HMRC ‘too close’ to accountancy firms, says PAC

27 Mar 15

The Public Accounts Committee has criticised the work of Revenue and Customs, warning that the tax collection agency continues to have ‘too cosy’ a relationship with accountancy firms and should instead do more to challenge advice that may amount to tax avoidance or evasion.

Publishing two report looking at the work of the committee on tax over the parliament, chair Margaret Hodge also said the coalition government had not done enough to challenge these practices.

‘We have also argued for new offences to penalise those involved in advising or helping companies and individuals avoid or evade tax, and we are pleased that government has now signalled its intention to introduce such offences,’ she said.

‘However it is disappointing that HMRC has rejected our recommendation for a tougher code of conduct for tax advisers – a response which is out of kilter with its wider policy to clamp down on aggressive tax avoidance.

‘Furthermore, we do not believe there are enough prosecutions for tax evasion to act as an effective deterrent to those who break the law. As it stands, tax avoidance – and even evasion – can be a risk worth taking.’

The committee also reiterated its call for HMRC to more effectively monitor changes in the cost of tax reliefs to ensure it can identify instances where a relief may be being exploited.

‘HMRC and Treasury often show a worrying lack of curiosity about the cost of tax reliefs,’ Hodge added.

‘The costs of R&D tax relief increased from around £100m in 2001 to over £1bn in 2011/12, whilst the actual amount of business expenditure on R&D stayed more or less the same.

‘The complexity of tax law and the constraints on HMRC’s resources mean that it is fighting an uphill battle against those who are determined to cheat the tax system.’

Responding to the report, a HMRC spokesman said the committee had recognised the progress the department had made in clamping down on tax evasion and avoidance.

‘We have shut down marketed avoidance schemes, closed loopholes, secured tough new enforcement powers, and opened up international information exchanges so rich evaders will have no safe havens where they can hide their money.

‘As a result of our compliance efforts and the £1bn extra investment over this Parliament, we have secured more than £100bn in additional revenues in the past five years to pay for essential public services, raised penalties for tax evasion to 200% of tax owed and increased prosecutions five-fold.’

  • Judith Ugwumadu

    Judith Ugwumadu joined Public Finance International and Public Finance online as a reporter after stints at Financial Adviser, Global Security Finance and The Sunday Express. Currently, she writes about public finance, public services and economics.

    Follow her on @JudithUgwumadu_

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