NAO highlights risks around Treasury tax reliefs

27 Mar 14
It is likely that significant amounts of tax are lost through abuse of the current system of government tax breaks, the National Audit Office has warned today.

By Richard Johnstone | 28 March 2014

It is likely that significant amounts of tax are lost through abuse of the current system of government tax breaks, the National Audit Office has warned today.

Reviewing the Treasury’s range of tax reliefs, auditors said the arrangements formed a longstanding part of fiscal policy, and 1,128 were currently in operation.

According to the NAO, reliefs worth more than £100bn are used as an alternative to public spending to incentivise certain activities and behaviour. For example, credits are available to companies to encourage research and development activity.

Today’s landscape review highlighted that effective administration of the system was therefore required, as the large number of reliefs – and the interactions between them – can create unintended opportunities for tax avoidance and evasion.

Although the value of tax at risk from abuse is unknown, it was likely to form a significant part of the £35bm ‘tax gap’ estimated by Revenue and Customs, the report concluded.

HMRC is recruiting 100 more investigators to identify and deal with avoidance and evasion through reliefs, but the NAO said monitoring arrangements varied across the department. In addition, there were few evaluations of effectiveness, and monitoring of cost changes was also limited.

‘Monitoring and evaluation are important to understand the extent to which a tax relief is misused,’ the Tax reliefs report concluded. Following today’s examination, the NAO pledged to evaluate the administration of some specific reliefs later this year.

Auditor general Amyas Morse said tax breaks were a powerful, important and long-standing element in the public finance system.

‘However, their implementation is subject to less independent scrutiny than that of other instruments of public policy,’ he added.

‘The intention of this report is to put Parliament in a position to consider whether the major elements in the management and responsiveness of the system of tax reliefs are working adequately or are in need of further attention.’

Public Accounts Committee chair Margaret Hodge added tat more systematic evaluation of reliefs was needed from HMRC.

‘There are signs that HMRC is getting better at tackling abuse where it is detected, but the absence of timely data means it remains on the back foot.

‘Investigations are still taking too long, allowing those who benefit from tax avoidance schemes to string them out for longer.’

 

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