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December 20, 2013

HMRC "losing its nerve" on big tax avoiders

HMRC "losing its nerve" on big tax avoidersHMRC has not done enough to claim taxes from big businesses, the Public Accounts Committee has said. The tax gap, as defined by HMRC, grew to £35 billion in 2011-12.

Margaret Hodge MP, chair of the cross-party committee, said: "HMRC holds back from using the full range of sanctions at its disposal. It pursues tax owed by the smaller businesses but seems to lose its nerve when it comes to mounting prosecutions against multinational corporations."

She said: "In pursuing unpaid tax, HMRC has not clearly demonstrated that it is on the side of the majority of taxpayers who pay their taxes in full."

Hodge continued: "Last year, the Department collected less tax in real terms than it managed to collect in 2011-12. This was despite the stated ambition to crack down on tax avoidance. Yet that measure does not capture all the tax government should be collecting. For instance, this figure does not include all the tax revenue lost to aggressive tax avoidance schemes."

The committee reported that HMRC had predicted that it would collect £3.12 billion unpaid tax from UK holders of Swiss bank accounts but in 2013-14 it has so far secured just £440 million.

Meanwhile, small businesses in the UK have been implementing the Real Time Information (RTI) reporting scheme and those that fail to comply could face fines in 2014. Hodge said: "The implementation of the Real Time Information system has been encouraging overall though some small businesses are continuing to struggle. It is of concern that HMRC is planning from April 2014 to fine companies even though some face continuing challenges."

The committee has made a number of recommendations, including:

  • 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;
  • HMRC should be more willing to pursue prosecutions against individuals and large businesses to test the boundaries of the law and to demonstrate firm action against those who have knowingly misled or withheld information;
  • HMRC should analyse the information it has from its customers to help it understand the problems faced by smaller businesses struggling to adopt RTI, so that it can continue to provide them with effective support.

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