In a report published today, the PAC concluded that the current strategy employed by HM Revenue & Customs gives the impression that the very wealthy “get help that others do not”, and was fundamentally unfair.
With prime minister Theresa May repeatedly pledging to create a country that ‘works for everyone’, tax processes involving the richest people in society are under increasing scrutiny.
The report highlighted that £1bn less tax has been collected from the very wealthy since the formation of a specialist unit inside HMRC that designates a personal manager to help these individuals administer their tax affairs. Meanwhile, the total amount of income tax paid by taxpayers has increased by £23bn.
The committee expressed “alarm” that around a third of the wealthiest individuals are under enquiry at any one time, and that in 2015-16, HMRC was investigating cases with a value of around £1.9bn.
It called on HMRC to consider new measures to help scrutinise the effectiveness of the high net worth unit and consider what further rules could be enforced to deter very wealthy people from bending or breaking the law.
The report noted a significant change in behaviour, too, away from “off the peg marketed tax avoidance schemes to complex bespoke schemes”.
Taxation rules for ‘image rights’ in the sports and entertainment industries were also “being exploited”, and the PAC called on the government to take “urgent action” to address this problem.
The committee set out a series of measures to help improve tax collection and “give the public greater confidence that there is not one set of rules for the rich and another for everyone else”.
Meg Hillier, chair of the PAC, said: “HMRC’s claims regarding the success of its strategy to deal with the very wealthy just don’t stack up.
“Cosy terms such as 'customer relationship manager' and HMRC's reluctance to be open add to the picture of arrangements that, while beyond the reach of ordinary taxpayers, are also ill-suited to the increasingly sophisticated methods the super-rich can use to reduce the tax they pay.”
She concluded: “If the public are to have faith in the tax system then it must be seen to have fairness at its heart. It also needs to work properly. In our view, HMRC is failing on both counts.”
In its recommendations, the committee urged HMRC to disclose more information regarding key areas of its work, at regular intervals. In particular, it wanted to see better descriptions of the department’s approach to tackling non-compliance and prosecutions, annual data on the number of criminal investigations in progress, and updates on major investigations, such as the data leaked in the Panama Papers.
