Tax avoidance exposure?

The Public Accounts Committee (PAC) has urged HMRC to publicly ‘name and shame’ those who sell or use tax avoidance schemes, saying the department must develop a much more robust approach to combat losses of £5bn annually, reports Harris & Co Chartered Accountants Northampton.

The committee’s report on tackling marketed avoidance schemes found a ‘proliferation of contrived schemes’ which it says exploit loopholes in legislation and abuse available tax relief schemes. As a result, the PAC says, promoters are winning ‘what appears to be a game of cat and mouse with HMRC’, by taking advantage of the time lag between the launch of a scheme and its closure scheme by HMRC.

HMRC estimates suggest that in 2010/11 £5bn was lost to tax avoidance and that the present total tax at risk from avoidance over time is double that, at £10.2bn.

Margaret Hodge, chair of PAC, said:

‘The complexity of tax law creates opportunities for avoidance, there are no penalties to stop people promoting these schemes, and HMRC is ineffective in challenging promoters who are deliberately obstructive or deliberately sell schemes they know do not work. There is also a lack of transparency that makes it very hard to find out who is involved in marketing or using these schemes.’

The committee was critical of HMRC’s lack of knowledge about how much avoidance is not disclosed but should be, and the fact that the department has only issued 11 penalties for non-disclosure of a scheme.

The PAC investigation also suggested a small number of promoters appear determined to avoid disclosure and refuse to engage with HMRC. The committee said it was ‘alarming’ that some promoters sought and used QCs’ opinions to provide a ‘reasonable excuse’ for non-disclosure which prevents HMRC from applying a penalty.

MPs suggested that HMRC could learn from the measures used in other countries to deter and tackle tax avoidance, such as the requirement in Australia for promoters to get advance clearance for schemes before they introduce them.

The PAC said it wants to see HMRC act more quickly to investigate and close down new schemes and to take cases to court more often.

Hodge said:

‘HMRC has a lot more work to do to successfully tackle tax avoidance. It needs to know how much it spends on anti-avoidance work and properly evaluate the effectiveness of its strategy. It needs to get a stronger grip on the large number of avoidance cases it is investigating and find a way to reduce them. The number of cases it litigates is tiny compared to the number of enquiries.’

The report is available from Parliament.