NAO: Treasury and HMRC ‘lack framework’ for tax reliefs

NAO: Treasury and HMRC ‘lack framework’ for tax reliefs

NAO finds Treasury and HMRC do not adequately monitor effectiveness of tax reliefs

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.”

Share

Subscribe to get your daily business insights

Resources & Whitepapers

Why Professional Services Firms Should Ditch Folders and Embrace Metadata
Professional Services

Why Professional Services Firms Should Ditch Folders and Embrace Metadata

3y

Why Professional Services Firms Should Ditch Folde...

In the past decade, the professional services industry has transformed significantly. Digital disruptions, increased competition, and changing market ...

View resource
2 Vital keys to Remaining Competitive for Professional Services Firms

2 Vital keys to Remaining Competitive for Professional Services Firms

3y

2 Vital keys to Remaining Competitive for Professi...

In recent months, professional services firms are facing more pressure than ever to deliver value to clients. Often, clients look at the firms own inf...

View resource
Turn Accounts Payable into a value-engine
Accounting Firms

Turn Accounts Payable into a value-engine

3y

Turn Accounts Payable into a value-engine

In a world of instant results and automated workloads, the potential for AP to drive insights and transform results is enormous. But, if you’re still ...

View resource
Digital Links: A guide to MTD in 2021
Making Tax Digital

Digital Links: A guide to MTD in 2021

3y

Digital Links: A guide to MTD in 2021

The first phase of Making Tax Digital (MTD) saw the requirement for the digital submission of the VAT Return using compliant software. That’s now behi...

View resource