HMRC not doing their job properly

 In PAC, Public Accounts Committee

The Public Accounts Committee criticises HMRC over tax collection

The Public Accounts Committee has published a highly critical report of HMRC’s tax collection abilities. Among many of the criticisms of the department, the report stated that HMRC ‘collected less tax in real terms [last year] than it managed to collect in 2011/12’. The tax gap, as defined by HMRC, increased £1bn in 2011/12 to £35bn. HMRC should be ‘explicit about the limitations of its current measure of the tax gap’ and ‘gather intelligence about the value of tax lost through aggressive tax avoidance schemes’.

The report suggested that HMRC needs to demonstrate that it deals robustly with individuals and companies who deliberately mislead it, and stated that the department ‘pursues tax owed by the smaller businesses but seems to lose its nerve when it comes to mounting prosecutions against multinational corporations’.

The report noted that HMRC aims to make the UK more attractive to business but said that ‘the incentives to international corporations may also enable them to avoid tax. Changes in the controlled foreign company rules and the failure to close the loophole created by eurobonds are two examples showing where it has become easier for companies to avoid tax while ordinary people continue to pay their share. If that is HMRC’s real intent, then it should be open about it.’

Commenting on this aspect of the report, Heather Self, tax expert at Pinsent Masons, said: ‘The PAC does a useful job in ensuring that government money is spent wisely, and it is right that it should enquire into the efficiency of HMRC. However, a large part of its questions on this occasion – and some of its key conclusions – relate to government policy and not the administration of the tax system. It is not HMRC which “determines the tax system for business”, but Parliament.’

The PAC’s report also considered HMRC’s implementation of the real time information system, saying it was ‘encouraging overall, though some small businesses are continuing to struggle’. The report expressed concern that HMRC was planning from April 2014 to fine companies ‘even though some face continuing challenges’.

In an unusually robust response from HMRC, the department said that it ‘strongly disputed’ the PAC’s findings and challenged the committee’s ‘selective and misleading use of figures’.

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