules are now being questioned on a moral stance of tax payments.

    Clearly HMRC are unable to police their own system and need a witch hunt to raise taxes.

    Perhaps if they took a leaf out of the Swiss system, they might find its better to have at least small slice of the wealth pie than 100% of no wealth at all.

    The latest Labour/ Lib Dem non-dom policy just goes to show how lost in the real world those politicians are.

  6. The blanket issue of Accelerated Payment Notices is another sign that HMRC have lost the plot, the Treasury wants revenue so just disqualify every tax efficient scheme and hope that people pay up.

    There are plenty of legitimate schemes caught up in this mess, which could have been avoided by clear legislation in the first place. To now have five definitions of tax compliance is ridiculous, the only one they should be focussing on is evasion, and when they have sorted that out by all means move on to questionable avoidance to clarify what is against the spirit of the legislation.

    By showing they have teeth it may deter others, but when Margaret Hodge undermines HMRC by saying that if you take a risk you may get away with it, that cannot help their morale at a time when they probably need spirits lifting.

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