4th November 2015
HM Revenue & Customs is “failing taxpayers” because of its poor record on prosecuting tax evaders its “abysmal” customer service, MPs have claimed.
In a report today, the Committee of Public Accounts today makes urgent recommendations for the tax office.
It describes the number of prosecutions for offshore tax evasion as “woefully inadequate” and cites HMRC’s failure to gather intelligence on losses through aggressive tax avoidance as an obstacle to improving UK tax laws.
The Committee also raises fresh concerns over HMRC’s customer service, now considered so bad it could be having “an adverse impact on the collection of tax revenues”.
Meg Hillier MP, chair of the PAC, says: “HMRC must do more to ensure all due tax is paid. The public purse is missing out and taxpayers expect and deserve better.
“We are deeply disappointed at the low number of prosecutions by HMRC for tax evasion. We believe it is important for HMRC to send a clear message to those who seek to evade tax that the penalties will be severe and public.
“It’s also important that the majority who play by the rules, paying their tax on time and in full, see that those who don’t will face the consequences.
“Tax avoidance also remains a serious concern. Too many avoidance schemes run rings around the taxman, operating legally but gaining advantages never intended by Parliament.
“If tax law is to be improved then HMRC must as a priority provide Parliament with comprehensive details of avoidance.
“HMRC must also rapidly improve its customer service, previously described by the PAC as abysmal and now even worse – to the extent it could be considered a genuine threat to tax collection.
“It beggars belief that, having made disappointing progress on tax evasion and avoidance, the taxman also seems incapable of running a satisfactory service for people trying to pay their fair share.”
Report in summary
The Committee says it recognises that HMRC has increased the amount of tax collected while also reducing its running costs over the last five years. But it says the department has “made little or no progress on a number of important issues” that have previously been raised.
Despite the Committee’s previous recommendations, HMRC still does not report on how much cash was received as a result of its compliance work or on the scale of aggressive tax avoidance which exploits loopholes in the law.
The report says HMRC continues to avoid publishing information on the scale and nature of tax reliefs that would assist Parliamentary oversight of this area of the tax system.
Furthermore, the report adds: “The standard of customer service remains unacceptable. We are particularly disappointed by HMRC’s failure in this area given that people are more likely to pay the right tax when they find HMRC easy to deal with.”
It also highlights concerns that HMRC’s work has led to too few prosecutions of individuals for tax evasion, and that there is therefore no credible punishment to deter people from breaking the law.
Key conclusions and recommendations
1. HMRC does not report on the scale of aggressive tax avoidance, which means Parliament cannot assess whether tax law is working as intended.
Recommendation: HMRC should identify and report the value of all tax avoidance schemes. It should include an estimate of the value of those schemes it has challenged but which have been judged to be legal by the courts, both so that Parliament can see the scale of avoidance and ensure improvements are made to tax law.
2. The number of tax reliefs continues to grow but the scale and nature of the tax foregone is invisible to Parliament because HMRC refuses either to define them or list them comprehensively. Recommendation: HMRC should define the different types of tax relief, including those it considers to be tax expenditures. It should identify which reliefs it considers require monitoring and evaluation and publish this information to enable Parliament to decide which reliefs may require further scrutiny or legislative change.
3. HMRC is still failing to provide an acceptable service to customers and could not tell us when it would be able to do so.
Recommendation: HMRC should identify what impact its poor level of service is having on tax revenues and produce a detailed plan setting out how and when it will provide an acceptable standard of customer service. This should include a clear plan for the efficient management of its change programme and introduction of new IT systems.
4. The number of criminal prosecutions for offshore tax evasion is still woefully inadequate. HMRC’s investigations do not lead to sufficient prosecutions to provide an effective deterrent, particularly for wealthy individuals who hide their assets offshore.
Recommendation: As previously recommended, HMRC should strengthen its capability to investigate offshore tax evasion and make tougher the criminal and civil sanctions it can apply. It should make clear that those who persist in their attempts to hide assets offshore will face the threat of prosecution, and should in future demonstrate the significance of this threat through its actions.