HMRC must tackle perception it does not take on rich tax avoiders, say MPs

14 Apr 16

Revenue & Customs must do more to tackle the perception that it does not take on tax fraud by the wealthy, a report by the Public Accounts Committee has stated.

Revenue & Customs must do more to tackle the perception that it does not tackle tax fraud by the wealthy, a report by the Public Accounts Committee has stated.

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The PAC slammed HMRC for its failure to prosecute more than one tax evader exposed by former HSBC employee Hervé Falciani, who leaked documents exposing thousands of well off Swiss bank users stashing funds offshore to avoid tax.

MPs said this had created the impression that HMRC does not tackle tax fraud by the wealthy who have tried to evade paying their dues – a perception that doesn’t bode well for the organisation tasked with leading a probe into the Panama Papers.

HMRC still loses some £16bn to tax fraud every year, committee chair Meg Hillier highlighted, a figure that has remained “virtually static” despite the department supposedly stepping up its efforts and making good progress.

Hillier warned the tax system’s “credibility is at risk”.

“Honest taxpayers rightly expect a tax system that works fairly for all and any perception that this is not the case undermines the public’s trust in that system,” she said. “When people break the law, there must be consequences – and there must be seen to be consequences.

“The scale of tax fraud, both in cash terms and as a proportion of uncollected tax, demonstrates just how vital it is for HMRC to bring focus to its efforts in this area.”

A clear and focused anti-tax fraud strategy is currently lacking, the committee said, with HMRC missing key information necessary to managing a properly calculated approach.

The PAC was also unable to judge how effective HMRC is at reducing the £34bn yearly tax gap because the department’s reporting of its own performance was “too confusing”.

HMRC claims the amount of tax it recovers from its compliance work is rising sharply each year, yet the size of the tax gap remains unchanged. The PAC said the department must explain this discrepancy.

MPs also stated that the evidence of deterrent effects of the prosecutions was mixed, with businesses reporting that the number of tax evaders being prosecuted as rising, while individuals said it was falling.

Hillier said this signalled HMRC doesn’t fully understand the effectiveness of the different enforcement and deterrent tactics it employs, which was a “fundamental weakness” in strategy.

“The department must be far clearer with parliament and the public about its strategy for combating tax fraud and the impact of that strategy on the tax gap. To achieve this it needs a better grasp of its own work.”

A spokesman for HMRC said: "HMRC is one of the most effective tax collectors in the world, getting 93 pence of every pound due."

He said the department had overseen a reduction in the UK's tax gap to 6.4% – its lowest ever level and one of the lowest in the world – and highlighted a 43% increase in the take from compliance activities since 2011-12, amounting to £26.6bn, including billions from criminal prosecutions and additional revenue from the UK's wealthiest people. 

"Tackling tax evasion is an absolute priority for HMRC. We have increased prosecutions of wealthy tax cheats and our crackdown on offshore tax cheats has already brought in more than £2bn since 2010. 

"We remain relentless and strategic in tracking down the few that try to get out of paying their fair share."

 

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