HMRC has come under severe criticism from the Public Accounts Committee over how it tackles tax fraud, which currently results in losses of £16bn a year to the UK tax payer.
Tackling tax fraud, the latest analysis of HMRC from the parliamentary committee, examines how the department is tackling tax fraud, how it controls the public’s perception on tax evasion, and suggests how the department can reduce the tax gap.
The Meg Hillier led report questions why the level of tax recovered from its compliance work increases, but the tax gap stays the same. In its latest Measuring Tax Gaps report, HMRC estimates that the tax gap stands at £34bn.
‘The rich can get away with tax fraud’
The Committee found that the department has failed to set out a clear strategy for dealing with tax fraud and concludes it does not know what meeting its target of 1,000 additional prosecutions has achieved, describing HMRC’s reporting of its own performance as “too confusing”.
The report comes two months after the committee grilled former HMRC chief Lin Homer on its handling of the £130m settlement it secured with Google over the search engine’s unpaid back taxes.
The PAC has also called on HMRC to address the perception that it does not tackle tax fraud by the wealthy, citing the HSBC Swiss scandal as a prime example.
“The failure to prosecute more than one individual from the Falciani list, HMRC having closed this case and the Financial Conduct Authority no longer taking further action, creates the impression that the rich can get away with tax fraud,” the report highlights.
The PAC also criticised HMRC’s prosecution of offshore tax evaders, an issue that has caused nationwide debate following the Panama Papers leak.
“We concluded in November 2015 that the number of criminal prosecutions for offshore tax evasion was still ‘woefully inadequate.’”
“HMRC told us that it needs to send the clear signal that anyone who evades tax runs the risk of prosecution,” continued the report, which went on to list its recommendations to the department on how it can clampdown on tax fraud.
‘Quite a big to-do list’
Speaking to Accountancy Age, Hillier expects HMRC to come up with a ‘clear strategy’ on tax fraud, with an emphasis on clarity.
“If you’re [HMRC] doing something that is tackling tax fraud you should know about that and do more about it.
Discussing the Panama Papers, Hillier said that the newly-assembled task force in charge of looking at the documents (which includes HMRC) will be able to take steps towards convicting tax fraud.
Hillier also revealed that on 13 June, HMRC leaders Edward Troup and Jon Thompson will be appearing before the PAC to discuss the Panama Papers.
“We’ve given them [Troupe and Thompson] quite a big to-do list in our report, but we hope they will be able to make several improvements [at HMRC] including tackling tax fraud and improving customer service.”
‘There must be seen to be consequences’
Among the recommendations was for HMRC to set out in its annual reports the relationship between its compliance yields and changes in the tax gap, but to do so in “a way that is accessible for everyone to understand.”
The committee has given HMRC until November 2016 to set out its strategy to tackle tax fraud, along with tackling the public perception that ‘people are getting away with tax evasion’.
Commenting within the report, Hillier explains that issues such as the Panama Papers exhibits how vital HMRC’s role in tackling tax fraud is.
“The public purse is missing out on some £16bn in tax a year because of evasion and other criminal activities. When people break the law, there must be consequences – and there must be seen to be consequences,” said Hillier.
“The release of the ‘Panama Papers’ underlines that there are wealthy people and companies who seek to keep their affairs secret,” continued the chair.
Following the departure of Lin Homer, HMRC is now under the leadership of executive chair Edward Troup and chief executive Jon Thompson. Hillier hopes that the managerial changes can spark a change in the way the department combats tax fraud.
“The Public Accounts Committee will expect the incoming regime to respond to the challenges and shortcomings we have highlighted with renewed vigour.”
A spokesperson for HMRC has responded to the report, claiming that HMRC “is one of the most effective tax collectors in the world”, collecting 93 pence of every pound due, adding that fewer countries have a smaller tax gap.
“HMRC is currently investigating 1,100 cases of offshore evasion, including 90 criminal cases, of which 29 cases are already in the court system, ensuring that no-one is beyond our reach,” continued the spokesperson.
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Meg Hillier will be speaking at Financial Director’s CFO Agenda on the 28 June at the Waldorf Hilton, where she joins a panel looking at tax avoidance and corporate tax planning.