17.Tax reliefs are integral to the tax system and an important tool for public policy. There are more than 1,100 tax reliefs and several different types. We asked HMRC (the Department) what assurance it could provide that it was monitoring tax reliefs to ensure they were delivering the intended policy objectives. The Department told us that it had two main responsibilities in relation to tax reliefs: managing their administration and monitoring and reporting the costs involved. HMRC noted that it would be for Ministers to decide whether “a wholesale review of tax reliefs” was required and said that it was committed to publishing cost information in cases where it has the relevant data.
18.HMRC’s organisational structure is based around customer groups (such as small businesses, large businesses, wealthy taxpayers and organised criminals) and specific behaviour types (such as tax avoidance, tax evasion and the hidden economy), rather than specific tax reliefs. Nevertheless, each area of tax has a product owner who has the expertise in that tax to give policy advice on what needs to change. Responsibility for administering tax reliefs, including monitoring the cost of the reliefs, lies with the relevant product owner. In 2015, we made a number of recommendations to HMRC to improve how it monitors and reports on tax reliefs. In September 2015, HMRC, in response to our recommendations, issued good practice principles for governing and administering tax reliefs. The Department told us that it was too early to evaluate the impact of these guidelines on formal product plans as the product owners have not had time to adjust their plans in response.
19.In 2015, we also recommended that HMRC should identify which reliefs it considers require monitoring and evaluation, and that it should publish this information to enable Parliament to decide which reliefs may require further scrutiny or legislative change. The Department recognised it has to be able to explain why it has decided to obtain data for some tax reliefs but not others, to address any perception that the information HMRC currently holds is based on arbitrary criteria.
20.HMRC told us that as a matter of routine it monitored the costs associated with tax reliefs wherever it could. But it emphasised that it had to be conscious of the trade-off between getting the data required to monitor costs and making sure undue burdens were not imposed on businesses. In some cases HMRC may decide it is so important to have the data that it justifies the burden on the economy to collect them. The Department told us that, in addition to its routine monitoring of the costs associated with tax reliefs, it carried out periodic monitoring of certain tax reliefs, particularly if ministers were interested in reforming a particular area.
21.We questioned whether there was sufficient information available to policy makers and analysts to enable them to assess the effectiveness of tax reliefs, citing the fact that it was only because the National Audit Office highlighted that entrepreneurs’ relief was costing the taxpayer three times more than intended that HMRC and HM Treasury reviewed the relief and changed how it worked. HMRC told us that every December it publishes the costs of about 180 tax reliefs, including entrepreneurs’ relief, out of a total of 400 reliefs that it recognises. HMRC noted that, by international standards, 180 was “a very high number” to be able to report costs on and said that it was part of its new guidelines for managing tax reliefs that variances in the costs must be monitored and the reasons for those variances understood.
22.HMRC acknowledged that its published data on tax reliefs were scattered over a number of different publications, which had an adverse impact on the accessibility of the information. The Department agreed to consider collating and publishing all its data on tax reliefs in its annual report.
55 , para 3.1
60 ; , paras 3.7-3.9
61 Committee of Public Accounts, , HC 892, 26 March 2015
62 ; , paras 3.10-3.13
63 ; , para 3.14
64 Committee of Public Accounts, , HC 393, 4 November 2015
67 ; Office of Tax Simplification, . HMRC does not recognise all of the 1,156 reliefs identified by the Office of Tax Simplification (OTS) as being, in practice, a relief. For example, OTS classifies the exemption given to air crew from air passenger duty as a tax relief whereas, in HMRC’s view, the exemption is just part of the definition of the tax base for air passenger duty
69 ; , para 23
30 November 2016