The Public Accounts Committee (PAC) yesterday published its Tax reliefs report following the House of Commons inquiry into tax reliefs and their administration in the UK. According to the report, tax reliefs are a ‘substantial, complex and poorly managed element of the tax system’, and goes on to state: ‘The tax expenditures in the UK tax system are estimated to cost over £100bn per annum. With the breadth, number and tax complexity of reliefs HMRC cannot be fully vigilant and knowledgeable about the cost and value of reliefs. The case of film tax relief highlights how a minor, but poorly designed, relief eventually cost the exchequer over £2bn. [HMRC and HM Treasury] were slow to respond and did not bring the surge in costs to the attention of Parliament. We look to [HMRC and HM Treasury] to set out clear proposals on how to improve the management and accountability to Parliament of the cost and performance of tax reliefs.’
Margaret Hodge MP, chair of the PAC, said: ‘This report on tax reliefs is a fundamental part of the wider debate on taxation. We have 1,128 different tax reliefs in the UK, creating a very complex tax system. Within these, the government spends £100bn every year on reliefs designed to encourage behavioural change, whether promoting jobs and growth, or investment in the arts. Whilst well-intentioned, every one of these tax reliefs creates opportunities for avoidance and evasion.
‘The government made a commitment to simplify the tax system and established the very welcome Office for Tax Simplification. However, whilst the government has so far abolished 43 tax reliefs, another 134 have been introduced since 2011. Much more radical simplification of the tax system is required if we are to get to grips with aggressive tax avoidance. Reliefs, such as the late night taxi relief, which ended up benefitting big law and accountancy firms rather than shift workers on low incomes, appear difficult to justify.
“If the government chooses to spend £100 billion on tax reliefs, at a time of austerity, this expenditure should be considered in the same way as spending programmes. Many tax reliefs are introduced without clear objectives and are not evaluated as fully.
‘Departments need to demonstrate the case for introducing new reliefs, as opposed to other options such as direct grants. It must monitor them systematically to ensure they are achieving the government’s stated objectives, rather than after risks emerge. The government also needs to ensure there are appropriate disincentives and sanctions in the system to inhibit advisers from promoting aggressive tax avoidance schemes.’
The PAC has also summarised future work it plans to carry out on this topic, including an examination of how HMRC and HM Treasury have addressed its concerns and conclusions in the report.
The Public Accounts Committee (PAC) yesterday published its Tax reliefs report following the House of Commons inquiry into tax reliefs and their administration in the UK. According to the report, tax reliefs are a ‘substantial, complex and poorly managed element of the tax system’, and goes on to state: ‘The tax expenditures in the UK tax system are estimated to cost over £100bn per annum. With the breadth, number and tax complexity of reliefs HMRC cannot be fully vigilant and knowledgeable about the cost and value of reliefs. The case of film tax relief highlights how a minor, but poorly designed, relief eventually cost the exchequer over £2bn. [HMRC and HM Treasury] were slow to respond and did not bring the surge in costs to the attention of Parliament. We look to [HMRC and HM Treasury] to set out clear proposals on how to improve the management and accountability to Parliament of the cost and performance of tax reliefs.’
Margaret Hodge MP, chair of the PAC, said: ‘This report on tax reliefs is a fundamental part of the wider debate on taxation. We have 1,128 different tax reliefs in the UK, creating a very complex tax system. Within these, the government spends £100bn every year on reliefs designed to encourage behavioural change, whether promoting jobs and growth, or investment in the arts. Whilst well-intentioned, every one of these tax reliefs creates opportunities for avoidance and evasion.
‘The government made a commitment to simplify the tax system and established the very welcome Office for Tax Simplification. However, whilst the government has so far abolished 43 tax reliefs, another 134 have been introduced since 2011. Much more radical simplification of the tax system is required if we are to get to grips with aggressive tax avoidance. Reliefs, such as the late night taxi relief, which ended up benefitting big law and accountancy firms rather than shift workers on low incomes, appear difficult to justify.
“If the government chooses to spend £100 billion on tax reliefs, at a time of austerity, this expenditure should be considered in the same way as spending programmes. Many tax reliefs are introduced without clear objectives and are not evaluated as fully.
‘Departments need to demonstrate the case for introducing new reliefs, as opposed to other options such as direct grants. It must monitor them systematically to ensure they are achieving the government’s stated objectives, rather than after risks emerge. The government also needs to ensure there are appropriate disincentives and sanctions in the system to inhibit advisers from promoting aggressive tax avoidance schemes.’
The PAC has also summarised future work it plans to carry out on this topic, including an examination of how HMRC and HM Treasury have addressed its concerns and conclusions in the report.
