PAC queries HMRC’s management of reliefs and allowances

THE PROVISION of tax expenditures, via reliefs and allowances, by HM Revenue & Customs has been questioned by the Public Accounts Committee due to the perceived scope for discrepancies.

During the course of the current government, various tax breaks have been put in place in order to encourage certain behaviours and support burgeoning industries.

Most recently, tax reliefs similar to those afforded to the film industry were granted to the production of video games.

The European Commission conducted an investigation into a proposed 25% tax relief on a maximum of 80% of the production budget of a qualifying game announced as part of the chancellor’s Budget in March last year before granting approval.

Much of the debate was a semantic one, with the early exchanges around the definition of tax expenditures.

Currently the UK foregoes around £101bn in revenues annually due to the provision of tax reliefs, zero-rated items for VAT and allowances.

Of that sum, £37bn is accounted for by zero-rated VAT, HMRC chief executive Lin Homer (pictured) said, followed by £5bn also derived from reduced-rate VAT. Additionally, £34bn comes from relief on pension schemes and £10bn is exemptions on main homes, she said.

“We’ve tried to capture the widest range possible in this space,” Homer said of the figure.

“These things tend to merge into each other and are very much in the eye of the beholder. At the margin, it can merge with public spending, for example,” HM Treasury permanent secretary Sir Nicholas Macpherson told the committee.

One committee member Ian Swales queried the compatibility of reliefs with the work of the Office of Tax Simplification – something Homer sympathised with.

“There is a good deal more we can do to make tax simpler,” she said.

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