By Marino Donati | 21 November 2014
A failure to monitor the use of tax reliefs risks abuse going undetected, according to the chair of the Public Accounts Committee.
Responding to a National Audit Office report on the effective management of tax reliefs, PAC chair Margaret Hodge said it was ‘beyond belief’ that HM Revenue & Customs did not have a framework for managing tax reliefs.
The NAO said that the Treasury and HMRC had not done enough to identify whether tax reliefs were working in the way intended and delivering the economic policy objectives they were designed to encourage.
‘This also means that significant risks can go undetected: that tax reliefs cost more than expected; that they are used in ways not intended by Parliament; or that they do not bring about intended behaviour change,’ the NAO report said.
The report said that HMRC had carried out only limited analysis to investigate why the cost of entrepreneurs’ relief had significantly outstripped its forecast, increasing over 500% to an estimated £2.9bn since 2008/09, and whether this might be connected to misuse.
Hodge also said that it was ‘reprehensible’ that HMRC had not monitored a large rise in claims for share loss relief in 2006/07 until last year.
She said: ‘HMRC argues that it ensures taxpayers comply with tax rules by examining how individuals and companies pay tax, and does not need to monitor how reliefs themselves are used. This approach means that HMRC might respond too slowly to changes in how tax reliefs are used, leaving the door open for tax avoidance.’
NAO head Amyas Morse concluded: ‘Until they monitor the use and impact of tax reliefs, and act promptly to analyse increases in their costs, HMRC and the Treasury’s administration of tax reliefs cannot be value for money.’
