Conclusions and recommendations
1. Promoters of avoidance schemes run rings
around HMRC. There are
no penalties for promoting avoidance schemes, and businesses make
substantial sums of money from doing so. Part of the problem is
the UK's highly complex tax law, but simplifying the system alone
will not solve the problem of tax avoidance. HMRC told us that
the proposed General Anti-Abuse Rule is designed to stop highly
artificial schemes, but acknowledged that a wider range of measures
is needed to combat tax avoidance. Australia, for example, has
successfully applied a system requiring advance rulings on whether
a scheme will work, combined with penalties for promoting schemes
that don't. HMRC should assess the effectiveness of the full range
of measures available to reduce avoidance, including those used
in other countries, and identify the measures it will introduce
to reduce the tax lost to avoidance, reporting to us on its progress.
2. There is insufficient transparency about
those who market or use tax avoidance schemes. The
complexity of avoidance schemes and use of offshore structures
makes it difficult to know who is involved. HMRC publicise details
of schemes that do not work to deter their uptake, but do not
name the companies that market, operate and use schemes, despite
evidence that public opinion can have a significant impact on
the actions of large companies. The Government should consider
how to increase transparency by naming and shaming those engaged
in the business of tax avoidance and use it to discourage such
activity.
3. The Disclosure of Tax Avoidance Schemes
(DOTAS) regime has helped HMRC close some avoidance schemes quickly,
but does not effectively deter promoters, or penalise non-compliance.
DOTAS captures less than half of known tax avoidance. Although
HMRC has other ways of detecting avoidance, it does not know how
much avoidance is not disclosed through DOTAS but should be. Promoters
are able to use a QC's opinion that a scheme does not have to
be reported as a "reasonable excuse", preventing HMRC
from applying a penalty. HMRC is consulting on how it could strengthen
its disclosure regime, including by raising the hurdle for pleading
a reasonable excuse. It should model the impact of the changes
under consideration and should design an evaluative framework
to measure the effectiveness of DOTAS, including by assessing
the level of compliance.
4. HMRC is not doing enough to tackle those
promoters who are determined to avoid disclosure, or to prevent
promoters from mis-selling schemes. We
are not convinced that HMRC is making full use of its powers to
tackle promoters who are deliberately obstructive or that are
selling schemes which do not work. It should ensure it is making
full use of its existing, or potential, powers to tackle un-cooperative
promoters and should publicise what it is doing to make clear
that it is serious about addressing this problem.
5. HMRC does not know how much it spends on
its anti-avoidance work, and has not evaluated the effectiveness
of its efforts. HMRC does not know the
level of resources and costs it commits to tackling tax avoidance
and has not evaluated its anti- avoidance strategy. With at least
£5 billion lost to tax avoidance each year, this is far too
large a part of HMRC's business for it not to know what it spends
tackling it, or what return it gets. HMRC urgently needs to know
what it spends on combatting tax avoidance and the return on its
investment. Without this information, HMRC has no evidence that
it is delivering value for money from these resources. HMRC should
improve its recording and monitoring of the cost of its anti-avoidance
work and set out clearly how it will evaluate its anti-avoidance
strategy.
6. The Committee welcomes the additional resources
for HMRC to tackle avoidance but HMRC has a lot more work to do.
HMRC needs to make good use of the additional
£77 million it has been given to tackle avoidance and evasion
in the next two years. HMRC must act more quickly to identify
and close down new tax avoidance schemes. HMRC has a good success
rate when it takes cases to court but the number of cases it litigates
is tiny compared to the overall caseload. HMRC has committed to
strengthening its capability and capacity to litigate more. It
should produce a plan showing how it will manage and reduce the
stock of open cases, including how it will prioritise its resources
to maximise yield, and monitor progress against this at a senior
level.
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