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MPs say HMRC is ‘fighting a battle it can’t win’ on tax avoidance

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The influential public accounts committee says HM Revenue & Customs is “fighting a battle it cannot win” against tax avoidance due to its lack of resources compared to the large market for tax avoidance advice.

In a report into tax avoidance, published today, the PAC says the four firms employ nearly 9,000 people and earn £2bn from their tax work in the UK, earning around £16.2bn globally. It says HMRC has far fewer resources and is engaged in a “never-ending game of cat and mouse”.

he PAC calls for the big four accountants to be banned from advising the Government on tax policy as they use the “insider” knowledge gained to help clients avoid paying tax.

The report says it is a case of a poacher turning into a gamekeeper who then returns to poaching and slammed the “unhealthily cosy” relationship between the Treasury and accountants.

KPMG, Deloitte, PriceWaterhouseCooper and Ernst & Young all admit to tax staff being seconded to Government to advise on tax legislation.

PAC chair Margaret Hodge says: “The large accountancy firms are in a powerful position in the tax world and have an unhealthily cosy relationship with Government. They second staff to the Treasury to advise on formulating tax legislation.

“When those staff return to their firms, they have the very inside knowledge and insight to be able to identify loopholes in the new legislation and advise their clients on how to take advantage of them. The poacher, turned gamekeeper for a time, returns to poaching.

“This is a ridiculous conflict of interest which should be banned in a code of conduct for tax advisers, as we have recommended to the Treasury and HMRC.”

All four firms says they have not sold “aggressive” tax avoidance schemes for 10 years but PAC says they are still helping firms avoid paying taxes.

MPs also called for a simpler tax system but claimed the Office for Tax Simplification is too under-staffed for radical reform. It says it is merely ensuring “good housekeeping” rather than tackling problems of complexity.

The report said the PAC would investigate the use of tax reliefs to avoid tax at a future hearing.

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HMRC director general Jim Harra hit back at the report by highlighting 11 tribunal victories, 50 court case wins and billions of pounds protected since the end of last year.

He says: “The facts show that we are not only aggressively fighting battles against tax avoidance, but we are winning them.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Here is an idea. Use massive fines (and I mean many hundreds of millions) for those in the big who advise on the legislation and then find loopholes in th every laws they helped define. That will put a stop to the smart ar*es playing both sides and earning billions. Make the accountants and lawyers responsible and accoauntable for their actions and the advice they give. It is not rocket science is it?

  2. Marty

    Not fines just make them liable for the tax bill if they get it wrong. I have always found it unbelievable that accountants have a clause in their terms and conditions that state that you have checked the accounts and agree that it complies with UK law.

    Is it not the point that by hiring a professional accountant that they should be held accountable for any incorrect information just like financial advisers are after all. I wonder how many accountants and clever QCs would be queueing up to come up with clever tax avoidance schemes if they became liable for the scheme if the advice in court suddenly failed. I suspect we would get a very honest accountant and QC profession very quickly.

    This was muted a few years ago but the accountancy profession argued that it was unfair and the government backed off!!

    I suspect if we did have this rule it would bankrupt the top for accountancy firms within a year.

  3. @Peter

    “I wonder how many accountants and clever QCs would be queueing up to come up with clever tax avoidance schemes if they became liable for the scheme if the advice in court suddenly failed.”

    I assume you’d know how to draft a law that covers what you apparently want it to mean. Just in case someone who came off worse in a contract dispute, or a trade of any kind decided to seek redress from their lawyer or Accountant. I think you’d find that holding every adviser or counsel to account retrospectively is unlikely to grease the wheels of commerce.

  4. Sam De Zoysa | 26 Apr 2013 12:01 pm

    I think you misunderstand what I am saying, you wouldn’t have to draft a particular complicated law – all you would have to do is state that if the revenue takes a scheme to court and wins the accountant and QC would then become liable for the client’s losses.

    That’s not retrospective law that’s just making accountants and QCs liable for misleading advice!

    After all how many times have I heard over the last 10 years tax schemes that have been signed off by QCs as complying with British law only to be later found to fail in court e.g. Eclipse 35

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