NAO: HMRC in uphill battle against tax avoidance
Disclosures don't necessarily equate to hitting back at aggressive tax schemes, finds NAO
HM REVENUE & CUSTOMS is stretched in its fight against tax avoidance, according to the National Audit Office.
In a report entitled Tax avoidance: tackling marketed avoidance schemes, it recognises that while the disclosure of tax avoidance schemes (DOTAS) facility has helped HMRC to change tax law and prevent some types of avoidance activity, challenging a scheme is “a resource-intensive process which can take many years and often requires litigation”.
In each of the last four years, more than 100 avoidance schemes have been disclosed under DOTAS, and while HMRC believes most of that number would be defeated if tested in the courts, there is no evidence that their usage is reducing, the report said.
DOTAS was introduced in 2004 and sees tax mitigation schemes flagged up to HM Revenue & Customs, which then tags that scheme with an ID number indicating it is aware of it.
HMRC has identified about 30,000 users of ‘partnership loss’ schemes and disguised remuneration schemes and sought litigation against ‘lead cases’ to demonstrate to other users that the scheme will not succeed in the courts.
However, while it regularly wins in such cases, its investigations can take many years to resolve and it cannot always successfully apply the rulings from lead cases to other cases.
Concerns were also raised in the report that the taxman does not monitor its costs and has not yet identified how it will evaluate its effectiveness.
This, said the NAO, “limits its ability to make informed decisions about where to direct its avoidance activity”.
Amyas Morse, head of the NAO, said today: “HMRC must push harder to find an effective way to tackle the promoters and users of the most aggressive tax avoidance schemes. Though its disclosure regime has helped to change the market, it has had little impact on the persistent use of highly contrived schemes which deprives the public purse of billions of pounds.
“It is inherently difficult to stop tax avoidance as it is not illegal. But HMRC needs to demonstrate how it is going to reduce the 41,000 avoidance cases it currently has open.”