The Public Accounts Committee (PAC) released its 18th report of the 2014/15 parliamentary session on Tuesday, titled HMRC’s progress in improving tax compliance and preventing tax avoidance.
The Public Accounts Committee (PAC) released its 18th report of the 2014/15 parliamentary session on Tuesday, titled HMRC’s progress in improving tax compliance and preventing tax avoidance. Commenting on the publication of the report, PAC chair Margaret Hodge criticised HMRC’s action against tax avoiders, saying it ‘does not do enough to tackle companies which exploit international tax structures to minimise UK tax liabilities’ and that HMRC ‘continues to be unacceptably slow, putting tax revenues at risk’.
Hodge cited the example of the Liberty scheme, which ran from 2005 to 2009 ‘but it has taken until 2014 for HMRC to take this case to a tax tribunal’. Hodge said: ‘Up to £10m of the total £400m tax at stake from the 2,000 users of this scheme may not be recoverable because in 30 cases HMRC failed to start inquiries into personal tax returns within the 12 month statutory deadline. Although HMRC says Liberty was an exceptional case among the 750,000 personal tax return inquiries each year, it was unable to tell us how much delays had cost across the different tax avoidance schemes. HMRC must do more, faster … by using new powers granted by Parliament to tackle tax avoidance and show that it is using its existing powers with sufficient urgency.’
Hodge also criticised HMRC for making a £1.9bn error when establishing its baseline and targets for compliance work. ‘This means HMRC has been overstating the extent to which its performance on compliance yield has improved over the 2010 spending review period, and it inadvertently presented misleading information to Parliament about the improvement in its performance,’ she added. ‘Astonishingly, this significant error in a key performance measure went undetected by HMRC’s own system of governance and internal audit for three years. HMRC should make sure the governance arrangements around its performance are sufficiently robust. It should be more transparent about its compliance yield estimates and maintain a comparable measure of compliance yield over time so we are not comparing apples and pears.’
HMRC's response
However, an HMRC spokesperson told Tax Journal: ‘We have accelerated collection of tax from avoiders enormously – since the government introduced accelerated payments, avoiders have already agreed to pay well over £25m. By 2016, we expect to have issued accelerated payment notices to around 43,000 avoidance users covering over £7bn and we are also using new legislation enabling us to ask the tax courts to designate certain avoidance promoters as high-risk, with accompanying fines of up to £1m.
‘The committee recognises we have addressed their key comments about tax avoidance. The way we now work makes it clear to promoters and users of schemes that we will robustly tackle tax avoidance wherever it happens, so increasingly taxpayers are contacting us to help disentangle them from schemes that simply don't work.
‘We are also effectively challenging multinationals, whilst bringing in the colossal sum of £31bn from large business since 2010 alone. We will work closely with the National Audit Office to ensure there is no repeat of the base line error for which we apologised to the committee. However, even taking this into account we exceeded our targets for tackling tax dodgers and criminal gangs every year since 2010.’
Time for a more radical approach?
Law firm Pinsent Masons argued that the widening tax gap can only be closed if HMRC is given political backing to pursue a radical new approach to clearing the backlog of tax avoidance cases that would free resources to focus on tax evasion. HMRC’s litigation and settlement strategy ‘favours pursuing suspected tax avoidance scheme users through every possible stage of the tax tribunal system, rather than settling the case to ensure a guaranteed pay-out,’ it said.
The law firm echoed calls previously made by partner Ray McCann for a new overall resolution strategy. James Bullock, head of litigation and compliance, said: ‘HMRC now has open tax avoidance cases with 90,000 individuals – that’s equivalent to the entire British Army. Clearly, it is not feasible for HMRC to clear those cases quickly using its current approach.
‘It is dangerous to assume that accelerated payment notices are the cure-all solution for HMRC. I would anticipate that many of those taxpayers will be even more determined to fight on despite receiving demands for accelerated payment. We have been arguing for some time that there needs to be a radical change of approach to close the mountain of open cases and accelerate the collection of much needed tax revenues,’ he added.
The Public Accounts Committee (PAC) released its 18th report of the 2014/15 parliamentary session on Tuesday, titled HMRC’s progress in improving tax compliance and preventing tax avoidance.
The Public Accounts Committee (PAC) released its 18th report of the 2014/15 parliamentary session on Tuesday, titled HMRC’s progress in improving tax compliance and preventing tax avoidance. Commenting on the publication of the report, PAC chair Margaret Hodge criticised HMRC’s action against tax avoiders, saying it ‘does not do enough to tackle companies which exploit international tax structures to minimise UK tax liabilities’ and that HMRC ‘continues to be unacceptably slow, putting tax revenues at risk’.
Hodge cited the example of the Liberty scheme, which ran from 2005 to 2009 ‘but it has taken until 2014 for HMRC to take this case to a tax tribunal’. Hodge said: ‘Up to £10m of the total £400m tax at stake from the 2,000 users of this scheme may not be recoverable because in 30 cases HMRC failed to start inquiries into personal tax returns within the 12 month statutory deadline. Although HMRC says Liberty was an exceptional case among the 750,000 personal tax return inquiries each year, it was unable to tell us how much delays had cost across the different tax avoidance schemes. HMRC must do more, faster … by using new powers granted by Parliament to tackle tax avoidance and show that it is using its existing powers with sufficient urgency.’
Hodge also criticised HMRC for making a £1.9bn error when establishing its baseline and targets for compliance work. ‘This means HMRC has been overstating the extent to which its performance on compliance yield has improved over the 2010 spending review period, and it inadvertently presented misleading information to Parliament about the improvement in its performance,’ she added. ‘Astonishingly, this significant error in a key performance measure went undetected by HMRC’s own system of governance and internal audit for three years. HMRC should make sure the governance arrangements around its performance are sufficiently robust. It should be more transparent about its compliance yield estimates and maintain a comparable measure of compliance yield over time so we are not comparing apples and pears.’
HMRC's response
However, an HMRC spokesperson told Tax Journal: ‘We have accelerated collection of tax from avoiders enormously – since the government introduced accelerated payments, avoiders have already agreed to pay well over £25m. By 2016, we expect to have issued accelerated payment notices to around 43,000 avoidance users covering over £7bn and we are also using new legislation enabling us to ask the tax courts to designate certain avoidance promoters as high-risk, with accompanying fines of up to £1m.
‘The committee recognises we have addressed their key comments about tax avoidance. The way we now work makes it clear to promoters and users of schemes that we will robustly tackle tax avoidance wherever it happens, so increasingly taxpayers are contacting us to help disentangle them from schemes that simply don't work.
‘We are also effectively challenging multinationals, whilst bringing in the colossal sum of £31bn from large business since 2010 alone. We will work closely with the National Audit Office to ensure there is no repeat of the base line error for which we apologised to the committee. However, even taking this into account we exceeded our targets for tackling tax dodgers and criminal gangs every year since 2010.’
Time for a more radical approach?
Law firm Pinsent Masons argued that the widening tax gap can only be closed if HMRC is given political backing to pursue a radical new approach to clearing the backlog of tax avoidance cases that would free resources to focus on tax evasion. HMRC’s litigation and settlement strategy ‘favours pursuing suspected tax avoidance scheme users through every possible stage of the tax tribunal system, rather than settling the case to ensure a guaranteed pay-out,’ it said.
The law firm echoed calls previously made by partner Ray McCann for a new overall resolution strategy. James Bullock, head of litigation and compliance, said: ‘HMRC now has open tax avoidance cases with 90,000 individuals – that’s equivalent to the entire British Army. Clearly, it is not feasible for HMRC to clear those cases quickly using its current approach.
‘It is dangerous to assume that accelerated payment notices are the cure-all solution for HMRC. I would anticipate that many of those taxpayers will be even more determined to fight on despite receiving demands for accelerated payment. We have been arguing for some time that there needs to be a radical change of approach to close the mountain of open cases and accelerate the collection of much needed tax revenues,’ he added.
