HM TREASURY AND HM REVENUE & CUSTOMS have failed to establish a framework or principles to adequately guide the administration of tax reliefs, according to a report from the National Audit Office.
The Exchequer department does not believe reliefs have administrative implications that differentiate them from other parts of the tax system, and defending the position that they do is proving costly to the public purse, the NAO said.
Some are structural parts of the tax system, or to ensure the correct calculation of profits. Other reliefs, sometimes described as ‘tax expenditures’, are designed to encourage a particular behaviour towards a social or economic policy objective.
But today’s report shows that the NAO has found the Treasury and HMRC have failed to identify which tax reliefs are intended to change behaviour in order to deliver targeted policy objectives. Moreover, they do not monitor or report on the costs and benefits of the reliefs, and as such the government and public at large cannot hold them to account.
HMRC detected large-scale abuse of share loss relief in 2006/07 but did not check the total amount of claims in 2006/07 or subsequent years to check whether there were other unexplained surges. In 2006/07, the cost of claims against income tax for share loss relief rose from £385m to £1.3bn in real terms. HMRC is investigating 80% of the 2006/07 claims by value (£964m).
HMRC has carried out only limited analysis to investigate why the cost of entrepreneurs’ relief has significantly outstripped its forecast, increasing over 500% from £500m in 2008/09, to an estimated £2.9bn in 2013/14 and whether the cost increase might be influenced by misuse of the relief.
Head of the NAO Amyas Morse said: “HM Treasury and HMRC do not keep track of tax reliefs intended to change behaviour, or adequately report to Parliament or the public on whether tax reliefs are expensive or work as expected.
“We found some examples where HMRC and HM Treasury proactively monitored and evaluated tax reliefs, but in general the Departments do not test whether their aims for the reliefs are being achieved. Until they monitor the use and impact of tax reliefs, and act promptly to analyse increases in their costs, HMRC and the Treasury’s administration of tax reliefs cannot be value for money.”
HMRC is continuing to ramp up the number of raids on premises it carries out as part of criminal investigations, searching 761 properties in the last year
The latest opinions from Accountancy Age on Making Tax Digital, and outline plans to evolve the UK's corporate governance regime
Five million taxpayers are ow using digital personal tax accounts (PTA) as part of the making tax digital strategy, HMRC said
Lord Howard Leigh of Hurley discusses the government’s initiatives to mitigate tax avoidance and evasion