THOSE PROMOTING OR USING tax avoidance schemes should be “named and shamed” in order to discourage the practice, according to the chair of the Public Accounts Committee.
Following the publication of its report, Tax avoidance: tackling marketed avoidance schemes, committee chair and Labour MP Margaret Hodge (pictured) said “the die are [sic] loaded in favour of the promoters of tax avoidance schemes” who are “running rings around” HM Revenue & Customs.
The report noted avoidance cost public purse around £5bn in 2010/11, while it is estimated about £10.2bn is presently at risk.
The committee report warned that the taxman was losing the “game of cat and mouse” to clients and promoters of tax avoidance schemes as they deliberately take advantage of the time it takes HMRC to shut down a particular method.
In addition to publicising schemes that have been caught, HMRC should publicly name and shame those who use or sell avoidance schemes, the report said.
“Promoters of ‘boutique’ tax avoidance schemes…are running rings around HMRC,” Hodge said. “They create schemes which exploit loopholes in legislation or abuse available tax reliefs such as those intended to encourage investment in British films, and then sign up as many clients as possible, knowing that it will take time for HMRC to change the law and shut the scheme down.”
She added a “more robust approach was needed and that a “name and shame” system would “discourage such activity”.
“We have seen how public anger and consumer pressure can influence large companies, such as Starbucks, to behave more responsibly,” she said.
The taxman does have powers to publish details of deliberate tax defaulters, which were brought in during March 2010. For a tax dodger to be named, a lengthy set of criteria must be satisfied.
The Disclosure of Tax Avoidance Schemes (DOTAS) rule means promoters must notify the taxman of new schemes, leading to the prompt closure of many, according to the committee’s report.
However, it raised concerns that HMRC was unaware of how many are simply ignoring the requirement.
Hodge said: “We are also alarmed to hear that promoters are getting off paying fines for not disclosing their schemes by pleading that, in the opinion of a QC, they have a ‘reasonable excuse’ for non-disclosure.
“The number of cases HMRC takes to court is tiny compared to the overall caseload. It must make use of the additional resources it has been given to act much more urgently to investigate and close down new schemes and to bring more cases to court.”
Welcoming the report an HMRC spokesman said: “We are glad the report exposes the practices of promoters who sell tax avoidance schemes to wealthy individuals. In the last year alone the courts have ruled in HMRC’s favour in multiple tax avoidance cases where over £1bn has been protected.
“Additionally the government recently announced an extra £77m in HMRC funding to tackle evasion and aggressive avoidance; we have also already consulted on strengthening the regulations around these schemes; and, for the first time ever, this government is introducing a General Anti-Abuse Rule which will make it even harder for people to avoid paying their share of tax.”
There has been an increased focus on avoidance recently. Both the prime minister and the chancellor this week pledged further action against tax avoidance, while the G20 nations and the OECD are exploring greater international action in order to prevent multinational companies using double-taxation agreements and low-tax jurisdictions to drive down their tax bills.
Research also finds that 84% of businesses believe that the government has not provided enough information about digital tax plans
A total of £16bn was lost through tax fraud last year, according to estimates released by Pinsent Masons
Rosamond McDowell looks at key changes to inheritance tax policy, which apply from April this year
Additional tax a result of compliance investigations by HMRC, but overall revenue falls