Conclusions and Recommendations
1. 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.
During this Parliament, we have repeatedly challenged HMRC to
improve its performance. In particular, we have pushed HMRC to
be more robust in addressing tax avoidance by multi-national companies,
tackle the promoters and users of tax avoidance schemes, improve
customer service, and be more even-handed in its treatment of
taxpayers. HMRC has accepted over 80% of our recommendations and
has made some significant improvements to its business. We note
that HMRC has continued to reduce its headcount, which fell by
24,600 between 2008 and 2014. To address the deficit in the public
finances, it is critically important that HMRC collects as much
of the tax revenue that is due as is possible. Investment in HMRC
more than pays for itself, with a minimum return of £10 for
every £1 invested in HMRC staffing. Its resources must also
reflect the scale of the challenge it faces in tackling a vast
and sophisticated tax planning industry which supports aggressive
tax avoidance by wealthy people and large companies.
Recommendation: HMRC could collect more
of the tax that is due if it had more resources devoted to this
work and it should be assertive about making this case to HM Treasury
and Parliament. It should set out how much additional tax it could
collect if it was granted more funding to build its capability
in the most critical areas.
2. We remain concerned that some multi-national
companies who transact business in the UK are not paying the appropriate
amount of tax. The evidence we heard from
Google, Starbucks, Amazon, Shire and the large accountancy firms
showed that the practice of creating artificial structures and
transactions to exploit international tax boundaries and so avoid
tax in the UK is widespread. Designing ways for multi-national
companies to avoid tax is a lucrative business and it is clear
that the voluntary code of conduct for tax advisors is not working
in all cases. We note that some of the companies which avoid UK
tax and those that provide advice on how to do so continue to
benefit from large public sector contracts. Work is underway to
reach international agreement on changes to tax rules and to improve
the exchange of information and transparency of reporting. While
we expect the Organisation for Economic Co-operation and Development
(OECD)'s work in this area to have a positive impact, it will
take some time. We expect HMRC to take a much more proactive approach
to challenging and tackling artificial tax arrangements.
Recommendation: HMRC and government must
set out how they will tackle tax avoidance by multi-national companies
more robustly, rather than waiting for the OECD's work to bear
fruit. This should include introducing new offences to penalise
those involved in advising or helping companies and individuals
avoid or evade tax.
3. We are concerned that HMRC's relationship
with large accountancy firms is too cosy. In
our February 2015 report on the role of large accountancy firms
we drew attention to the need for HMRC to take a more active role
in challenging the advice given by large firms to their multinational
clients. In its response, published on 19 March, HMRC disagreed
with our recommendation for it to challenge tax advice, citing
only what it does to challenge non-compliance by the multinationals
themselves. We also recommended the introduction of a new code
of conduct for tax advisers and consultation on how it could be
best implemented. The Department also disagreed with this recommendation,
despite our assertion that existing codes of conduct are simply
not preventing firms from promoting tax avoidance schemes. The
Department's response to our February report is out of kilter
with wider policy to clamp down on aggressive tax avoidance and
is not in taxpayers' best interest. We urge the Department to
reconsider its response.
4. For as long as the United Kingdom has such
a complex tax code, opportunities for aggressive tax avoidance
and evasion will continue to be exploited.
This Government came into office committed to reducing tax reliefs
but in practice the number of reliefs has increased by almost
100 so that, according to the Office for Tax Simplification, we
now have 1,140 tax reliefs. Even the most ethically-based reliefs
like Gift Aid tax relief can be exploited to avoid tax by those
determined to cheat the system. We have reported separately on
tax reliefs and made recommendations for improved management and
accountability, but the fact we have so many inevitably impacts
on the efficiency and effectiveness of HMRC.
Recommendation: HMRC and HM Treasury should
renew their efforts to review all tax reliefs and radically reduce
the number in the tax code.
5. There are not enough prosecutions for tax
evasion to act as an effective deterrent to those who break the
law. HMRC clearly favours bringing in
revenue quickly over prosecutions—which it told us can take
many years to complete—but we are not convinced that they
have struck the right balance between prosecuting tax evaders
and allowing them to settle their affairs. The tax system relies
on people following the rules, so HMRC needs to show that it comes
down hard on tax cheats and change the perception that it is far
too tolerant of those who break the law by hiding their income.
HMRC must work within inter-governmental agreements such as the
Liechtenstein Disclosure Facility. However, we are concerned that
the current system still causes the odds to be stacked in favour
of tax evaders using offshore accounts when the worse that will
happen if they are caught is that they will pay the tax they owe
and a fine. HMRC told us that it had increased the number of prosecutions
overall, but these are for a wide range of tax offences. We are
not persuaded that HMRC and the Crown Prosecution Service are
doing enough to prosecute serious tax evasion cases.
Recommendation: HMRC should gather evidence
to establish the effectiveness of prosecutions in deterring tax
evasion by wealthy individuals. HMRC should work with the Crown
Prosecution Service to significantly increase the number of prosecutions.
6. We welcome new powers obtained by HMRC
to tackle marketed tax avoidance, but the number of unresolved
cases is still a major concern. When we
reported in 2013, HMRC appeared to be on the back foot in tackling
marketed tax avoidance as its approach of challenging the users
of tax avoidance schemes after the act made it too easy for the
promoters and users of such schemes to benefit from them. In response
to our recommendations, HMRC has established a new directorate
to tackle this problem and it has asked for and received new powers
which should allow it to disrupt the behaviour of promoters and
serial tax avoiders. It is too early to see an impact from these
new measures. Meanwhile, HMRC has identified a further 24,000
unresolved cases involving marketed tax avoidance since 2012.
Its best estimate is that more than 65,000 cases remain unresolved.
Recommendation: HMRC should set a timetable
and a trajectory for bringing down the number of open cases that
relate to marketed tax avoidance schemes. HMRC should also consider
where else in its business it could strengthen its compliance
approach by applying the same principles it has used to address
marketed avoidance schemes.
7. Our evidence shows that some HMRC customers
receive an unacceptable quality of service. HMRC
accepts that its recent customer service performance has not been
good enough. It has not met its own targets and it forecasts that
it will not be able to answer over a fifth of phone calls from
customers this year. HMRC's customer charter commits it to provide
an even-handed service, but only 63% of individuals and small
businesses say that they think HMRC acts fairly, compared to 87%
of large businesses. HMRC accepts that small businesses who seek
to make contact with HMRC too often receive a service that is
not good enough. It told us it was aiming to provide a better
and more personalised service for small businesses and to offer
more ways for customers to provide and obtain information electronically.
Recommendation: HMRC should aspire to provide
a service on a par with good practice in the private sector to
all its customers, and should set out how and when it will achieve
this.
8. We are deeply disappointed by HMRC's handling
of whistleblowers. We consider that HMRC's use of powers reserved
for tackling serious criminals against Mr Osita Mba was indefensible.
HMRC told us that it had changed how it deals with whistleblowers
and that it now provides information to its audit and risk committee
who can use this to challenge how HMRC handles whistleblowers.
Recommendation: HMRC should tell us when
it makes use of the powers granted to it under the Regulation
of Investigatory Powers Act against whistleblowers from within
HMRC. It should also provide us with the information on whistleblowing
that its audit and risk committee receives so that we can gain
assurance over the appropriateness of HMRC's approach to managing
whistleblowers.
| 
