HM Revenue and Customs: Improving the Processing and Collection of Tax: Income Tax, Corporation Tax, Stamp Duty Land Tax and Tax Credits - Public Accounts Committee Contents

3  Tackling Tax Avoidance

10. The Department estimates that its strategy for addressing tax avoidance has brought in £11 billion of revenue since 2005 that may otherwise have been foregone.[26] It also believes that good international cooperation has enabled it to make more progress in dealing with those who use tax havens.[27]

11. The Department examines each tax to assess the revenue it ultimately fails to collect as a consequence of taxpayer non-compliance and the impact of avoidance. The Department also assesses the nature of this 'tax gap' and the risks it needs to address.[28] It does not have an estimate of the total amount of revenue foregone through the use of avoidance schemes and cannot therefore assess whether increased use of these schemes has contributed to the recent fall in revenues.[29]

12. The Disclosure of Tax Avoidance Schemes (DOTAS) regime, introduced in August 2004, requires promoters of tax avoidance schemes to register them with the Department.[30] The disclosure regime applied initially to Income Tax, Corporation Tax and Capital Gains Tax. For most taxes, users of avoidance schemes are also required to tell the Department when they use a registered scheme.[31] The Department has identified what it believes are the indicators of avoidance as opposed to acceptable tax planning and publishes a list of factors that may indicate avoidance, such as transactions that have little or no economic substance.[32] There are penalties for failure to register schemes that meet the Department's criteria for disclosure.[33]

13. The Department uses the information from disclosures to assess whether avoidance schemes comply with existing legislation and challenges those schemes it believes do not. Where a scheme complies with legislation but is not consistent with the intention of tax policy, the Department considers the case for legislative action to stop the scheme.[34]

14. We asked the Department about the merits of introducing a general anti-avoidance rule that would make illegal any scheme devised just for tax avoidance purposes.[35] The Department considers that factors such as the ability of the taxpayer to move their residence or business overseas mean that introducing an anti-avoidance rule in the UK may not work. The Department has not evaluated whether it would need fewer people working to combat avoidance if it were to introduce a general anti-avoidance rule that was successful.[36]

15. The Department employs 17,000 tax professionals, but does not know how many staff it has working specifically on avoidance.[37] It believes it has enough well trained staff to undertake its anti-avoidance work and seeks to build its tax expertise through technical training and exchanges of staff with private sector accountancy firms.[38]

16. The Department acknowledges that it needs more capability to deal with the increase in evasion, avoidance and business failure that the economic downturn is likely to bring.[39] We note its intention to continue to reduce staff numbers and introduce better targeted risk-based approaches to combat avoidance.[40]

26   Q 58 Back

27   Q 59 Back

28   Qq 62 and 66 Back

29   Qq 60 and 62 Back

30   Q 59; C&AG's Report, para 2.32 Back

31   Q 64 Back

32   Qq 95 and 97 Back

33   Q 96 Back

34   Qq 63 and 65 Back

35   Qq 68-69 Back

36   Q 81 Back

37   Qq 70, 76-77 Back

38   Qq 70 and 78 Back

39   Q 73 Back

40   Qq 76 and 78 Back

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Prepared 10 December 2009