Today’s public accounts committee report called on HMRC to be more ‘aggressive and assertive’ in confronting avoidance. Witnesses had ‘lacked clarity’ when trying to explain HMRC’s approach to enforcing the corporation tax regime.
HMRC maintains that its specialists ensure that multinationals pay the tax due in accordance with UK tax law. But PAC chairman Margaret Hodge said ‘the inescapable conclusion’ was that multinationals were ‘using structures and exploiting current tax legislation to move offshore profits that are clearly generated from economic activity in the UK’.
She added: ‘HMRC should be challenging this but its response so far to these big businesses and their aggressive tax planning has lacked determination and looks way too lenient. Policing the tax system must be at the heart of what HMRC does. It must be more aggressive and assertive in confronting corporate tax avoidance. This is essential for the credibility of both the department and the tax system.’
The PAC said it was ‘unclear whether HMRC has the necessary resources or is devoting the time and effort to collect the appropriate level of tax’. HMRC needed a ‘change in mindset’ in the way it approached collecting tax from multinationals: ‘At the moment there is a pervasive acceptance of the status quo by the top officials in HMRC and we have seen little evidence of a desire to be more assertive.’
‘Figures speak for themselves’
HMRC said in a statement: ‘HMRC ensures that multinationals pay the tax due in accordance with UK tax law. We have been very successful in reducing tax avoidance by large businesses in recent years. We relentlessly challenge those that persist in avoiding tax and have recovered £29bn additional revenues from large businesses in the last six years, including £4.1bn in the last four years from transfer pricing enquiries alone. These figures speak for themselves.
‘Corporation tax receipts are dependent on the wider economy and the corporation tax rate set by Parliament, which was reduced by two percentage points for 2011/12.’
Tax gap
HMRC should set ‘ambitious’ targets to reduce the tax gap, the PAC said, pointing out that the department’s own assessment of the gap stood at £32bn and had only reduced by £1bn since 2004/05. The committee recognised, however, that HMRC did not agree with its assessment. The gap, while ‘trending down only very slowly’, was competitive when compared with most countries and lower than that in Sweden and the US.
Responding to the report, HMRC said: ‘The percentage tax gap has fallen from 8.2% to 6.7% since 2004/05. This is a substantial reduction – nearly 20% – which means that the UK has a tax gap that compares very well compared to other countries – for example the US at 14%.
‘To put the £32bn tax gap in context, it is a relatively small proportion of the £469bn we collected in tax during 2010/11. The largest businesses pay around 60% of taxes (including the PAYE and NICs they pay as employers) and account for around 25% of the tax gap.’
‘Back a cast-iron winner’
The union representing senior tax officials urged the government on Friday to abandon caution and invest an additional £120m in HMRC to close the tax gap and reduce the deficit.
Gareth Hills, president of the Association of Revenue and Customs (ARC), said: ‘HMRC is on track to deliver an additional £7bn in tax receipts each year to 2015 as part of the coalition’s £917m “reinvestment” programme. However even after this “reinvestment” HMRC is still losing 13,000 staff in the period up to 2014/15.’
Unprecedented public interest in some elements the tax gap was ‘largely prompted by the public discovery of the complex rules, accounting procedures and international agreements that set out how, where and when governments can tax the profits from international trade, multinational companies and commerce via the internet, ARC said.
Hills said investing in key HMRC personnel would guarantee a significant return. ‘For an additional £120m a further £3.7bn per year could be recouped … Now is the time for [the government] to abandon caution … and back a cast-iron winner.’
Today’s public accounts committee report called on HMRC to be more ‘aggressive and assertive’ in confronting avoidance. Witnesses had ‘lacked clarity’ when trying to explain HMRC’s approach to enforcing the corporation tax regime.
HMRC maintains that its specialists ensure that multinationals pay the tax due in accordance with UK tax law. But PAC chairman Margaret Hodge said ‘the inescapable conclusion’ was that multinationals were ‘using structures and exploiting current tax legislation to move offshore profits that are clearly generated from economic activity in the UK’.
She added: ‘HMRC should be challenging this but its response so far to these big businesses and their aggressive tax planning has lacked determination and looks way too lenient. Policing the tax system must be at the heart of what HMRC does. It must be more aggressive and assertive in confronting corporate tax avoidance. This is essential for the credibility of both the department and the tax system.’
The PAC said it was ‘unclear whether HMRC has the necessary resources or is devoting the time and effort to collect the appropriate level of tax’. HMRC needed a ‘change in mindset’ in the way it approached collecting tax from multinationals: ‘At the moment there is a pervasive acceptance of the status quo by the top officials in HMRC and we have seen little evidence of a desire to be more assertive.’
‘Figures speak for themselves’
HMRC said in a statement: ‘HMRC ensures that multinationals pay the tax due in accordance with UK tax law. We have been very successful in reducing tax avoidance by large businesses in recent years. We relentlessly challenge those that persist in avoiding tax and have recovered £29bn additional revenues from large businesses in the last six years, including £4.1bn in the last four years from transfer pricing enquiries alone. These figures speak for themselves.
‘Corporation tax receipts are dependent on the wider economy and the corporation tax rate set by Parliament, which was reduced by two percentage points for 2011/12.’
Tax gap
HMRC should set ‘ambitious’ targets to reduce the tax gap, the PAC said, pointing out that the department’s own assessment of the gap stood at £32bn and had only reduced by £1bn since 2004/05. The committee recognised, however, that HMRC did not agree with its assessment. The gap, while ‘trending down only very slowly’, was competitive when compared with most countries and lower than that in Sweden and the US.
Responding to the report, HMRC said: ‘The percentage tax gap has fallen from 8.2% to 6.7% since 2004/05. This is a substantial reduction – nearly 20% – which means that the UK has a tax gap that compares very well compared to other countries – for example the US at 14%.
‘To put the £32bn tax gap in context, it is a relatively small proportion of the £469bn we collected in tax during 2010/11. The largest businesses pay around 60% of taxes (including the PAYE and NICs they pay as employers) and account for around 25% of the tax gap.’
‘Back a cast-iron winner’
The union representing senior tax officials urged the government on Friday to abandon caution and invest an additional £120m in HMRC to close the tax gap and reduce the deficit.
Gareth Hills, president of the Association of Revenue and Customs (ARC), said: ‘HMRC is on track to deliver an additional £7bn in tax receipts each year to 2015 as part of the coalition’s £917m “reinvestment” programme. However even after this “reinvestment” HMRC is still losing 13,000 staff in the period up to 2014/15.’
Unprecedented public interest in some elements the tax gap was ‘largely prompted by the public discovery of the complex rules, accounting procedures and international agreements that set out how, where and when governments can tax the profits from international trade, multinational companies and commerce via the internet, ARC said.
Hills said investing in key HMRC personnel would guarantee a significant return. ‘For an additional £120m a further £3.7bn per year could be recouped … Now is the time for [the government] to abandon caution … and back a cast-iron winner.’
