By Richard Johnstone | 19 February 2013
MPs have urged Revenue & Customs to ‘name and shame’ accountancy firms and banks that set up tax avoidance schemes, as they revealed an estimated £5bn of government revenue is lost through such plans each year.
The Public Accounts Committee today said promoters of tax avoidance schemes – defined as the use of tax law to gain an advantage not intended by Parliament – were ‘running rings around R&C’.
Government tax incentives and reliefs designed to stimulate economic activity had become opportunities for tax avoidance by creating a new set of rules, the MPs found.
A proliferation of ‘contrived schemes’ to exploit these loopholes showed that financial advisers were winning ‘a game of cat and mouse’ with tax inspectors, according to the report, Tax avoidance: tackling marketed avoidance schemes.
Those who promote avoidance using these allowances are required to notify R&C under the Disclosure of Tax Avoidance Schemes regime. Established in 2004, this was intended to identify and reduce the number of tax avoiders.
This had led to some schemes being shut down, the MPs found. However, the department did not know if all schemes had been disclosed. R&C was also not doing enough to tackle promoters who were determined to avoid disclosure, as only 11 penalty notices had been issued since the regime had been launched.
The department should therefore consider naming all those who promote tax avoidance schemes, which includes leading lawyers as well as major banks and accountancy firms, to act as a deterrent.
Committee chair Margaret Hodge said ‘boutique’ avoidance plans were exploiting loopholes or abusing available reliefs, such as those designed to encourage investment in British films, knowing it would take time for the R&C to tackle them.
‘Their clients can then take advantage of this window of opportunity to make a lot of money at the expense of the taxpayer, while the promoter simply moves on to a new scheme and repeats the process,’ she added. ‘R&C should publically name and shame those who sell or use tax avoidance schemes in order to discourage such activity.’
A government plan to allow departments to ban tax-avoiding businesses from being awarded government contracts, announced last week, was ‘a welcome move’, Hodge added. However, the committee would monitor closely how the rules were applied in practice.
Responding to the report, an R&C spokeswoman said: ‘We are glad the report exposes the practices of promoters who sell tax avoidance schemes to wealthy individuals. In the last year alone the courts have ruled in R&C’s favour in multiple tax avoidance cases where over £1bn has been protected.
‘Additionally the government recently announced an extra £77m in R&C funding to tackle evasion and aggressive avoidance; we have also already consulted on strengthening the regulations around these schemes. And, for the first time ever, this government is introducing a General Anti-Avoidance Rule which will make it even harder for people to avoid paying their share of tax.’
The Association of Revenue and Customs, the union representing senior R&C staff, welcomed the recommendation to ‘name and shame’.
However, ARC president Gareth Hills added this would require government legislation.
‘In an era of austerity, ARC has argued consistently that securing the right amount of tax is more vital than ever,’ he said. ‘The government needs to give R&C the tools to allow it to crack down on avoidance and evasion, and it needs to adequately reward those working hard to bring in money to help build a better Britain.
‘ARC published its interim investment proposals in December last year to help reduce the deficit and close the tax gap, and showed how an even relatively small scale investment of £120m would recoup currently lost tax of £3.7bn.’